© The McGraw-Hill Companies, Inc., 2006.Solutions Manual, Chapter 1 1 Chapter 1 Managerial Accounting and the Business Environment Solutions to Questions 1-1 Managerial accounting is concerned with providing information to managers for use within the organization. Financial accounting is con- cerned with providing information to stockholders, creditors, and others outside of the organization.1-2 Essentially, managers carry out three ma-
jor activities in an organization: planning, directing
and motivating, and controlling. All three activities involve decision making.1-3 The Planning and Control Cycle involves formulating plans, implementing plans, measuring performance, and evaluating differences between planned and actual performance.1-4 A line position is directly related to the achievement of the basic objectives of the organi- zation. A staff position is not directly related to the achievement of those objectives; rather, it is sup- portive, providing services and assistance to other parts of the organization.1-5 In contrast to financial accounting, mana-
gerial accounting: (1) focuses on the needs of the
manager; (2) places more emphasis on the future; (3) emphasizes relevance and flexibility, rather than precision; (4) emphasizes the segments of an organization; (5) is not governed by GAAP; and (6) is not mandatory.1-6 A number of benefits accrue from reduced setup time. First, reduced setup time allows a company to produce in smaller batches, which in turn reduces the level of inventories. Second, re- duced setup time allows a company to spend more time producing goods and less time getting ready to produce. Third, the ability to rapidly change from making one product to making another al- lows the company to respond more quickly to cus- tomers. Finally, smaller batches make it easier to spot manufacturing problems before they result in a large number of defective units.1-7 The main benefits of a successful JIT sys-
tem are reductions in: (1) funds tied up in inven-
tories; (2) space requirements; (3) throughput time; and (4) defects.1-8 TQM generally approaches improvement in a series of small steps that are planned and im- plemented by teams of front-line workers. Process Reengineering involves completely redesigning business processes from the ground up—often with the use of outside consultants.1-9 If Process Reengineering is successful, fewer workers are needed. If management re- sponds by laying off workers, morale will almost certain suffer.1-10 Some benefits from improvement efforts come from cost reductions, but the primary bene- fit is often an increase in capacity. At non-con- straints, increases in capacity just add to the al- ready-existing excess capacity. Therefore, im- provement efforts should ordinarily focus on the constraint.1-11 If people generally did not act ethically in business, no one would trust anyone else and people would be reluctant to enter into business transactions. The result would be less funds raised in capital markets, fewer goods and services avail- able for sale, lower quality, and higher prices.
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© The McGraw-Hill Companies, Inc., 2006. All rights reserved.
- Managerial Accounting, 11th Edition
- Line
- Directing and motivating
- Budgets
- Planning
- Staff
- Decentralization
- Precision; Nonmonetary data
- Managerial accounting; Financial accounting
- Feedback
- Controller
- Performance report
- Chief Financial Officer
Exercise 1-1 (10 minutes)
Uploaded by Mudassar Hassan 2 / 4
© The McGraw-Hill Companies, Inc., 2006. All rights reserved.Solutions Manual, Chapter 1 3 Exercise 1-2 (10 minutes)
- Total quality management; Process reengineering
- Just-In-Time
- Nonconstraint
- Benchmarking
- Setup
- Constraint
- Non-value-added activities
- Business process 3 / 4
© The McGraw-Hill Companies, Inc., 2006. All rights reserved.
- Managerial Accounting, 11th Edition
Exercise 1-3 (15 minutes) If cashiers routinely shortchanged customers whenever the opportunity presented itself, most of us would be careful to count our change before leaving the counter. Imagine what effect this would have on the line at your favorite fast-food restaurant. How would you like to wait in line while each and every customer laboriously counts out his or her change? Addi- tionally, if you can’t trust the cashiers to give honest change, can you trust the cooks to take the time to follow health precautions such as washing their hands? If you can’t trust anyone at the restaurant would you even want to eat out?
Generally, when we buy goods and services in the free market, we assume we are buying from people who have a certain level of ethical standards. If we could not trust people to maintain those standards, we would be reluc- tant to buy. The net result of widespread dishonesty would be a shrunken economy with a lower growth rate and fewer goods and services for sale at a lower overall level of quality.Uploaded by Mudassar Hassan
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