Solution Manual for Managerial Accounting for Managerial

8/12/2019 Solution Manual for Managerial Accounting for Managerial

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Chapter 01 - Managerial Accounting and the Business Environment

Chapter 1Managerial Accountingand the BusinessEnvironment

Solutions to Questions

1-1 A strategy is a game plan thatenables a company to attract customersby distinguishing itself from competitors.

The focal point of a companys strategyshould be its target customers.

1-2 Customer value propositions fallinto three broad categoriescustomerintimacy, operational excellence, andproduct leadership. A company with acustomer intimacy strategy attempts tobetter understand and respond to itscustomers individual needs than itscompetitors. A company that adopts anoperational excellence strategy attemptsto deliver products faster, more

conveniently, and at a lower price than itscompetitors. A company that has aproduct leadership strategy attempts tooer higher uality products than itscompetitors.

1-3 A person in a line position isdirectly involved in achieving the basicob!ectives of the organi"ation. A person ina sta position provides services andassistance to other parts of theorgani"ation, but is not directly involved in

achieving the basic ob!ectives of theorgani"ation.

1-4 The Chief #inancial $%cer isresponsible for providing timely andrelevant data to support planning andcontrol activities and for preparing&nancial statements for external users.

1-5 The three main categories ofinventories in a manufacturing companyare raw materials, wor' in process, and

&nished goods.

1- The &ve steps in the lean thin'ingmodel are( )*+ identify value in speci&cproducts and services )-+ identify thebusiness process that delivers value )+organi"e wor' arrangements around the/ow of the business process )0+ create apull system that responds to customerorders and )1+ continuously pursueperfection in the business process.

1-! 2uccessful implementation of the

lean thin'ing model should result in lowerinventories, fewer defects, less wastedeort, and uic'er customer responsetimes.

1-" 3n a pull production system,production is not initiated until a customerorder is received. 3nventories are reducedto a minimum by purchasing raw materialsand producing products only as needed tomeet customer demand.

1-# 2ome bene&ts from improvementeorts come from cost reductions, but theprimary bene&t is often an increase incapacity. At non4constraints, increases incapacity !ust add to the already4existingexcess capacity. Therefore, improvementeorts should ordinarily focus on theconstraint.

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1-1$ 2ix 2igma is a processimprovement method that relies oncustomer feedbac' and fact4based datagathering and analysis techniues to driveprocess improvement. The goal is toreduce defect rates below .0 defects per

million.

5 The 6c7raw48ill Companies, 3nc., -9**

- 6anagerial Accounting for 6anagers, -nd :dition


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1-11 The &ve stages in the 2ix 2igma;6A3C #ramewor' are )*+ ;e&ne )-+6easure )+ Analy"e )0+ 3mprove and )1+Control. The goals for the de&ne stage areto establish the scope and purpose of thepro!ect, to diagram the /ow of the current

process, and to establish the customersreuirements for the process. The goalsfor the measure stage are to gatherbaseline performance data related to theexisting process and to narrow the scopeof the pro!ect to the most importantproblems. The goal in the analy"e stage isto identify the root causes of the problemsidenti&ed in the measure stage. The goalin the improve stage is to develop,evaluate, and implement solutions to theproblems. The goals in the control stageare to ensure the problems remain &xed

and to see' to improve the new methodsover time.

1-12 3f people generally did not actethically in business, no one would trustanyone else and people would bereluctant to enter into businesstransactions. The result would be lessfunds raised in capital mar'ets, fewergoods and services available for sale,lower uality, and higher prices.

1-13 Corporate governance is thesystem by which a company is directedand controlled. 3f properly implemented,the corporate governance system shouldprovide incentives for the board ofdirectors and top management to pursue

ob!ectives that are in the best interests ofthe companys owners and it shouldprovide for eective monitoring ofperformance.

1-14 :nterprise ris' management is aprocess used by a company to proactivelyidentify the ris's that it faces and tomanage those ris's.

1-15 The sta'eholder groups includecustomers, suppliers, stoc'holders,employees, communities, and

environmental and human rightsadvocates.

5The 6c7raw48ill Companies, 3nc., -9**

2olutions 6anual, Chapter *


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E%ercise 1-2)-9 minutes+

*.strategy

-.

2ix 2igma.

business process0.

corporate governance1.

enterprise ris' management=.

manufacturing cell

>. sta'eholders?.

constraint@.

nonconstraint*9. value chain**. Corporate social responsibility*-. supply chain management*. lean thin'ing model pulls

*0. customer value proposition*1. The 2arbanes4$xley Act of -99-*=. non4value4added activity*>. Theory of Constraints

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E%ercise 1-3)*1 minutes+

3f cashiers routinely shortchanged customers whenever theopportunity presented itself, most of us would be careful to countour change before leaving the counter. 3magine what eect this

would have on the line at your favorite fast4food restaurant. 8owwould you li'e to wait in line while each and every customerlaboriously counts out his or her change Additionally, if you canttrust the cashiers to give honest change, can you trust the coo'sto ta'e the time to follow health precautions such as washingtheir hands 3f you cant trust anyone at the restaurant would youeven want to eat out

7enerally, when we buy goods and services in the free mar'et,we assume we are buying from people who have a certain level of

ethical standards. 3f we could not trust people to maintain thosestandards, we would be reluctant to buy. The net result ofwidespread dishonesty would be a shrun'en economy with alower growth rate and fewer goods and services for sale at alower overall level of uality.

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&ro'lem 1-4)-9 minutes+

*. #ailure to report the obsolete nature of the inventory wouldviolate the 36As 2tatement of :thical Brofessional Bractice asfollows(

Competence

Berform duties in accordance with relevant technicalstandards. 7enerally accepted accounting principles )7AAB+reuire the write4down of obsolete inventory.

Brepare decision support information that is accurate.

(ntegrit)

6itigate actual con/icts of interest and avoid apparentcon/icts of interest.

Defrain from engaging in any conduct that would pre!udicecarrying out duties ethically.

Abstain from activities that would discredit the profession.

6embers of the management team, of which Berlman is a part,are responsible for both operations and recording the results ofoperations. Eecause the team will bene&t from a bonus,

increasing earnings by ignoring the obsolete inventory isclearly a con/ict of interest. #urthermore, such behavior is adiscredit to the profession.

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&ro'lem 1-5)9 minutes+

*. 2ee the organi"ation chart on the following page.

-.


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&ro'lem 1-5)continued+

*. $rgani"ation chart(

5 The 6c7raw48ill Companies, 3nc., -99=. All rights reserved.

*9 6anagerial Accounting for 6anagers, **th :dition

Bresident

AcademicHice

Bresident

HiceBresident,Auxiliary2ervices

HiceBresident,AdmissionsI Decords

HiceBresident,#inancial2ervices

)Controller+

HiceBresident,Bhysical

Blant

;ean,Eusiness

;ean,8umanities

;ean,#ine Arts

;ean,:ngineering

IJuantitative

;ean,


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&ro'lem 1-)9 minutes+

*. Ko, Charlie would not be !usti&ed in ignoring the situation. #irst,the 2tatement of :thical Brofessional Bractice states that themanagement accountant must LDegularly communicate with

business associates to avoid apparent con/icts of interest.Advise all parties of any potential con/icts.M 3f N.E. insists oncontinuing the relationship with A4*, Charlie has a responsibilityto advise both the corporate counsel and O3Os Eoard of;irectors.

2econd, as the companys controller, Charlie has aresponsibility to ensure that the N3T approach is properlyimplemented. #rom the data given in the problem, it does notappear that A4* Oarehouse 2ales is the best or most

dependable supplier available. $rders are late and notcomplete, and there is no way to ensure proper uality becausenearly all orders are shipped directly from the manufacturer.

The present arrangement with A4* negates most of the bene&tsthat can accruefrom N3T.

-. Charlies &rst step should be to verify the accuracy of hisinformation. 8e states that A4*s mar'up is 9P, but he doesnot indicate how he obtained this &gure. Also, the adverse

&nancial impact on O3O is dependent in part on the price itwould have to pay directly to the manufacturers as comparedto the price being paid to A4*. That is, can O3O purchasedirectly from the manufacturers for the same price as given to

!obbers, who handle huge volumes of goods 3f not, then theadverse &nancial impact of buying through A4* may, in fact, bevery small because O3O may have to pay about the same priceeither way.

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Charlies second step should be to discuss the potential legalrami&cations on a con&dential basis with O3Os corporatecounsel. Eefore meeting with the corporate counsel, Charliemay wish to discretely determine if Tony, the purchasing agent,and N.E., the president, wor'ed together in their prioremployment. )Demember that both have been with O3O for&ve years.+ Armed with the information obtained from thediscussion with counsel, Charlie should review the situationagain with N.E., explaining more directly his concerns about theapparent con/ict of interest and as' that the Eoard of ;irectorsapprove the continued use of A4* as a supplier.

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&ro'lem 1-!)-9 minutes+

*. 3f all automotive service shops routinely tried to sell parts andservices to customers that they didnt really need, mostcustomers would eventually &gure this out. They would then be

reluctant to accept the word of the service representative thata particular problem needs to be correctedeven when a realproblem exists. :ither the wor' would not be done, orcustomers would learn to diagnose and repair problemsthemselves, or customers would hire an independent expert toverify that the wor' is really needed. All three of thesealternatives impose costs and hassles on customers.

-. As argued above, if customers could not trust their service

representatives, they would be reluctant to follow the servicerepresentatives advice. They would be inclined not toauthori"e wor' even when it is really necessary. And, morecustomers would learn to do automotive repairs andmaintenance themselves. 6oreover, customers would beunwilling to pay as much for wor' that is done becausecustomers would have reason to believe that the wor' may beunnecessary. These two eects would reduce demand forautomotive repair services. The reduced demand would reduceemployment in the industry and would lead to lower overall

pro&ts.

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&ro'lem 1-" )9 minutes+

*.


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Third, Nohnson might have di%culty in understanding thenature of his position and !ob. Nohnson might also &nd it di%cultto distinguish between his sta capacity and line capacity. #orinstance, Nohnson might have di%culty in remaining ob!ective ifany production problems develop in the alloys he tested.

)Fno%cial C6A 2olution, adapted+

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*esearch and Application 1-#

*. Ohole #oods 6ar'et succeeds &rst and foremost because of itsproduct leadership customer value proposition. The &rstboldface heading in the companys ;eclaration of

3nterdependence says LOe 2ell the 8ighest Juality Katural and$rganic Broducts Available.M Bage 0 of the *94QGA indicates thatthe real source of the companys product leadership positioncenters on perishable products )e.g., produce, dairy, meat,seafood, ba'ery, and prepared foods+. Berishable product salesaccount for about =>P of total retail sales. Customers chooseOhole #oods 6ar'et primarily because they are able to buybetter natural and organic foods and higher4uality perishableproducts than in conventional supermar'ets.

Customer service is also an important part of Ohole #oods6ar'ets success, but it is secondary in importance to productuality.

-. Ohole #oods 6ar'et faces numerous business ris's asdescribed in pages **4*1 of the *94QGA. 8ere are four of themore prominent ris's with suggested control activities(

Dis'( Customers will defect to conventional supermar'ets that

are beginning to stoc' more natural and organic foods. Controlactivities( Ohole #oods 6ar'et can expand its selection ofproduct oerings, particularly perishables, and continue toinvest heavily in employee training and retention so that itoers mar'et4leading levels of informed customer service.

Dis'( 7rowth targets will not be reali"ed due to failed new store

openings. Control activities( 3mplement formal reviews of thesight selection, construction, and new employee hiring andtraining processes.

Dis'( Adverse economic conditions could reduce consumer

spending at retail locations. Control activities( Continue todevelop private label product categories, such as the =1:veryday Halue category mentioned on page ? of the *94QGA,which are less expensive but meet rigorous uality standards.

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*esearch and Application 1-# )continued+

Dis'( :xtended power outages could cause severe inventory

losses because of the companys emphasis on perishableproducts. Control activities( 3mplement a contingency plan thatspeci&es responses in the event of a power outage.

. There are no absolute right and wrong answers to this uestionbecause the information available in the annual report ispiecemeal. Konetheless, students could ma'e the followingobservations based on available information. #irst, the C:$)Nohn B. 6ac'ey+ has a layer of senior managers that report tohim including two Co4BresidentsGChief $perating $%cers, andthree :xecutive Hice Bresidents. 2econd, there are ten Degional

Bresidents. 3n the organi"ation chart shown below, we assumethat the Degional Bresidents report to the Chief $perating$%cers. Third, each Degional Bresident has a layer ofmanagement that reports to him or her. #or example, the7lobal All42tars include ;avid 2chwart", who is the HiceBresident of the 6idwest Degion. 8e would report to theBresident of the 6idwest Degion. Nohn 2imrell is the ;irector of#inance for the 2outh Degion and he would report to the 2outhDegion Bresident. Dobin 7raf is the Team 6ember 2ervices

;irector for the 2outhern Baci&c Degion. 2he would report tothe Bresident of the 2outhern Baci&c Degion.

#ourth, each region has a managerGcoordinator for eachproduct category. #or example, Theo Oeening is the 6eatCategory 6anager for the 6id4Atlantic Degion and Eobby Turneris the Ea'ery Coordinator for the 6idwest Degion. 3n theorgani"ation chart shown below, we assume that these regionalmanagersGcoordinators report to a Hice4Bresident at theregional level. #ifth, each region has 2tore Team


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Eased on insights such as these, students should be able toprepare an organi"ation chart that resembles the one shown atthe end of this solution.

The 7lobal All42tars include numerous line and sta employees.Three sta employees are Doberta


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1. Ohole #oods 6ar'ets mission statement diers from its Codeof Conduct and :thics in three important respects. #irst, themission statement sets forth goals that the company strives to

achieve. The tone of the document is positive because itfocuses on goals the company hopes to achieve. The Code ofConduct and :thics de&nes prohibited conduct. The tone of thedocument is appropriately negative because it describes thosebehaviors that are Lout of bounds.M

2econd, the mission statement refers to a broader set ofsta'eholders )e.g., suppliers, customers, and communities+than the Code of Conduct and :thics, which pertains primarilyto Ohole #oods 6ar'et Team 6embers and ;irectors. Third, the

mission statement is values4based. 3t re/ects a vision of whatthe company stands for. The Code of Conduct and :thics isrule4based. The ma!ority of the code is based on the rules ofgoverning bodies such as the 2ecurities and :xchangeCommission )2:C+, the Kasda stoc' exchange, and the#inancial Accounting 2tandards Eoard )#A2E+.

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1-!1

Chairman I C:$

:xecutive HB IC#$

:xecutiveHB of

7rowth and

Co4Bresidents I

C$$s

:xecutiveHB of 7lobal

2upport

Bresident,

2outh

Bresident,

6idwest

Bresident,

#lorida

Bresidents,

$ther

BroduceCoordinator #lorida

Degion

6eatCoordinator #loridaDegion

Ea'eryCoordinator #lorida

Degion

OholeEodyCoordinator U #lorida

;irector of#inance #lorida

Degion

Hice4Bresident)s+

#lorida

;irector of Team6ember

2ervices

2tore Team

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Solution Manual for Managerial Accounting for Managerial