Test bank cost and management accounting 4e by barfield ch01

CHAPTER 1
INTRODUCTION TO COST AND MANAGEMENT
ACCOUNTING IN A GLOBAL BUSINESS ENVIRONMENT
MULTIPLE CHOICE
1.

In comparing financial and management accounting, which of the following more
accurately describes management accounting information?
a.
b.
c.
d.

historical, precise, useful
required, estimated, internal
budgeted, informative, adaptable
comparable, verifiable, monetary

ANSWER:
2.

EASY

Management and financial accounting are used for which of the following purposes?
a.
b.
c.
d.

Management accounting
internal

external
internal
external

ANSWER:
3.

c

a

Financial accounting
external
internal
internal
external

EASY

One major difference between financial and management accounting is that
a.
b.
c.
d.

financial accounting reports are prepared primarily for users external to the
company.
management accounting is not under the jurisdiction of the Securities and
Exchange Commission.
government regulations do not apply to management accounting.

all of the above are true.

ANSWER:

d

EASY

1–1


1–2
Environment

4.

Chapter 1

Which of the following statements about management or financial accounting is false?
a.
b.
c.
d.

Financial accounting must follow GAAP.
Management accounting is not subject to regulatory reporting standards.
Both management and financial accounting are subject to mandatory
recordkeeping requirements.
Management accounting should be flexible.

ANSWER:
5.

EASY

is more concerned with the future than is financial accounting.
is less concerned with segments of a company than is financial accounting.
is more constrained by rules and regulations than is financial accounting.
all of the above are true.

ANSWER:

a

EASY

Modern management accounting can be characterized by its
a.
b.
c.
d.

flexibility.
standardization.
complexity.
precision.

ANSWER:
7.

c

Management accounting
a.
b.
c.
d.

6.

Introduction to Cost and Management Accounting In A Global Business

a

EASY

To meet decision-making needs, the process of gathering and analyzing information
about a company and its competitive environment is known as
a.
b.
c.
d.

business process reengineering.
process elimination.
business intelligence.
planning.

ANSWER:

c

MEDIUM


Chapter 1

8.

Introduction to Cost and Management Accounting In A Global Business Environment
1–3

In a global economy,
a.
b.
c.
d.

the trade of goods and services is focused on trade between or among countries
on the same continent.
the international movement of labor is prohibited except for multilingual
persons.
the international flows of capital and information are common.
all of the above happen in a global economy.

ANSWER:
9.

Racketeer Influenced and Corrupt Organizations Act
Foreign Illegal Activities Act

Foreign Corrupt Practices Act
Federal Bribery and Corrupt Practices Act

ANSWER:

c

EASY

Which of the following is not a valid method for determining product cost?
a.
b.
c.
d.

arbitrary assignment
direct measurement
systematic allocation
cost-benefit measurement

ANSWER:
11.

EASY

Which of the following U.S. legislation relates to bribes being offered to foreign
officials?
a.
b.
c.

d.

10.

c

d

MEDIUM

Broadly speaking, cost accounting can be defined as a(n)
a.
b.
c.
d.

external reporting system that is based on activity-based costs.
system used for providing the government and creditors with information about a
company’s internal operations.
internal reporting system that provides product costing and other information
used by managers in performing their functions.
internal reporting system needed by manufacturers to be in compliance with
Cost Accounting Standards Board pronouncements.

ANSWER:

c

EASY

1–4
Environment

12.

Chapter 1

Cost accounting is directed toward the needs of
a.
b.
c.
d.

regulatory agencies.
external users.
internal users.
stockholders.

ANSWER:
13.

b.
c.
d.

EASY

are legal standards set by the Institute of Management Accountants for use in all
manufacturing and professional businesses.

are set by the Cost Accounting Standards Board and are legally binding on all
manufacturers, but not service organizations.
do not exist except for those legal pronouncements for companies bidding or
pricing cost-related contracts with the government.
are developed by the Cost Accounting Standards Board, issued by the Institute of
Management Accountants, and are legally binding on CMAs.

ANSWER:

c

MEDIUM

Cost accounting is necessitated by
a.
b.
c.
d.

the high degree of conversion found in certain businesses.
regulatory requirements for manufacturing companies.
management’s need to be aware of all production activities.
management’s need for information to be used for planning and controlling
activities.

ANSWER:
15.

c

Cost accounting standards
a.

14.

Introduction to Cost and Management Accounting In A Global Business

a

MEDIUM

The process of ___________ causes the need for cost accounting.
a.
b.
c.
d.

conversion
sales
controlling
allocating

ANSWER:

a

EASY


Chapter 1

16.

Introduction to Cost and Management Accounting In A Global Business Environment
1–5

Financial accounting
a.
b.
c.
d.

is primarily concerned with internal reporting.
is more concerned with verifiable, historical information than is cost accounting.
focuses on the parts of the organization rather than the whole.
is specifically directed at management decision-making needs.

ANSWER:
17.

preparing budgets.
determining product cost.
providing managers with information necessary for control purposes.
determining performance standards.

ANSWER:

b

EASY

Which of the following topics is of more concern to management accounting than to
cost accounting?
a.
b.
c.
d.

generally accepted accounting principles
inventory valuation
cost of goods sold valuation
impact of economic conditions on company operations

ANSWER:
19.

EASY

Financial accounting and cost accounting are both highly concerned with
a.
b.
c.
d.

18.

b

d

MEDIUM

Cost and management accounting
a.
b.
c.
d.

require an entirely separate group of accounts than financial accounting uses.
focus solely on determining how much it costs to manufacture a product or
provide a service.
provide product/service cost information as well as information for internal
decision making.
are required for business recordkeeping as are financial and tax accounting.

ANSWER:

c

EASY


1–6
Environment

20.

Chapter 1

The Institute of Management Accountants issues

a.
b.
c.
d.

Statements on Accounting Research for Managers.
Statements on Management Accounting.
Statements on Managerial and Cost Accounting.
Cost Accounting Standards.

ANSWER:
21.

b

EASY

The organization whose primary function is to provide a means to share information
among cost and management accountants in the United States is the
a.
b.
c.
d.

Internal Revenue Service.
American Institute of CPAs.
Institute of Management Accountants.
Institute of Certified Management Accountants.

ANSWER:

c

EASY

The ethical standards established for management accountants are in the areas of
a.
b.
c.
d.

competence, licensing, reporting, and education.
budgeting, cost allocation, product costing, and insider trading.
competence, confidentiality, integrity, and objectivity.
disclosure, communication, decision making, and planning.

ANSWER:
24.

EASY

is a legally enforceable contract with all management accountants.
should be viewed as a goal for professional behavior.
is a legally enforceable contract with all CPAs.
provides ways to measure departures from ethical behavior.

ANSWER:

23.

b

The Institute of Management Accountants’ Code of Ethics
a.
b.
c.
d.

22.

Introduction to Cost and Management Accounting In A Global Business

c

MEDIUM

Which of the following statements is true?
a.
b.
c.
d.

Management accounting is a subset of cost accounting.
Cost accounting is a subset of both management and financial accounting.
Management accounting is a subset of both cost and financial accounting.
Financial accounting is a subset of cost accounting.

ANSWER:

b

MEDIUM


Chapter 1

25.

Introduction to Cost and Management Accounting In A Global Business Environment
1–7

Which of the following statements is false?
a.
b.
c.
d.

A primary purpose of cost accounting is to determine valuations needed for
external financial statements.
A primary purpose of management accounting is to provide information to
managers for use in planning, controlling, and decision making.
The act of converting production inputs into finished products or services
necessitates cost accounting.
Two primary hallmarks of cost and management accounting are standardization
of procedures and use of generally accepted accounting principles.

ANSWER:
26.

management style.

strategy.
mission statement.
operational mission.

ANSWER:

b

EASY

Strategy integrates which of the following?
a.
b.
c.
d.

Planning
yes
yes
yes
no

ANSWER:
28.

MEDIUM

A long-term plan that fulfills the goals and objectives of an organization is known as
a(n)
a.

b.
c.
d.

27.

d

c

Controlling
yes
no
yes
no

Decision making
no
no
yes
no

EASY

Which of the following is/are not considered by management in determining strategies
for the organization?
a.
b.
c.
d.

core competencies
environmental constraints
organizational structure
accounting basis

ANSWER:

d

EASY


1–8
Environment

29.

Chapter 1

Which of the following is not a generic mission for organizational segments?
a.
b.
c.
d.

build
harvest
hold
save

ANSWER:
30.

MEDIUM

save mission.
harvest mission.
build mission.
hold mission.

ANSWER:

c

EASY

Protecting current market share and competitive position is the major concern of the
a.
b.
c.
d.

save mission.
harvest mission.
build mission.
hold mission.

ANSWER:
32.

d

Increasing market share, even if short-term earnings and cash flow suffer, is the major
concern of the
a.
b.
c.
d.

31.

Introduction to Cost and Management Accounting In A Global Business

d

EASY

Maximizing short-term earnings and cash flow, even at the expense of current market
share, is the primary concern of the
a.
b.
c.
d.

save mission.
harvest mission.
build mission.
hold mission.

ANSWER:

b

EASY


Chapter 1

33.

Introduction to Cost and Management Accounting In A Global Business Environment
1–9

The organizational units that require the highest level of strategic planning are those
with a ____________ mission.
a.
b.
c.
d.

hold
harvest
product life cycle
build

ANSWER:
34.

product life cycle.

target costing.
employee empowerment.
intellectual capital.

ANSWER:

a

EASY

To effectively use employee empowerment, an organization’s structure would likely
reflect
a.
b.
c.
d.

strategic resource management.
centralized management.
decentralized management.
contract management.

ANSWER:
36.

EASY

Segment mission is directly related to
a.
b.

c.
d.

35.

d

c

MEDIUM

An organizational structure in which all decision making is held by top managers is
known as ____________ management.
a.
b.
c.
d.

centralized
decentralized
strategic resource
activity-based

ANSWER:

a

EASY

1–10
Environment

37.

Chapter 1

An organizational structure in which decision making is spread throughout different
levels of management is known as __________ management.
a.
b.
c.
d.

centralized
decentralized
strategic resource
activity-based

ANSWER:
38.

EASY

internal functions crucial to the success and survival of a company.
attributes that keep a firm from competing.
different for every organization.
considered influences on corporate strategies.

ANSWER:

b

EASY

Which of the following are potential constraints on organizational strategies being
considered by management?

a.
b.
c.
d.

Core
competencies
yes
no
yes
yes

ANSWER:
40.

b

Core competencies are not
a.
b.
c.
d.

39.

Introduction to Cost and Management Accounting In A Global Business

d

Technology
availability
yes
yes
no
yes

Monetary
capital resources
no
yes
yes
yes

EASY

The intangible assets of skill, knowledge, and information are also known as
a.
b.
c.
d.

intellectual capital.

business intelligence.
kaizen knowledge.
management style.

ANSWER:

a

EASY


Chapter 1

41.

Introduction to Cost and Management Accounting In A Global Business Environment
1–11

The norms of a company as they impact internal and external, as well as formal and
informal, transactions reflect
a.
b.
c.
d.

operational plans.
organizational culture.
organizational strategy.
strategic resource management.

ANSWER:
42.

environmental constraints.
operational constraints.
organizational constraints.
budgeting constraints.

ANSWER:

a

EASY

The manner in which managers react and interact with stakeholders in the organization
is
a.
b.
c.
d.

strategic resource management.
the organizational value chain.
management style.
responsibility accounting.

ANSWER:
44.

EASY

Limitations on strategy options based on political barriers, legal, fiscal, and regulatory
are
a.
b.
c.
d.

43.

b

c

EASY

The key link between managing resources and managing change in an organization is
a.
b.
c.
d.

responsibility accounting.
information.
strategies.
conversion activities.

ANSWER:

b

EASY


1–12
Environment

45.

Chapter 1

Which of the following defines the details that are necessary to maintain and
accomplish the strategies of an organization?
a.
b.
c.
d.

Responsibility accounting
yes
yes
no
no

ANSWER:
46.

Value chain
yes
yes

no
yes

MEDIUM

decentralization.
centralization.
strategic resource management.
value chain.

ANSWER:

c

MEDIUM

Strategic resource management does not concerns itself with
a.
b.
c.
d.

the deployment of resources to support strategies.
how resources are to be deployed and redeployed over time.
how resources are used or recovered from changing processes.
how resource disposition will decrease customer and shareholder value.

ANSWER:
48.

c

Operational plans
yes
no
yes
no

Organizational planning for disposition of resources to create value for customers and
shareholders is known as
a.
b.
c.
d.

47.

Introduction to Cost and Management Accounting In A Global Business

d

MEDIUM

The set of processes that convert inputs into services and products that consumers use is
called
a.
b.
c.
d.

a core competency.
an operational plan.
the value chain.
the product life cycle.

ANSWER:

c

EASY


Chapter 1

49.

Introduction to Cost and Management Accounting In A Global Business Environment
1–13

The world has essentially become smaller because of
a.
b.
c.
d.

improved technology.
trade agreements.
better communications systems.
all of the above.

ANSWER:
50.

Introduction of the Internet
Introduction of the first consumer charge card
Introduction of wireless money transfers
Deregulation of the communications industry

ANSWER:

c

MEDIUM

Which of the following would most commonly reflect the highest e-commerce cost to a
large, global business?
a.
b.
c.
d.

Web site development
Internal network shutdowns from e-mail complaints
Losses from sales of pirated goods
Development of appropriate passwords for users

ANSWER:
52.

EASY

Which of the following was the earliest event of importance to the beginning of
e-commerce?
a.
b.
c.
d.

51.

d

a

MEDIUM

Which of the following would most commonly be viewed as the greatest negative for ecommerce customers?
a.
b.
c.
d.

Possibility for purchasing counterfeit goods
Privacy issues
Legal issues of redress
Site “friendliness” issues

ANSWER:

b

EASY


1–14
Environment

53.

Chapter 1

At the start of Web site development, a U.S. company would probably be least
concerned with which of the following?
a.
b.
c.
d.

Site maintenance
Multiple languages
Data encryption
Site search function

ANSWER:
54.

EASY

North American Foreign Trade Agreement
New Age Free Trade Amendment

North American Free Trade Agreement
North Atlantic Federated Trade Agreement

ANSWER:

c

EASY

Which of the following statements is true?
a.
b.
c.
d.

Prior to economic integration, consumer choices were often made on the basis of
production location.
The General Agreement on Tariffs and Trade was established to reduce tariffs
among businesses in Europe and North America.
The majority of trade agreements currently in place emphasize the need for
consumers to purchase quality goods.
International trade agreements, while increasing availability of goods to
consumers, have decreased the need for international laws governing
transactions.

ANSWER:
56.

b

NAFTA refers to which of the following?
a.
b.
c.
d.

55.

Introduction to Cost and Management Accounting In A Global Business

a

MEDIUM

A U.S. manufacturer of which of the following goods would be likely to face the most
cultural risks in operating globally?
a.
b.
c.
d.

Furniture
Automobiles
Clothing
Food

ANSWER:

d

MEDIUM


Chapter 1

57.

Introduction to Cost and Management Accounting In A Global Business Environment
1–15

A U.S. manufacturer of which of the following goods would be likely to face the fewest
cultural risks in operating globally?
a.
b.
c.
d.

Toys
Food
Clothing
Furniture

ANSWER:
58.

Asset expropriation
Inflation
Workplace diversity
All of the above

ANSWER:

a

EASY

Most American laws are
a.
b.
c.
d.

ethical foundations for living.
codified societal rules that have changed over time.
concerned with regulating public service companies.
designed to restrict foreign business competition.

ANSWER:
60.

MEDIUM

Which of the following would be considered a political risk in doing business globally?
a.
b.
c.
d.

59.

d

b

MEDIUM

The Foreign Corrupt Practices Act is directed at
a.
b.
c.
d.

U.S. businesses operating overseas.
foreign businesses operating in the U.S.
all businesses dealing with U.S. consumers.
U.S. businesses operating in developed nations.

ANSWER:

a

MEDIUM


1–16
Environment

61.

Chapter 1

The behavioral norms in a company’s code of ethics should
a.
b.
c.
d.

be specific to the countries in which the company operates.
vary depending on an employee’s job level and global location.
engender consistent actions in all geographical segments.
require employees to act in accordance with local customs and traditions when
in non-domestic situations.

ANSWER:
62.

b.
c.
d.

MEDIUM

Determination of whether there are local business practices that will impact
interactions with other parts of the world.
Determination of whether some business practices need to be adapted to fit local
laws in a specific locale.
Determination of whether there is compliance with all legal requirements on a
local level.
Determination of whether the “tone at the top” is appropriate in all
organizational segments.

ANSWER:

d

MEDIUM

A company may choose to avoid competition by selecting

a.
b.
c.
d.

Differentiation
strategy
no
no
yes
yes

ANSWER:
64.

c

Texas Instruments has adopted a three-level approach to ethical integrity on a global
level. Which of the following is not part of that approach?
a.

63.

Introduction to Cost and Management Accounting In A Global Business

c

Business
intelligence analysis
no
yes
no
yes

Cost
leadership
no
no
yes
yes

MEDIUM

A company establishing a position of cost leadership would
a.
b.
c.
d.

emphasize the value of its product’s distinguishing features.
stress the cost efficiencies in its production processes.

match all competitors’ price changes.
all of the above are possible tactics.

ANSWER:

b

MEDIUM


Chapter 1

65.

Introduction to Cost and Management Accounting In A Global Business Environment
1–17

A company engaging in a confrontation strategy recognizes that
a.
b.
c.
d.

such a strategy is less profitable than attempting to avoid competition.
its products and services will always be priced higher than those of its
competitors.
competitors will be exploiting temporary opportunities for advantage and, thus,
the company must retain the advantage of low price.
the need for competitor analysis is much greater than the need for business
intelligence.

ANSWER:
66.

competitor analysis
competitive intelligence
business intelligence
confrontation analysis

ANSWER:

b

MEDIUM

The business intelligence system should provide management with
a.
b.
c.
d.

organizational strengths and weaknesses.
external markets, technologies, and competitors.
future trends and an environmental scan.
all of the above.

ANSWER:
68.

MEDIUM

In gathering information about the environment in which the organization operates,
which level of intelligence is most likely to provide an early warning of opportunities
and threats?
a.
b.
c.
d.

67.

a

d

MEDIUM

A business intelligence system provides information for management to use in
a.
b.
c.
d.

Decision-making
yes
no
no
yes

ANSWER:

a

EASY

Strategic planning
yes
yes
yes
no

Tactical planning
yes
yes
no
no


1–18
Environment

69.

Chapter 1

The first step in the planning process is for managers to analyze the threats and
opportunities of the customers, competition, and environment in relationship to the
entity’s
a.
b.

c.
d.

strategic objectives.
financial goals.
strengths and weaknesses.
equity stakeholders.

ANSWER:
70.

MEDIUM

strategic plans.
tactical plans.
wealth maximization strategies.
organizational cash flows.

ANSWER:

b

MEDIUM

To provide appropriate management incentives, accounting measurements should be tied
to the
a.
b.
c.
d.

generation of annual profits.
organization’s mission.
ability to rapidly develop new products.
business intelligence system.

ANSWER:
72.

c

Organizational budgets typically reflect
a.
b.
c.
d.

71.

Introduction to Cost and Management Accounting In A Global Business

b

EASY

Which of the following statements is true?
a.
b.
c.
d.

All segments of an organization will have the same mission.
An organization’s products will not affect the determination of segment mission.
Product life cycle is affected by segment mission.
Segment mission is affected by product life cycle.

ANSWER:

d

MEDIUM


Chapter 1

73.

Introduction to Cost and Management Accounting In A Global Business Environment
1–19

Which of the following types of performance measurements are most appropriate for
each of the following segment misssions?
a.
b.
c.
d.

Build
Long-term
Long-term

Short-term
Short-term

ANSWER:
74.

strategic resource management
value chain analysis
cost-benefit analysis
activity-based costing

ANSWER:

d

MEDIUM

Strategic resource management is directly concerned with
a.
b.
c.
d.

strategy development.
resource deployment.
resource acquisition.
product life cycle management.

ANSWER:
76.

MEDIUM

Which of the following is generally viewed as improving organizational cost data?
a.
b.
c.
d.

75.

b

Harvest
Long-term
Short-term
Long-term
Short-term

b

MEDIUM

Strategic resource management issues
a.
b.
c.
d.

are primarily measurable by financial accounting data.

have few costs and benefits can that be ascertained.
often relate to nonmonetary benefits.
create current monetary costs and nonmonetary benefits.

ANSWER:

c

MEDIUM


1–20
Environment

77.

Chapter 1

The value chain
a.
b.
c.
d.

reflects the production of goods within an organizational context.
is concerned with upstream suppliers, but not downstream customers.
results when all non-value-added activities are eliminated from a production
process.
is the foundation of strategic resource management.

ANSWER:
78.

Introduction to Cost and Management Accounting In A Global Business

d

MEDIUM

The agents of change in a business are the
a.
b.
c.
d.

employees.
members of the organizational value chain.
managers.
organizational stakeholders.

ANSWER:

c

MEDIUM

SHORT ANSWER/PROBLEMS
1.

What four areas are covered by the Standards of Ethical Conduct for Certified

Management Accountants? How are these areas defined?
ANSWER: The four areas covered by the Standards of Ethical Conduct for Certified
Management Accountants are: competence, confidentiality, integrity, and objectivity.
Competence means having the capacity to function in a particular manner.
Confidentiality means having the ability to maintain or keep information undisclosed.
Integrity is defined as adherence to a code of moral values. Objectivity is defined as
expressing or using facts without distortion by personal feelings or prejudices.
MEDIUM

2.

On what needs do (1) management accounting and (2) financial accounting focus?
ANSWER: Management accounting focuses on the needs of users inside an
organization. Managers need information related to planning, controlling, decision
making, and performance evaluation. Their needs are satisfied through the providing of
information designed for their particular uses. Financial accounting focuses on the
needs of users outside the organization, such as stockholders, creditors, and regulatory
agencies. These users require information that is in conformity with generally accepted
accounting principles and, thus, is standardized in the form of general purpose financial
statements.
MEDIUM


Chapter 1

3.

Introduction to Cost and Management Accounting In A Global Business Environment
1–21

List and discuss the three missions for organization segments .
ANSWER: The three missions are build, hold, and harvest. The build mission is
concerned with increasing market share, regardless of whether short-term earnings and
cash flow suffer. A segment that operates under this mission will be a major user of
organizational cash. Segments that have low market shares in “high growth industries”
will typically be in a build mode.
The hold mission is concerned with maintaining current market share and market
position. In most instances, cash inflows will equal cash outflows.
The harvest mission is concerned with increasing short-term earnings and cash flow,
even at the expense of current market share. A business segment that follows a harvest
mission will be supplying cash to the organization.
MEDIUM

4.

What is strategic resource management and with what issues is it concerned?
ANSWER: Strategic resource management involves the organizational planning for
the deployment of resources to create value for customers and shareholders. Key
variables in SRM success are the management of information and of change in
responding to threats and opportunities. SRM is concerned with the following issues:
(1) how to deploy resources to support organizational strategies, (2) how resources are
used in or recovered from changing processes, (3) how customer and shareholder value
will serve as guides in the effective use of those resources, and (4) how to deploy and
redeploy resources over time.
MEDIUM

5.

List and discuss three organizational constraints with which management must deal
when making strategic decisions for the firm.

ANSWER: Although there are more than three constraints, the following provide
brief examples of possible constraints faced by management: (1) capital, (2) structure,
and
(3) core competencies. Capital or the lack of capital is a major constraint for most
organizations. Organizations must decide where and how the spend the money that they
currently have access to and then decide if they can or want to borrow additional funds.
Structure is a short-term (for many firms) constraint that can be overcome by additions
to the equipment base and/or employee training. Thirdly, core competencies are the
internal functions that management has decided are important to the overall success and
survival of the organization. These competencies represent the potential competitive
advantages of the firm.
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Environment

6.

Chapter 1

Introduction to Cost and Management Accounting In A Global Business

You are going to start a new e-commerce business. Discuss at least three positive factors
and three negative factors of such a business from your (the merchant’s) point of view.
ANSWERS will all differ, but should be based on information in Exhibit 1-5.
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7.

You are going to start a new e-commerce business. Discuss at least three positive factors
and three negative factors of such a business from your customer’s point of view.
ANSWERS will all differ, but should be based on information in Exhibit 1-5.
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8.

Every business, whether domestic or global, must operate under conditions of risk.
Discuss four types of operating risks involved in business and how these risks might
change when a business expands to global operations.
ANSWERS will all differ, but should be based on information in Exhibit 1-6.
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9.

Every business, whether domestic or global, must operate under conditions of risk.
Discuss three types of financial risks involved in business and how these risks might
change when a business expands to global operations.
ANSWERS will all differ, but should be based on information in Exhibit 1-6.
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10.

Every business, whether domestic or global, must operate under conditions of risk.
Discuss three types of information risks involved in business and how these risks might
change when a business expands to global operations.
ANSWERS will all differ, but should be based on information in Exhibit 1-6.
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Chapter 1

11.

Introduction to Cost and Management Accounting In A Global Business Environment
1–23

Most people would agree that a “moral free space” must exist relative to some business
decisions. Discuss the concept of “moral free space.”
ANSWER: Because all business practices cannot be categorized as either ethical or
unethical and because business practices may change over time, there must be a “moral
free space” that allows managers and employees to make decisions within the bounds of
reason. Decisions should be guided by an understanding of basic values and principles
of integrity—preferably shared within and supported by the organization.
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12.

Define value chain and provide a graphic of the interacting flows of information within
the value chain.
ANSWER: The value chain is the set of processes that convert inputs into products
and services for a firm’s customers. It includes both internal and external processes. It
encompasses both upstream and downstream entities. A depiction of the value chain and
its information flows is shown in Exhibit 1-12.
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