Solution manual managerial accounting by cabrera 2010 chapter 02 answer

MANAGEMENT ACCOUNTING (VOLUME I) - Solutions Manual

CHAPTER 2
MANAGEMENT ACCOUNTING
AND THE BUSINESS ENVIRONMENT
I.

Questions
1. Managerial accounting information often brings to the attention of
managers important issues that need their managerial experience and
skills. In many cases, managerial-accounting information will not
answer the question or solve the problem, but rather make management
aware that the issue or problem exists. In this sense, managerial
accounting sometimes is said to serve an attention-directing role.
2. Non-value-added costs are the costs of activities that can be eliminated
with no deterioration of product quality, performance, or perceived
value.
3. Managers rely on many information systems in addition to managerialaccounting information. Examples of other information systems
include economic analysis and forecasting, marketing research, legal
research and analysis, and technical information provided by engineers
and production specialists.
4. Becoming the low-cost producer in an industry requires a clear
understanding by management of the costs incurred in its production
process. Reports and analysis of these costs are a primary function of
managerial accounting.
5. Some activities in the value chain of a manufacturer of cotton shirts are
as follows:
(a) Growing and harvesting cotton
(b) Transporting raw materials
(c) Designing shirts
(d) Weaving cotton material

(e) Manufacturing shirts
(f) Transporting shirts to retailers
(g) Advertising cotton shirts
Some activities in the value chain of an airline are as follows:
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Chapter 2 Management Accounting and the Business Environment

(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)

Making reservations and ticketing
Designing the route network
Scheduling
Purchasing aircraft
Maintaining aircraft
Running airport operations, including handling baggage
Serving food and beverages in flight
Flying passengers and cargo

6. Strategic cost management is the process of understanding and
managing, to the organization’s advantage, the cost relationships
among the activities in an organization’s value chain.

7. If customers who provide a company with the most profits are
attracted, satisfied, and retained, profits will increase as a result.
8. A value chain is a sequence of business functions whose objective is to
provide a product to a customer or provide an intermediate good or
service in a larger value chain. These business functions include R&D,
design, production, marketing, distribution, and customer service.
An organization can become more effective by focusing on whether
each link in the chain adds value from the customer’s perspective and
furthers the organization’s objectives.
9. Cost:
Quality:

Organizations are under continuous pressure to reduce the
cost of the products or services they sell to their customers.
Customers are expecting higher levels of quality and are
less tolerant of low quality than in the past.

Time:

Time has many components: the time taken to develop and
bring new products to market; the speed at which an
organization responds to customer requests; and the
reliability with which promised delivery dates are met.
Organizations are under pressure to complete activities
faster and to meet promised delivery dates more reliably
than in the past in order to increase customer satisfaction.
Innovation: There is now heightened recognition that a continuing flow
of innovative products or services is a prerequisite for the
ongoing success of most organizations.

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Management Accounting and the Business Environment Chapter 2

10. Managers make planning decisions and control decisions. Planning
decisions include deciding on organization goals, predicting results
under various alternative ways of achieving those goals, and then
deciding how to attain the desired goals. Control decisions include
taking actions to implement the planning decisions and deciding on
performance evaluation and feedback that will help future decision
making.
11. Four themes for managers to attain success are customer focus, valuechain and supply-chain analysis, key success factors, and continuous
improvement and benchmarking.
12. Companies add value through R&D; design of products, services, or
processes; production; marketing; distribution; and customer service.
Managers in all business functions of the value chain are customers of
management accounting information.
13. This phrase means that people will direct their attention to work
primarily on those tasks that management monitors and measures.
Employees may not pay as much attention (or no attention) to tasks
that are not measured. Often management will reward people based on
how well they perform relative to a specific measure. As an example,
in a manufacturing organization, if people are measured and rewarded
based on the number of outputs per hour, regardless of quality,
employees will focus their attention on producing as many units of
output as possible. A negative consequence is that the quality of output
may suffer.
14. Some of these new measures are quality, speed to market, cycle time,
flexibility, complexity and productivity.

15. Customer satisfaction is often thought to be a qualitative measure of
performance as one cannot directly observe “satisfaction.” However,
using attitude surveys and psychological measurements, customer
satisfaction can be measured in quantitative terms. For instance,
people who design surveys often employ attitude scales that ask
questions in which customers respond on a 1 to 5 scale. These values
can be summed and averaged to determine satisfaction scores.
16.

Stakeholders

Contribution

Requirements

Employees

Effort, skills,

Rewards, interesting

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Chapter 2 Management Accounting and the Business Environment

information

jobs, economic
security, proper

treatment

Partners

Goods, services,
information

Financial rewards
commensurate with
the risk taken

Owners

Capital

Financial rewards

Community

Allows the
organization to
operate and does not
oppose its operation

Conformance to laws,
good corporate
citizenship and,
perhaps, leadership

17. Competitive benchmarking is an organization’s search for, and

implementation of, the best way to do something as practiced in other
organizations.
Continuous improvement is the relentless search to (1) document,
understand, and improve the activities that the organization undertakes
to meet its customers’ requirement, (2) eliminate processing activities
that do not add product features that customers value, and (3) improve
the performance of activities that increase customer value or
satisfaction.
18. A value-added activity is an activity that, if eliminated, would reduce
the product’s service to the customer in the long run.
An activity that cannot be classified as value-added is a nonvalueadded activity:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.

Value-added
Nonvalue-added
Nonvalue-added
Value-added
Nonvalue-added
Nonvalue-added
Value-added
Value-added

Nonvalue-added
Value-added

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Management Accounting and the Business Environment Chapter 2

19. Just-in-time means making a good or service only when the customer,
internal or external, requires it. Just-in-time requires a product layout
with a continuous flow (no delays) once production starts. It means
that setup costs must be reduced substantially to eliminate the need to
produce in batches, and it means that processing systems must be
reliable. Just-in-time production is based on the elimination of all
nonvalue-added activities to reduce cost and time. It is an approach to
improvement that is continuous and involves employee empowerment
and involvement.
II. Multiple Choice Questions
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

B

A
D
A
D
A
C
B
D
B

11.
12.
13.
14.
15.
16.
17.
18.
19.
20.

A
B
C
D
A
A
B
C
B

A

21. B
22. C
23. C

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