CHAPTER 1

The Changing Role of Managerial Accounting in

a Dynamic Business Environment
ANSWERS TO REVEW !"ESTONS
1-1 The explosion in e-commerce will affect managerial
accounting in significant ways. One effect will be a
drastic reduction in paper work. Millions of transactions
between businesses will be conducted electronically with
no hard-copy documentation. Along with this method of
communicating for business transactions comes the very
significant issue of information security. usinesses need
to find ways to protect confidential information in their
own computers! while at the same time sharing the
information necessary to complete transactions. Another
effect of e-commerce is the dramatically increased speed
with which business transactions can be conducted. "n
addition to these business-to-business transactional
issues! there will dramatic changes in the way managerial
accounting procedures are carried out! one example being
e-budgeting! which is the enterprise-wide and electronic
completion of a company#s budgeting process.
1.$ %lausible goals for the organi&ations listed are as
follows'
(a) Ama&on.com' (1) To achieve and maintain
profitability! and ($) to grow on-line sales of books!
music! and other goods.
(b) American *ed +ross' (1) To raise funds from the
general public sufficient to have resources available to
meet any disaster that may occur! and ($) to provide
assistance to people who are victims of a disaster
anywhere in the country on short notice.
(c) ,eneral Motors' (1) To earn income sufficient to
provide a good return on the investment of the
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company-s stockholders! and ($) to provide the highest-
.uality product possible.
(d) /. +. %enney' (1) To penetrate the retail market in
virtually every location in the 0nited 1tates! and ($) to
grow over time in terms of number of retail locations!
total assets! and earnings.
(e) +ity of %ittsburgh' (1) To maintain an urban
environment as free of pollution as possible! and ($) to
provide public safety! police! and fire protection to the
city-s citi&ens.
(f)2ert&' (1) To be a recogni&able household name
associated with rental car services! and ($) to provide
reliable and economical transportation services to the
company-s customers.
1-3 The four basic management activities are listed and
defined as follows'
(a) 4ecision making' +hoosing among the available
alternatives.
(b) %lanning' 4eveloping a detailed financial and
operational description of anticipated operations.
(c) 4irecting operations' *unning the organi&ation on a
day-to-day basis.
(d) +ontrolling' 5nsuring that the organi&ation operates
in the intended manner and achieves its goals.
1-6 5xamples of the four primary management activities in
the context of a national fast-food chain! such as
Mc4onald-s or %i&&a 2ut! are as follows'
(a) 4ecision making' +hoosing among several possible
locations for a new fast-food outlet.
(b) %lanning' 4eveloping a cost budget for the food and
paper products to be used during the next .uarter in a
particular fast-food restaurant.
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(c) 4irecting operations' 4eveloping detailed schedules
for personnel for the next month to provide counter
service in a particular fast-food restaurant.
(d) +ontrolling' +omparing the actual cost of paper
products used during a particular month in a restaurant
with the anticipated cost of paper products for that
same time period.
1-7 5xamples of the ob8ectives of managerial-accounting
activity in an airline company are described below'
(a) %roviding information for decision making and
planning and proactively participating as part of the
management team in the decision making and planning
processes' Managerial accountants provide estimates
of the cost of adding a flight on the route from 9ew
:ork to Miami and actively participate in making the
decision about adding the flight.
(b) Assisting managers in directing and controlling
operations' Managerial accountants provide
information about the actual costs of flying the
routes in the airline-s northeastern geographical
sector during a particular month.
(c) Motivating managers and other employees toward
the organi&ation-s goals' A budget is provided for the
cost of handling baggage at O-2are Airport in +hicago.
The budget is given to the airline-s baggage handling
manager! who is expected to strive to achieve the
budget.
(d) Measuring the performance of activities! subunits!
managers! and other employees within the
organi&ation' ;uarterly income statements are
prepared for each of the airline-s ma8or geographical
sectors! and these income reports are used to evaluate
the earnings performance of each sector during the
relevant time period.
(e) Assessing the organi&ation-s competitive position
and working with other managers to ensure the
organi&ation-s long-run competitiveness in its industry'
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"nformation about industry-wide performance
standards is obtained and compared with the airline-s
own performance. <or example! how does the airline
stack up against its competitors in ticket prices! on-
time departures! mishandled baggage! customer
complaints! and safety=
1-> <our important differences between managerial
accounting and financial accounting are listed below'
(a) Managerial-accounting information is provided to
managers within the organi&ation! whereas financial-
accounting information is provided to interested
parties outside the organi&ation.
(b) Managerial-accounting reports are not re.uired and
are unregulated! whereas financial-accounting reports
are re.uired and must conform to generally accepted
accounting principles.
(c) The primary source of data for managerial-
accounting information is the organi&ation-s basic
accounting system! plus various other sources. These
sources include such data as rates of defective
products manufactured! physical .uantities of material
and labor used in production! occupancy rates in hotels
and hospitals! and average takeoff delays in airlines.
The primary source of data for financial-accounting
information is almost exclusively the organi&ation-s
basic accounting system! which accumulates financial
information.
(d) Managerial-accounting reports often focus on
subunits within the organi&ation! such as departments!
divisions! geographical regions! or product lines. These
reports are based on a combination of historical data!
estimates! and pro8ections of future events. <inancial-
accounting reports focus on the enterprise in its
entirety. These reports are based almost exclusively on
historical transaction data.
1-? The cost-accounting system is one part of an
organi&ation-s overall accounting system! the purpose of
which is to accumulate cost information. +ost information
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accumulated by the cost-accounting system is used for
both managerial-accounting and financial-accounting
purposes. Managerial accounting is the broad task of
preparing information for making decisions about
planning! directing! and controlling an organi&ation-s
operations.
1-@ Managers in line positions are directly involved in the
provision of services or the production of goods in an
organi&ation. Managers in staff positions support the
organi&ation-s overall ob8ectives! but they are indirectly
involved in operations. 5xamples of line positions in a
university are the president! who is the university-s chief
executive officer! and the provost! who is the university-s
chief academic officer. 5xamples of staff positions in a
university are the university counsel! who is the
university-s chief lawyer! and the director of maintenance!
who is charged with maintaining the university-s facilities.
1-A An organi&ation-s controller (or comptroller) is the chief
managerial and financial accountant. The controller
usually is responsible for supervising the personnel in the
accounting department and for preparing the information
and reports used in both managerial and financial
accounting. The treasurer typically is responsible for
raising capital and safeguarding the organi&ation-s
assets. Among the treasurer-s responsibilities is the
management of an organi&ation-s investments! credit
policy! and insurance coverage.
1.1B A college or university could use the balanced
scorecard as a management tool 8ust like any other
business. There is one important difference! however!
between a profit-seeking enterprise and a nonprofit
organi&ation like a university. A profit-seeking
enterprise generally has long-term profitability as its
foremost goal! and the other points on the balanced
scorecard are oriented toward helping the entries
achieve that goal of profitability. 0niversities! on the
other hand! usually have multiple goals! which are
sometimes in competition with each other. <or
example! a land-grant university may have teaching!
research and public service as its three primary goals.
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9evertheless! it is possible for a college or university to
develop performance measures for each of the areas in
the balanced scorecard. 1ome examples follow'
Financial: Amount of the unrestricted endowment
supporting the university#s activities! and the
extent to which the university operates with a
balanced budget.
Internal operations: Tenure rates for faculty! and
the extent to which the university#s facilities are
up to date and well maintained.
Customer' +lass evaluations by students! and 8ob
placement rates for students.
Innovation and learning: 4ollars of research
grants obtained! and publication of 8ournal articles
and books by faculty.
1-11 This .uote from a managerial accountant at +aterpillar
suggests that managerial accountants are physically
located throughout an organi&ation where the day-to-day
work is being done! rather than being se.uestered off by
themselves as was the tendency some years ago.
Managerial accountants are increasingly deployed as key
members of management teams.
1-1$ Managerial-accounting information often brings to the
attention of managers important issues that need their
managerial experience and skills. "n many cases!
managerial-accounting information will not answer the
.uestion or solve the problem! but rather make
management aware that the issue or problem exists. "n
this sense! managerial accounting sometimes is said to
serve an attention-directing role.
1-13 oth manufacturing and service industry firms are
engaged in production. The primary difference between
these types of companies is that manufacturing firms
produce inventoriable goods! whereas the services
produced by service industry firms are not inventoriable.
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1ervices! such as air transportation or hotel service! are
consumed as they are produced.
1-16 (a) "n a 8ust-in-time (or /"T) production environment! raw
materials and components are purchased or produced
8ust in time to be used at each stage in the production
process.
(b) A computer-integrated manufacturing (+"M) system
is the most advanced form of automated manufacturing
system! with computers controlling the entire
production process.
(c) A cost management system is a management
planning and control system with the following
ob8ectives' to measure the cost of the resources
consumed in performing the organi&ation-s significant
activitiesC to identify and eliminate non-value-added
costsC to determine the efficiency and effectiveness of
all ma8or activitiesC and to identify and evaluate new
activities that can improve the future performance of
the organi&ation.
(d) 5mpowerment is the concept of encouraging and
authori&ing workers to take their own initiative to
improve operations! reduce costs! and improve product
.uality and customer service.
(e) Total .uality management (or T;M) is the broad set
of management and control processes designed to
focus the entire organi&ation and all of its employees
on providing products or services that do the best
possible 8ob of satisfying the customer.
1-17 5-commerce is defined as buying and selling over digital
media. 5-business is a broader concept! which not only
encompasses e-commerce! but also includes the
electronic business processes that form the engine of
modern business.
1-1> +MA stands for +ertified Management Accountant. This
title is the professional certification for managerial
accountants administered by the "nstitute of Management
Accountants. The re.uirements for becoming a +MA
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include fulfilling specified educational re.uirements and
successfully passing the +MA examination.
1-1? (a) +ompetence' Ongoing development of knowledge
and skills! performance of duties in accordance with
relevant laws! adherence to regulations and technical
standards! and preparation of complete and clear
reports for management.
(b) +onfidentiality' *efrainment from disclosing! using!
or appearing to use confidential information ac.uired in
the course of the managerial accountant-s work.
(c) "ntegrity' Avoidance of conflicts of interest in
activities that would pre8udice the managerial
accountant-s ability to carry out his or her duties
ethically! and refrainment from other activities that
would discredit the profession.
(d) Ob8ectivity' +ommunication of information fairly!
ob8ectively! and fully.
1-1@ 9on-value-added costs are the costs of activities that can
be eliminated with no deterioration of product .uality!
performance! or perceived value.
1-1A Managers rely on many information systems in addition to
managerial-accounting information. 5xamples of other
information systems include economic analysis and
forecasting! marketing research! legal research and
analysis! and technical information provided by engineers
and production specialists.
1-$B Managerial accounting is 8ust as important in nonprofit
organi&ations as it is in profit-seeking enterprises.
Managers in nonprofit organi&ations also need
managerial-accounting information for decision making!
planning! directing! and controlling operations.
1-$1 ecoming the low-cost producer in an industry re.uires a
clear understanding by management of the costs incurred
in its production process. *eports and analysis of these
costs are a primary function of managerial accounting.
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1-$$ A professional is a person engaged in a specified
occupation that re.uires advanced training! skill! and a
well-defined body of knowledge. According to this
definition from Debster! a managerial accountant is a
professional.
1-$3 1ome activities in the value chain of a manufacturer of
cotton shirts are as follows'
(a) ,rowing and harvesting cotton
(b) Transporting raw materials
(c) 4esigning shirts
(d) Deaving cotton material
(e) Manufacturing shirts
(f ) Transporting shirts to retailers
(g) Advertising cotton shirts
1ome activities in the value chain of an airline are as
follows'
(a) Making reservations and ticketing
(b) 4esigning the route network
(c) 1cheduling
(d) %urchasing aircraft
(e) Maintaining aircraft
(f)*unning airport operations! including handling baggage
(g) 1erving food and beverages in flight
(h) <lying passengers and cargo
1-$6 1trategic cost management is the process of
understanding and managing! to the organi&ation-s
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advantage! the cost relationships among the activities in
an organi&ation-s value chain.
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SO."TONS TO E/ERCSES
5E5*+"15 1-$7 ($B M"90T51)
1. 5stimates of any operating costs associated with the
proposed luxury cars would be relevant. <or example!
estimates of the cost of gasoline! routine maintenance!
and insurance on the new vehicles would be useful.
$. 4ata about the cost of maintaining the machine weekly or
biweekly would be relevant. "n addition! the
production manager should consider information about
the likely rates of defective products under each
maintenance alternative.
3. 5stimates of the cost of lost merchandise due to
shoplifting and the cost of employing security
personnel would be relevant to this decision.
6. 5stimates of building costs for the library addition as well
as estimates of benefits to the population from having
the addition would be useful. 5stimating the benefits
may re.uire value 8udgments about the benefits to the
public from having additional library space and more
books.
5E5*+"15 1-$> ($7 M"90T51)
1. 4eveloping a bonus reward system for managerial
personnel is an example of motivating managers and
other employees toward the organi&ation-s goals. To be
effective! the bonus system must provide incentives
for managers to work toward achieving those goals.
$. +omparing actual and planned costs is consistent with
two ob8ectives of managerial accounting activity' (1)
assisting managers in controlling operations! and ($)
measuring the performance of activities! subunits!
managers! and other employees within the
organi&ation.
3. 4etermining manufacturing costs is related to all of the
ob8ectives of managerial accounting. "t is especially
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closely related to the ob8ective of providing
information for decision making and planning.
6. Measuring inventory costs is most closely associated with
the first two ob8ectives of managerial accounting
activity' (1) providing information for decision making
and planning! and ($) assisting managers in directing
and controlling operational activities. 1ince inventory
costs are used in external financial reports! they are
also relevant to measuring the performance of
managers and subunits within the organi&ation.
5E5*+"15 1-$> (+O9T"9054)
7. 5stimating costs is particularly relevant to the ob8ective
of providing information for decision making and
planning.
>. Measuring operating costs is relevant to all of the
ob8ectives of managerial accounting activity.
?. +omparing operating statistics such as those mentioned
for a hotel is particularly relevant to the following
ob8ective of managerial accounting' Assessing the
organi&ation-s competitive position and working with
other managers to ensure the organi&ation-s long-run
competitiveness in its industry.
5E5*+"15 1-$? (3B M"90T51)
Answers will vary widely for this exercise! depending on
the company chosen by each student. +ompanies#
financial goals often include profitability! earnings per
share! growth in the stock price! sales growth! and so
forth. Managerial accounting can make an important
contribution to all of these goals.
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SO."TONS TO 0ROB.EMS
%*OF5M 1-$@ ($7 M"90T51)
1. Managerial accounting can be of significant benefit when
it comes to solving the company#s problems. Managerial
accounting is defined as the process of identifying!
measuring! analy&ing! interpreting! and communicating
information in pursuit of an organi&ation#s goals. 1everal
of the problems lie in this area and may be attributed to a
lack of formal planning! controlling! directing! and
decision-making expertise.
<or example! bulging inventories and the fact that
growth GHhas occurred in spite of what we#ve doneI may
indicate the absence of a formal planning systemJone
that involves developing a detailed financial and
operational description of anticipated activities.
4angerously low cash balances and the need for short-
term loans may be eliminated by the use of a cash
budget! which depicts cash inflows and outflows over a
period of time. The addition of ski e.uipment may or may
not have been the proper decision. 4id 9elson correctly
identify all possible alternatives and then make the
proper selection=
The canoe-building activities and white-water rafting
trips may be losing money. Are costs skyrocketing
hopelessly out of control= "t is difficult to tell because the
income statement does not provide ade.uate information
Jit is a summary of past transactions for the entire
business. A performance report that identifies the
company#s ma8or areas of activity would be of assistance!
especially if the report measured budgeted vs. actual
costs and highlighted (directed attention toward)
significant deviations for management attention. "f such
a report were prepared! managers could better direct
operational activities and ensure that the company
achieves its goals (i.e.! the control function).
$. :es! a cross-functional team would be useful in this
situation. 1everal of the company#s problems affect
multiple functional areas within the firm. <or example!
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bulging inventories! which impact profitability and cash
balances! may be the result of poor ordering practices
andKor ineffective marketing programs. "ssues related to
the operation of a seasonal business may be overcome
with the selection of different Goff-seasonI product lines
and aggressive marketing campaigns. These problems!
coupled with the fact that a number of the key executives
manage in GsilosI and lack the Gbig-pictureI outlook for
the firm! seem to indicate the desirability of teams that
have different employee backgrounds and interests (such
as marketing! operations! and finance) represented.
3. 9elson#s business is operating in a sparsely populated
state and suffers from the ability to draw from more
heavily populated areas such as those in <lorida!
+alifornia! Texas! and 9ew :ork. "n addition! the firm is
getting hammered by mail-
%*OF5M 1-$@ (+O9T"9054)
order businesses and businesses that operate via toll-free
telephone numbers. These issues! combined with
9elson#s "nternet background! seem to make his firm a
likely candidate for e-commerce.
+onsumer-to-business channels (sometimes called c-
to-b) allow consumers to order goods on line from
businesses. "n contrast! businesses order goods from
other firms via business-to-business (b-to-b) channels.
+onsumer-to-business channels would be a natural in
dealing with the firm#s population and competitive
problems. 2owever! keeping in mind that there are some
difficulties related to suppliers (e.g.! .uality! reliability!
and prices)! b-to-b channels may be of assistance as well.
%*OF5M 1-$A ($7 M"90T51)
1. The balanced scorecard is a business model that helps to
assess a firm#s competitive position and ensures that the
firm is progressing toward long-term survival. Although
balanced scorecards differ from one firm to the next!
most have a combination of financial measures! customer-
satisfaction measures! internal operating measures! and
measures of innovation and learning.
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$. <unctional areas for the airline include marketing!
finance! operations (e.g.! maintenance! reservations!
customer service! and scheduling)! human resources!
purchasing! accounting! planning! and information
systemsKtechnology.
3. <inancial measures'
9et income Operating
expenses per seat mile
5arnings per share +ost per meal
served
%assenger revenue per seat mile *evenue
growth
+ustomer-satisfaction measures'
Foad factors 9umber of bags
lost
9umber of passenger complaints Market share
Average wait time when calling *esponse
time for resolving
reservations center customer
problems
"nternal operating measures'
%ercentage of on-time arrivals 9umber of
citiesKnew cities served
%ercentage of on-time departures 9umber of
aircraft in fleet Average trip length (in
miles) Average age of aircraft in fleet
%ercentage of tickets sold through Aircraft
turnaround time between travel agents!
reservation flights
agents! and the "nternet
%*OF5M 1-$A (+O9T"9054)
"nnovationKlearning measures'
5nhancements to product line 5mployee
turnover
(new class of service) 5mployee
satisfaction scores
9ew uni.ue features of fre.uent-flier 5mployee
training programs
club
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6. :es. y focusing on only one factor! other important
facets of the business are ignored! which could lead to
long-run problems. <or example! paying too much
attention to load factors may result in a decrease in
profitability (e.g.! the sale of too many inexpensive
seats). A significant focus on profitability could result in
the airline providing marginal service to its customers
(poor mealsC long wait times when calling reservations
centersC a large number of lost bags by a small! poorly-
trained crew! and so forth).
%*OF5M 1-3B (67 M"90T51)
1. Allen-s considerations are determined largely by her
position as an accountant! with responsibilities to
Accu1ound +orporation! others in the company! and
herself. Allen-s 8ob involves collecting! analy&ing! and
reporting operating information. Although not responsible
for product .uality! Allen should exercise initiative and
good 8udgment in providing management with information
having potentially adverse economic impact.
Allen should determine whether the controller-s
re.uest violates her professional or personal standards or
the company-s code of ethics! should the company have
such a code. As Allen decides how to proceed! she should
protect proprietary information and should not violate the
chain of command by discussing this matter with the
controller-s superiors.
$. a. The controller has reporting responsibilities and should
protect the overall company interests by encouraging
further study of the problem by those in his or her
department! by informing superiors in this matter! and
by working with others in the company to find
solutions.
b. The .uality control engineer has responsibilities for
product .uality and should protect overall company
interests by continuing to study the .uality of reworked
re8ects! by informing the plant manager and his staff in
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this matter! and by working with others in the company
to find solutions.
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%*OF5M 1-3B (+O9T"9054)
c. The plant manager and his or her staff have
responsibilities for product .uality and cost and should
protect overall company interests by exercising the
stewardship expected of them. %lant management
should be sure that products meet .uality standards.
Absentee owners need information from management!
and the plant management staff have a responsibility
to inform the board of directors elected by the owners
of any problems that could affect the well-being of the
firm.
3. Allen needs to protect the interests of the company!
others in the company! and herself. Allen is vulnerable if
she conceals the problem and it eventually surfaces. Allen
must take some action to reduce her vulnerability. One
possible action would be to obey the controller and
prepare the advance material for the board without
mentioning or highlighting the probable failure of
reworks. ecause this approach differs from the long-
standing practice of highlighting information with
potentially adverse economic impact! Allen should write a
report to the controller detailing the probable failure of
reworks! the analysis made by her and the .uality control
engineer! and the controller-s instructions in this matter.
%*OF5M 1-31 (3B M"90T51)
1. Fine activities are primary to the purpose of the
organi&ation. They are the activities that create and
distribute the goods and services of the organi&ation. Fine
reporting refers to the reporting relationship between
different hierarchical management levels in line activities
(e.g.! the reporting relationship between the general
supervisor and the plant manager).
1taff activities are services provided by departments
in the organi&ation in support of its line activities. The
role of the division controller in the division is an example
of a staff activity. The reporting relationship between the
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division controller and the division manager is an example
of a staff reporting relationship.
$. a. The division controller is responsible to both the
corporate controller and the division manager. The
corporate controller assigns the division controller to
the division and has final responsibility for promotion
and salary. Thus! the division controller is an employee
of the controller-s department and reports to the
corporate controller. At the same time! the division
controller serves as a staff resource to the division
manager. The division controller is re.uired to file an
independent commentary on the division-s financial
results! which could well differ from the division
manager-s commentary.
%*OF5M 1-31 (+O9T"9054)
The division manager evaluates the division
controller-s performance and makes salary and
promotion recommendations to the corporate
controller.
b. The motivation of the division controller would be
affected by this dual reporting relationship. The
division controller is being evaluated by two people
whose responsibilities are not always congruent.
Dhat may be considered good performance by one
person may be considered unsatisfactory by the
other. Thus! the division controller will have difficulty
knowing what factors influence his or her progress in
the company. The circumstances described in the
problem do not provide positive motivation for the
division controller.
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SO."TON TO CASE
+A15 1-3$ (6B minutes)
1. Andrea 9olan#s ethical responsibilities re.uire that she
not tell her friend! *ob orman! about %rogressive#s cash
flow problems. 9olan! as a management accountant!
must comply with the following standards for ethical
conduct'
Confidentiality. 9olan must refrain from disclosing
confidential information ac.uired in the course of her
work except when authori&ed! unless legally obligated to
do so. "n this situation! 9olan is neither authori&ed nor
legally obligated to do so.
Integrity. 0nder this standard for ethical conduct! 9olan
has the responsibility to'
*efrain from engaging in any activity that would
pre8udice her ability to carry out her duties ethically.
*efrain from either actively or passively subverting
the attainment of the organi&ation#s legitimate and
ethical ob8ectives.
2. 9olan has an ethical responsibility to inform %rogressive
that orman has decided to postpone the paper order. As
a management accountant! 9olan must comply with the
following standards of ethical conduct'
Confidentiality. 9olan should refrain from appearing to
use confidential information ac.uired in the course of her
work for unethical advantage! either personally or
through third parties.
Integrity. 0nder this standard for ethical conduct! 9olan
has the responsibility to'
*efrain from either actively or passively subverting
the attainment of the organi&ation#s legitimate and
ethical ob8ectives.
McGraw-Hill/Irwin 2002 The McGraw-Hill Companies,
Inc.
1$%- Solutions Manual
+ommunicate unfavorable! as well as favorable!
information and professional 8udgments or opinions.
3. 9olan should resolve this matter by discussing the
situation with her immediate superior. 9olan should tell
her superior of her long-time friendship with orman.
2owever! she should make it clear that she has not and
will not disclose confidential company information to
orman or any other outside party except when
authori&ed or legally obligated to do so. "f a satisfactory
resolution to the problem is not achieved! 9olan should
submit the matter to the next-higher managerial level.
2owever! she should inform her immediate superior that
she is going to take this step.
McGraw-Hill/Irwin 2002 The McGraw-Hill Companies,
Inc.
Managerial Accounting, 5/e 1-%#
C"RRENT SS"ES N MANA1ERA. ACCO"NTN1
"1105 1-33
L4"195:-1 MA,"+ T*A91<O*MAT"O91= +OM%A9: 5:51 ",,5*
12A*5 O< *5TA"F"9, D"T2 *5MAM% O< 1TO*51! 95D
%*O40+T1!L THE WALL STEET !"#$AL! O+TO5* 6! $BBB!
*0+5 O*DAFF.
1. All of the ob8ectives of managerial accounting activity! which
are listed below! would be relevant in 4isney#s ma8or
decision to expand its retail operation.
(a) %roviding information for decision making and
planning and proactively participating as part of the
management team in the decision making and planning
processes' Managerial accountants would provide
estimates of the costs and benefits of adding stores or
product lines to 4isney#s retail operations.
(c) Assisting managers in directing and controlling
operations' Managerial accountants would provide
information about the actual costs of operating new
stores and market segments.
(c) Motivating managers and other employees toward
the organi&ation-s goals' A budget is provided for the
cost of operating new stores and market segments! and
managers are expected to strive to meet budgetary
targets.
(d) Measuring the performance of activities! subunits!
managers! and other employees within the
organi&ation' ;uarterly income statements would be
prepared for each of the company#s ma8or geographical
sectors! and these income reports are used to evaluate
the earnings performance of each sector during the
relevant time period.
(e) Assessing the organi&ation-s competitive position
and working with other managers to ensure the
organi&ation-s long-run competitiveness in its industry'
McGraw-Hill/Irwin 2002 The McGraw-Hill Companies,
Inc.
1$%% Solutions Manual
"nformation about industry-wide performance
standards would be obtained and compared with
4isney#s own retail performance.
$. *esearch and development! design of products! services! or
processes! production! marketing! distribution! and
customer service are important elements of the value chain
for 4isney. The revamped stores and design changes will
move beyond 4isney character-based goods. Adult-oriented
merchandise will focus more on parenting rather than
general goods. The new store design will include a new
multimedia sales pitch featuring computer terminals. 5ach
store will slim it offerings to about 1!@BB! down from 3!6BB.
4isney will cut the number of licensees it uses from 6!$BB to
$!$BB. 4isney also plans a retail pricing drop of about 3B
percent.
"1105 1-36
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THE WALL STEET !"#$AL! O+TO5* >! $BBB! /O15%2
%5*5"*A.
1. The article primarily deals with 1ony-s marketing and
customer service when bringing out its new %lay1tation $.
"ts dilemmas include the shortage of the product before
+hristmas! marketing to hard-core video gamers! and
broadening the %1$-s appeal to a wider audience.
$. Although the article does not mention e-business! it does
stand to reason that 1ony-s web site will carry relevant
information concerning the %1$. A web site could help
with marketing and customer service issues the company
is trying to address.
"1105 1-37
L%0*105 5-01"9511 O* 4"5!L STATE%IC FI$A$CE! MA*+2
$BBB! *O5*T T2AM51.
Feveraging knowledge! relationships! and information with a
well-defined business model focused on core competencies
McGraw-Hill/Irwin 2002 The McGraw-Hill Companies,
Inc.
Managerial Accounting, 5/e 1-%&
allows a business to respond .uickly within the e-business
environment. +reating an enterprise resource planning
system! eliminating waste from the value chain! knowing
your customers! and receiving accurate profit information
are cornerstones of this approach.
A real-time information system provides controls and status
information that allow forward decision-making. "ntegrated
technology architecture is necessary for an 5*% system to
be valuable! but realistically this takes years to achieve.
Daiting for the newest hardware or software means never
achieving a system because it is never implemented.
2owever! the system has to be up to date enough to provide
8ust-in-time information.
*emoval of waste from the entire value chain is effectively
achieved by implementing technology as well as through
building strong alliances and partnerships. Fowering
manufacturing costs and streamlining distribution are also
key components.
The 5*%! as well as online selling! places a business in the
position to gather information about customers- spending
habits and preferences. This information combined with
clear and accurate information about the company-s
activities and costs! allow a company to .uickly modify itself
to take advantage of opportunities. A self-assessment of
business processes carried out with the cooperation of
employees can provide an in-depth aspect to this
information. +ontinuous testing of this information against
best business practices can identify which redundant
business processes to eliminate.
Moving purchases of goods and services to electronic
procurement and following these cornerstones will allow a
business to serve customers and markets that track to the
core competencies of the business.
McGraw-Hill/Irwin 2002 The McGraw-Hill Companies,
Inc.
1$%' Solutions Manual
"1105 1-3>
L1A% A+T1 TO 25A4 O<< MO*5 1:1T5M %*OF5M1!L THE WALL
STEET !"#$AL! 9OM5M5* 6! 1AAA! 95AF 5. O045TT5.
1. 1A% develops and sells 5*% software which offers the
benefits of implementing an enterprise resource planning
system to handle an array of business functions in an
organi&ation! ranging from supply ordering to filling
customer orders! to keeping payroll and personnel
records! to product costing
$. Managerial accounting information could help the
management team assess the costs and benefits of
installing an 5*% system. <or example! what new costs
would be incurred! and what current costs could be
avoided.
"1105 1-3?
LD2: T2"9,1 ,O 5TT5* AT +ON5!L !"#$AL "F &#SI$ESS
STATE%'! /A90A*:K<5*0A*: 1AAA! *"+N D"15.
The elements of coke-s story are not uni.ue. +ustomer
selection! value capture! strategic control! scope and
organi&ational systems are the five dimensions upon which
coke focused when revitali&ing and reinventing itself. These
dimensions include becoming customer-centric! becoming
expansive and dynamic in its view of the marketplace! and
placing an emphasis on the strategic dimensions that drive
shareholder value growth.
+oke determined which sets of customers held the greatest
potential for long-term growth and focused on them. The
company moved from capturing value through product sales
and service fees to financing! adopting and creating
ancillary products! providing business solutions! and
licensing. "t focused on activities that were customer-
relevant in order to generate higher profits. +oke-s
McGraw-Hill/Irwin 2002 The McGraw-Hill Companies,
Inc.
Managerial Accounting, 5/e 1-%(
management then reorgani&ed it business systems to focus
on these elements.
"n the past twenty years! +oke has moved from syrup
distribution to a highly-aligned and efficient manufacturer-
bottler-distribution system. +oke has become the world-s
strongest brand! has become more cost-effective in
advertising! and has created a large number of solid
positions in international markets.
"1105 1-3@
L+O09T"9, MO*5! +O09T"9, F511' T*A91<O*MAT"O9 "9 T25
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STEET !"#$AL! 15%T5M5* 1AAA! N5"T2 A. *0115FF!
,A*: 2. 1"5,5F! A94 +.1. L04L N0F51OA.
Management accountants will use several methods to
broaden their role to that of strategic partners. Already
many (67 percent in the larger companies) have physically
located themselves in the operating departments they
service. About 7> percent are working on cross-functional
teams and are actively involved in the decision making
process.
Management accountants are redefining themselves. Only
33 percent use the term accounting to describe their
function. About two thirds use finance or some other
descriptive term when defining their activities.
These activities and methods to move toward strategic
partnership have improved the image of management
accountants to the extent that ?B percent of those outside
the finance function believe that management accountants
bring more value to their company.
Activities are shifting from traditional accounting work to
the more value-added activities of internal consulting! long-
term strategic planning! computer systems and operations!
managing the accountingKfinance function! process
improvement! and performing financial and economic
analysis.
McGraw-Hill/Irwin 2002 The McGraw-Hill Companies,
Inc.
1$%) Solutions Manual
These changes in the role of the finance function are
resulting in accountants becoming business partners and
consultants in management decisions. As finance is more
involved with other aspects of business! accountants are
becoming involved in more planning and strategic decisions.
+omputeri&ed technology! team decision-making and
evaluating company efficiency are other areas affecting
accountants and the business roles within which they are
involved.
+hanges expected over the next three years include less
reporting of information and more planning and analysisC
more computeri&ed technology and softwareC more
partnering and consulting in management decisionsC more
involvement with operationsC and more analysis of
profitability and performance evaluation.
"1105 1-3A
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E59AN"1.
2igh-end software vendors have moved from the vanilla
applications of the early 1AABs to a business model more
reminiscent of the 1A@Bs. They are targeting vertical
industries! market niches and bundling broad-based value-
added applications such as analytics. Analytics! a category
of software! enables managers to gain meaningful
information from the billions of transactions stored in
accounting software databases. These trends have resulted
in a spree of buyouts and mergers in order to gain new
software. 1trategic positioning has resulted in nearly all
software now being web-based and e-commerce based.
"1105 1-6B
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WEE() /A90A*: @! $BB1! /0F"5 <O*1T5*.
1. Through the managerial accounting process!
executives at ,eneral Mills knew the company was
wasting money on empty truck miles.
McGraw-Hill/Irwin 2002 The McGraw-Hill Companies,
Inc.
Managerial Accounting, 5/e 1-%*
$. 5mpty truck miles occur when drivers empty their
loads at a location and have to drive to another
location with empty trucks to pick up their next load.
5mpty truck miles also occur when drivers transport
less than a full load to a location.
3. The cost of these empty truck miles has been
substantially reduced and often eliminated through
the establishment of an e-commerce site accessible
by industry competitors. y making available route
information regarding loads! capacities! and
timetables! competing companies can piggyback on
each other-s trucks and deliver goods at a lower cost
by loading trucks to capacity.
"1105 1-61
G451",954 <O* "9T5*A+T"O9!I F"T#$E! /A90A*: $$! $BB1!
/511"+A 109,.
1. The new approach to form management teams at 15"
"nvestments depends on the close physical proximity of
team participants. 15" formation of management teams
depends on moveable furniture and employees being able
to connect into ceiling level communications ports. This
allows them the flexibility to create teams -on the fly-.
Their no walls structure allows the moving of people and
furniture into close proximity so everyone is visible and
accessible to one another! even the +5O. The
environment allows more than closer communication! it
allows people to live together.
$. 1ince this type of team building is predicated on the
physical closeness of the participants! it would be
successful only where the physical re.uirements make it
feasible.
McGraw-Hill/Irwin 2002 The McGraw-Hill Companies,
Inc.
1$%+ Solutions Manual