Fundamentals of Cost Accounting 5e William Lanen Shannon
Anderson Michael Maher (Solutions Manual All Chapters, 100%
Original Verified, A+ Grade) All Chapters Solutions Manual
Supplement files download link at the end of this file.
1
Cost Accounting: Information for Decision
Making
Solutions to Review Questions
1-1.
Among the goals of an organization, a central one is to create and increase value. Cost
accounting systems are designed to provide information to decision makers in the
organization with the information they need to accomplish this goal. Therefore, the
designers of the cost accounting system need to understand how value is created in the
organization in order to design systems for their particular organization.
1-2.
Financial accounting is designed to provide information about the firm to external users.
External users include investors, creditors, government authorities, regulators,
customers, competitors, suppliers, labor unions, and so on. Cost accounting systems
are designed to provide information to internal users (managers).
This difference is important, because it affects the design of the systems. Financial
accounting systems are based on standards or rules. This allows the user to compare
the results of different firms. Managerial accounting systems do not require rules. Each
firm is free to develop managerial accounting systems that best serve the needs of the
decision makers (managers).
1-3.
B Providing cost information for financial reporting
A Identifying the best store in a chain
C Determining which plant to use for production
1-4.
The value chain is the set of activities that transforms raw resources into the goods and
services end users purchase and consume. The supply chain includes the set of firms
and individuals that sells goods and services to the firm. The distribution chain is the set
of firms and individuals that buys and distributes goods and services from the firm.
©The McGraw-Hill Companies, Inc., 2017
Solutions Manual, Chapter 1 1
,1-5.
The customers of cost accounting are managers, from plant managers to the CEO.
1-6.
Value-added activities are activities that customers perceive as adding utility to the
goods or services they purchase. Nonvalue-added activities do not add value to the
goods or services. By classifying costs this way, the cost accounting system can help
the manager identify areas (processes) that can be improved, lowering costs and
adding value to the organization.
1-7.
Answers will vary, but should include some of the following:
Title Major Responsibilities and Major Duties
Chief financial officer (CFO) ......... • Manages entire finance and accounting function
Treasurer...................................... • Manages liquid assets
• Conducts business with banks and other
financial institutions
• Oversees public issues of stock and debt
Controller...................................... • Plans and designs information and incentive
systems
Internal auditor ............................. • Ensures compliance with laws, regulations, and
company policies and procedures
• Provides consulting and auditing services within
the firm
Cost accountant ........................... • Records, measures, estimates, and analyzes
costs
• Works with financial and operational manager to
provide relevant information for decisions
1-8.
No. Sarbanes-Oxley is a law and violations of it are legal issues. Codes of ethics are
necessary to help accountants and managers identify situations that might develop into
ethical conflicts, understand what they could do in these situations, and to learn what to
do when they believe that an ethical violation has occurred.
©The McGraw-Hill Companies, Inc., 2017
2 Fundamentals of Cost Accounting
,Solutions to Critical Analysis and Discussion Questions
1-9.
We would not agree. The role of accountants is to help manage the organization. Part of
that role is to report results. Another part is to design systems that assist other
managers in making decisions to improve performance. This role requires that
accountants understand how value is created in their organizations.
1-10.
The calculation of cost depends on the decision being made. Therefore, the first
question to ask is, “What decision (or decisions) are you trying to make?”
1-11.
Costs that you could ask to be reimbursed might include the fuel, a share of the
maintenance costs, “wear and tear,” or depreciation, and insurance. To avoid
disagreements, it would be necessary to negotiate an agreement (even if only
informally) between you and your friend considering all factors. For example, you might
agree that she should pay for the gas and any other supplies (e.g., oil) needed on the
trip.
If you are going along, you might change the agreement so that you split these costs.
Alternatively, you might say that because you are going anyway, she can ride along for
nothing.
1-12.
Although it is not the “job” of accounting to determine strategy, accounting provides
important information to those who do determine strategy. If the cost accounting system
provides inaccurate information, the firm may end up with an unintended strategy,
because managers are making decisions based on faulty information.
1-13.
Executive performance evaluation systems are designed for a specific company’s
needs. The systems should be flexible to adapt to the circumstances that exist in that
company. A common set of accounting principles would tend to reduce flexibility and
usefulness of these systems. As long as all parties know the accounting basis used by
the system, the exact rules can be designed in whatever manner the parties deem
appropriate.
©The McGraw-Hill Companies, Inc., 2017
Solutions Manual, Chapter 1 3
, 1-14.
Although not-for-profit organizations are not seeking to make a profit, they must remain
financially viable to accomplish their missions. Cost accounting information can help
managers of not-for-profit organizations by highlighting the costs of various activities,
identifying sources of revenue, and measuring performance of managers. In terms of
organizational survival, cost accounting information can be just as (or more) important
for a not-for-profit as for a for-profit firm.
1-15.
Airlines are characterized by the need to own a substantial amount of capacity costs.
Managers at airlines require very sophisticated load management information that
predicts the number of passengers flying on a particular route on a particular day. If
they set a single price that would cover their costs given a certain number of
passengers, they risk flying with empty seats. Once the plane takes off, they cannot sell
the seat. Therefore, they need a flexible pricing system. Such a system requires
detailed cost information about passengers and aircraft.
The costs are unlikely to be much different among passengers. The variable costs are
relatively low (per passenger) and may include food and beverage, some baggage
handling cost, some ticket processing costs, and, depending on the plane, a (very)
small amount of fuel.
1-16.
The cost accounting issues for Nabisco are the same as for Carmen’s Cookies in the
sense that managers at Nabisco want the same kind of information as Carmen: what
are the costs of cookies, who is performing the best, and so on.
The cost accounting issues are different in the size and complexity of the operations at
Nabisco compared to Carmen’s Cookies.
1-17.
In decision-making, managers or supervisors may wish to take actions that they believe
will increase the firm’s value that are difficult to justify given available information. Often,
these situations arise when managers are using their intuition and their experience to
identify new business opportunities and cannot point to data that support their views.
For example, a marketing manager might view investment in a new advertising
campaign as necessary for remaining competitive even though it appears to increase
costs. Because the accountant does not have expertise in this area, she cannot verify
the information the marketing manager is using.
In a few cases, however, a marketing manager may wish to pursue a project because of
personal reasons (for example, because he was the champion of the product), and
hopes to have an economic analysis to justify additional advertising support. In these
situations, care must be taken to ascertain the economic merits of the plan, and, if the
plan cannot be justified on economic grounds, the manager must make the case for the
project on another basis.
©The McGraw-Hill Companies, Inc., 2017
4 Fundamentals of Cost Accounting
