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CHAPTER 2 MANAGEMENT ACCOUNTING
AND THE BUSINESS ENVIRONMENT
I. Questions
Chapter 8 Cost Conceptsand Classifications
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 orsolve 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 ofactivities that can be eliminated with no deterioration of product quality, performance,or
perceived value.
3. Managers rely on many information systems in addition to managerial- accounting information. Examples of other information
systems include economic analysis and forecasting, marketing research, legal research and analysis, and technicalinformation
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 cottonshirts
Some activities in the value chain of an airline are as follows:
(a) Making reservations and ticketing
(b) Designing the route network
(c) Scheduling
(d) Purchasing aircraft
(e) Maintaining aircraft
(f) Running airport operations, including handling baggage
(g) Serving food and beverages in flight
(h) Flying passengers and cargo
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Cost Concepts and Classifications Chapter 8
6. Strategic cost management is the process ofunderstanding and managing,to the organization’s advantage,the costrelationships
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 sequenceofbusiness functions whose objective is to provide a product to a customerorprovide an intermediate
good orservice in a larger value chain. These business functions include R&D, design,production,marketing, distribution, and
customerservice.
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.
Cost: Organizations are undercontinuous pressure to reduce the cost of the products orservices they sell to their
customers.
Quality: 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 nowheightenedrecognition thata continuingflow of innovative products orservices is a prerequisite for the
ongoing success of most organizations.
10. Managers make planning decisions and controldecisions.Planning decisions include decidingon 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 feedbackthat
will help future decision making.
11. Four themes for managers to attain success are customerfocus,value- chain and supply-chain analysis, key success factors,and
continuous improvement and benchmarking.
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Chapter 8 Cost Conceptsand Classifications
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 perhour,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 psychologicalmeasurements, customersatisfaction 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 satisfactionscores.
16. 16.
Stakeholders Contribution Requirements
Effort, skills, information
Goods, services,information
Rewards, interesting jobs, economic security,proper
treatment
Financial rewards commensurate with the risk taken
Owners Capital Financial rewards
Allows the organization tooperate Conformance to laws, good corporate
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Cost Concepts and Classifications Chapter 8
and does not oppose its operation 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 longrun.
An activity that cannot be classified as value-added is a nonvalue-added activity:
a. Value-added
b. Nonvalue-added
c. Nonvalue-added
d. Value-added
e. Nonvalue-added
f. Nonvalue-added
g. Value-added
h. Value-added
i
. Nonvalue-added
j
. Value-added
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.
20. Managerial accounting is concerned with providing information to managers for use within the organization. Financial
accounting is con- cerned with providing information to stockholders, creditors, and others outside of the organization.
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Chapter 8 Cost Conceptsand Classifications
21. A strategy is a game plan that enables a company to attract customers by distinguishingitselffrom competitors.The focal point
of a company’s strategy should be its target customers.
II. Multiple Choice Questions
11. B 21.A 31. B
12. A 22.B 32. C
13. D 23.C 33. C
14. A 24.D
15. D 25.A
16. A 26.A
17. C 27.B
18. B 28.C
19. D 29.B
20. B 30.A
