Solution manual managerial accounting and finance for hospitality operations CHAPTER 01

CHAPTER 1
INTRODUCTION TO MANAGERIAL ACCOUNTING
I.

Questions
1.

Managerial accounting is concerned with providing financial information to
persons within the organization to enable them to make informed judgments and
effective decisions which further the organization’s goals.
Financial accounting involves the systematic recording of business transactions,
governed by a body of generally accepted accounting principles (GAAP) leading
to the preparation of financial statements for the use of various interested
parties, internal as well as external.
The specific differences between Management Accounting (MA) and Financial
Accounting (FA) are as follows:
a.

As to objective
MA: To provide data for internal users within the business organization.
FA: To provide data for both internal (management) and external users (e.g.
creditors, owners, government, etc.)

b.

As to compliance with GAAP
MA: Reports need not be presented in conformity with GAAP to be able to
present more useful data to management.
FA: Financial data should be recorded and presented in accordance with
GAAP.

c.

As to emphasis on the future
MA: This has a strong future orientation.
FA: This primarily provides summaries of past financial transaction.

d.

As to the relevance and flexibility of data
MA: Special reports containing both historical and projected data are
prepared to meet the needs of specific users. They contain information,
quantitative and qualitative, that are relevant for a particular decision.
FA: All-purpose reports with historical data are prepared for use of
different parties.


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Solutions Manual - Managerial Accounting and Finance for Hospitality Operations

e.

As to emphasis on precision and timeliness of report
MA: Timeliness is often more important than precision to managers.
Prompt submission of the report is necessary to preserve its usefulness and
good estimates may be enough to make good decisions.
FA: Reports are still useful even if submitted late and show summaries of
financial consequences of actual and past activities where precision is
required.

f.

As to reporting requirements of an organization
MA: This focuses reporting on the parts or segments (i.e., product line,
sales, territories, divisions, departments) of the company.
FA: This is primarily concerned with reporting for the company as a whole.

g.

As to requirement for compliance with law
MA: This is not mandatory.
FA: This is required by law as exemplified by the report requirements of
the BIR, SEC and other governmental entities.

2.

Refer to page 3.

3.

Refer to pages 5 to 7.

4.

Refer to page 4.

5.

The manager of the sandwich department might have responsibility for such
things as determining normal stock levels for various kinds of sandwiches,

ordering to maintain those levels, selecting new employees, supervising the
work of employees, and monitoring the adequacy and accuracy of weighing
equipment, the pricing of packaged items, and the adequacy and state of repair
of storage equipment. Three factors suggest that such a department could, at
best, operate successfully as a cost center in a responsibility accounting system:
(1) severe limits on the types of costs actually controllable by the manager; (2)
the manager’s inability to control prices; and (3) the extent to which decisions
and actions of other managers at that store affect the sales volume in the
sandwich department.
The sandwich manager might determine the quantity of ingredients of a
sandwich for each kind required to meet the special demands of customers in the
area; but the cost is determined by some higher-level manager who is
responsible for a central purchasing function to serve all stores in the area. The
manager might determine how many employees of each type are needed and
when each should work; but wage rates for each class of employees are probably
established at a higher level. Even the total number of hours worked in the
department might depend on a higher-level decision about the hours during


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which the entire store will be open. (A local manager may be able to decide that
personal service in some departments for only some of those hours.)
Many costs “related” to the sandwich department are joint costs (e.g., heat, light,
power, depreciation on store equipment, wages of check-out clerks, rent,
janitorial service) that should not be in a report that might be used to evaluate
the manager’s performance. Thus, if the sandwich department is designated a
responsibility center, a limited number of costs are likely to be fully controllable

at the manager’s level and hence properly includible in a report intended to
reflect the results of decisions by that department’s manager.
Although managers in individual stores might have authority to establish prices
for specific kinds of sandwiches, some central unit within the chain will
mandate many prices because such are quoted in area-wide advertisements for
the chain. This factor speaks directly against designating the department as a
profit center. A similar conclusion flows from the fact that the sales volume in
the department, no matter how good the manager’s plans and supervision of his
own area, can be greatly influenced by the abilities of managers of other
departments and of the entire store. (How good must the quality of service and
product be in the sandwich department in a particular store in a chain in order to
offset the loss of customers because repeated stockouts occur due to poor
forecasts by the produce and general grocery managers? Except in the case of
advertised specials, to what extent do today’s shoppers patronize stores in
different locations for different items on a normal shopping list?)
In summary, while it might be possible to institute some type of responsibility
accounting in the setting of an individual store of a chain of supermarkets, such
a move requires considerable analysis to determine the items controllable by an
individual manager, and this preliminary analysis suggests that cost centers, not
profit centers, would be the most appropriate.
6.

(a) Plans for taking a course in college include the amount of time to devote to
it and to other courses. Students formulate objectives for grades, for the
knowledge to be gained for its own sake, for future courses, and so on.
They evaluate their personal strengths and weaknesses to determine how
much work to do.
Examinations provide feedback on the sufficiency of work being done; test
results might indicate that more, less, or the same amount of work should be
devoted to the course. Such evaluations can be made whether the major

objective is to gain knowledge or just to obtain a particular grade.
(b) Planning for a long automobile trip involves such matters as the amount of
time to be spent on the road, the desired time of arrival, the cost of various
services along the way (gas and oil, lodging, food, tolls, etc.), the value of


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Solutions Manual - Managerial Accounting and Finance for Hospitality Operations

taking various routes, and so on. Each of these factors can be affected by
the objectives of the trip. A trip home from college is usually made because
the student would rather be at home than at school, so time en route is more
critical than if one were simply touring the country between school and
home. The costs involved in various alternative routes and schedules are
important whatever the purpose of the trip, and influence decisions
regarding route, lodgings, and food.
During a long trip, you would examine results to see if you were meeting
your objectives. If the trip were taking too long, some actions might be
indicated, such as taking a shorter but less scenic route, or more costly but
faster toll roads. Again, evaluations of strengths and weaknesses are
important; financial resources, the quality of the car, one’s ability to drive
under different conditions, and the possibility of emergencies developing
are a few concerns that you need to consider in selecting a route.
(c) Decorating one’s own apartment is very much goal-directed; the apartment
or room must satisfy several demands. It must be pleasant to live and
entertain in, yet it must be within one’s means. Once the tenant has set
objectives, the remaining steps include formulating plans to meet them;
examining colors, types of furniture, lighting, floor covering, pictures and
other wall decorations to see if they fit the objectives.

Provided that the selected elements meet price requirements, the work can
proceed; but as it does, evaluations will be made regarding the effects being
created. A picture or rug that looked perfect in the store might look terrible
in the room and modifications will be needed. Some decisions made during
the planning process may be irrevocable; the cost of installing wall-to-wall
carpeting is committed, while a piece of furniture might be exchanged.
Furniture and pictures can be moved once they are obtained, but a new
doorway broken through a wall cannot easily be shifted a few feet to the
left.
(d) The lines of reasoning are about the same as with the other items. The
coach must evaluate the available resources (players), plan how to gain the
best results from them, ensure that the players follow the plans, evaluate the
results of using particular plans, and modify plans. For example, a coach of
a football team may stress a running game or a passing game, depending on
the talents of the players. If the players tend to be fast but small, one
defensive arrangement may be better than others.
It is also necessary to examine the environment – in this case, the other
teams that will be played. The plan for a particular game will depend
largely on the team being played and on weather conditions. If the
opponent rarely passes, the coach might bring defenders closer to the line of


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scrimmage to stop the runners. As play progresses (interim evaluations),
the coach might see weaknesses in the other team and develop a different
strategy.
7.

(a) Bosco has violated both the confidentiality and integrity standards. He has
disclosed confidential information and has used it to profit, or at least as a
repayment for his sister’s favors. He has also acted in a way that discredits
the profession, and has accepted gifts (tips from his sister) that influenced
his actions.
(b) Ramos has violated the competence, integrity, and objectivity standards. He
failed the competence standard by not preparing a report that used all
relevant information. He failed to communicate unfavorable information,
actively subverted to organization’s objectives by trying to influence it to
accept a project it should reject, and probably did so in the hope of a quid
pro quo from his superior. These acts violate the integrity standard. He did
not disclose all relevant information, nor communicate it fairly and
objectively. The objectivity and competence standards appear to overlap in
the area of reporting and disclosure, but Ramos seems to have hit a trifecta.

II. Multiple Choice Questions
1.
2.
3.
4.
5.

C
B
C
A
B

6.

7.
8.
9.
10.

D
C
B
A
D

11.
12.
13.
14.
15.

C
C
B
D
A

16. D
17. D