Cost Accounting: Information for Decision Making
Solutions to Review Questions
Financial accounting is designed to provide information about the firm to external users. External users include investors, creditors, government authorities, regulators, customers, competitors, suppliers, labor unions, and so on. Cost accounting systems are designed to provide information to internal users (managers). This difference is important, because it affects the design of the systems. Financial accounting systems are based on standards or rules. This allows the user to compare the results of different firms. Managerial accounting systems do not require rules. Each firm is free to develop managerial accounting systems that best serve the needs of the decision makers (managers). 1-2.
Providing cost information for financial reporting
Identifying the best store in a chain
Determining which plant to use for production
The value chain is the set of activities that transforms raw resources into the goods and services end users purchase and consume. The supply chain includes the set of firms and individuals that sells goods and services to the firm. The distribution chain is the set of firms and individuals that buys and distributes goods and services from the firm. 1-4.
The customers of cost accounting are managers, from plant managers to the CEO. 1-5.
Value-added activities are activities that customers perceive as adding utility to the goods or services they purchase. Nonvalue-added activities do not add value to the goods or services. By classifying costs this way, the cost accounting system can help the manager identify areas (processes) that can be improved, lowering costs and adding value to the organization.
Answers will vary, but should include some of the following:
Major Responsibilities and Major Duties
Chief financial officer (CFO)
Manages entire finance and accounting function
Manages liquid assets
Conducts business with banks and other financial institutions Oversees public issues of stock and debt
Plans and designs information and incentive systems
Ensures compliance with laws, regulations, and company policies and procedures Provides consulting and auditing services within the firm
Records, measures, estimates, and analyzes costs
Works with financial and operational manager to provide relevant information for decisions
No. Sarbanes-Oxley is a law and violations of it are legal issues. Codes of ethics are necessary to help accountants and managers identify situations that might develop into ethical conflicts, understand what they could do in these situations, and to learn what to do when they believe that an ethical violation has occurred.
Solutions to Critical Analysis and Discussion Questions
The calculation of cost depends on the decision being made. Therefore, the first question to ask is, “What decision (or decisions) are you trying to make?” 1-9.
Costs that you could ask to be reimbursed might include the fuel, a share of the maintenance costs, “wear and tear,” or depreciation, and insurance. To avoid disagreements, it would be necessary to negotiate an agreement (even if only informally) between you and your friend considering all factors. For example, you might agree that she should pay for the gas and any other supplies (e.g., oil) needed on the trip. If you are going along, you might change the agreement so that you split these costs. Alternatively, you might say that because you are going anyway, she can ride along for nothing. 1-10.
Although it is not the “job” of accounting to determine strategy, accounting provides important information to those who do determine strategy. If the cost accounting system provides inaccurate information, the firm may end up with an unintended strategy, because managers are making decisions based on faulty...
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