Chapter 1Introduction to Cost Management

LEARNING OBJECTIE!
LO 1 What are the relationships among financial, management, and cost accounting?
LO 2 What are two common organizational strategies?
LO 3 What is a value chain, and what are the major value chain functions?
LO 4 ow is a !alanced scorecard used to implement an organization"s strateg#?
LO $ Wh# must accountants understand an organization"s structure to perform effectivel#
in that organization?
LO % What are the sources of ethical standards for cost accountants?
LO & What are the sources of authoritative pronouncements for the practice of cost
accounting?
"#E!TION GRI$
True/False
Difficulty Level Learning Objectives
Easy Moderate Difficult LO 1 LO 2 LO 3 LO 4 LO LO ! LO "
1 X x
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Difficulty Level Learning Objectives
1
Easy Moderate Difficult LO 1 LO 2 LO 3 LO 4 LO LO ! LO "
32 X x
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#o$%letion
Difficulty Level Learning Objectives
Easy Moderate Difficult LO 1 LO 2 LO 3 LO 4 LO LO ! LO "
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Multi%le #&oice
Difficulty Level Learning Objectives
Easy Moderate Difficult LO 1 LO 2 LO 3 LO 4 LO LO ! LO "
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21 X x
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Difficulty Level Learning Objectives
Easy Moderate Difficult LO 1 LO 2 LO 3 LO 4 LO LO ! LO "
25 X X
2
26 x X
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'&ort (ns)er
Difficulty Level Learning Objectives
Easy Moderate Difficult LO 1 LO 2 LO 3 LO 4 LO LO ! LO "
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3
TR#E%&AL!E
1' (eturn on investment was used in the 1)**"s to evaluate !usiness operations'
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2' 2inancial accounting is most concerned with meeting the needs of internal users'
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3' 2inancial accounting is most concerned with meeting the needs of e7ternal users'
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4' 8anagerial accounting is most concerned with meeting the needs of internal users'
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$' 2inancial accounting is most concerned with meeting the needs of e7ternal users'
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%' 2inancial accounting is highl# regulated !# rules and regulations'
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&' 8anagerial accounting is highl# regulated !# rules and regulations'
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9' 2inancial accounting is most concerned with addressing the needs of the firm as a whole
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)' 8anagerial accounting is most concerned with addressing the needs of the firm as a whole
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1*' 2inancial accounting is most concerned with addressing the needs of individual departments of the
firm'
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11' 8anagerial accounting is most concerned with addressing the needs of individual departments of the
firm'
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12' :ost accounting serves as a !ridge !etween financial and managerial accounting'
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4
13' 8ission statements t#picall# remain unchanged throughout the life of an organization'
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14' +n organization"s strateg# should reflect the organization"s core competencies'
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1$' +n organization"s strateg# is the guiding force for its mission'
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1%' /he learning and growth perspective of the !alanced scorecard focuses on using an organization"s
intellectual capital to adapt to or influence customer needs and e7pectations'
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1&' /he internal !usiness perspective of the !alanced scorecard focuses on using an organization"s
intellectual capital to adapt to or influence customer needs and e7pectations'
+,-. 2 012. 8oderate O45. 164
19' /he customer value perspective of the !alanced scorecard focuses on using an organization"s
intellectual capital to adapt to or influence customer needs and e7pectations'
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1)' /he financial perspective of the !alanced scorecard focuses on using an organization"s intellectual
capital to adapt to or influence customer needs and e7pectations'
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2*' /he internal !usiness perspective of the !alanced scorecard addresses the things that an organization
needs to do well to meet customer needs and e7pectations'
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21' /he learning and growth perspective of the !alanced scorecard addresses the things that an
organization needs to do well to meet customer needs and e7pectations'
+,-. 2 012. 8oderate O45. 164
22' /he customer value perspective of the !alanced scorecard addresses the things that an organization
needs to do well to meet customer needs and e7pectations'
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23' /he financial perspective of the !alanced scorecard addresses the things that an organization needs to
do well to meet customer needs and e7pectations'
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$
24' /he customer value perspective of the !alanced scorecard addresses how well the organization is
doing with regard to important customer criteria'
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2$' /he learning and growth perspective of the !alanced scorecard addresses how well the organization is
doing with regard to important customer criteria'
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2%' /he internal !usiness of the !alanced scorecard addresses how well the organization is doing with
regard to important customer criteria'
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2&' /he financial perspective of the !alanced scorecard addresses how well the organization is doing with
regard to important customer criteria'
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29' /he financial perspective of the !alanced scorecard addresses sta;eholder concerns a!out profita!ilit#
and organizational growth'
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2)' /he learning and growth perspective of the !alanced scorecard addresses sta;eholder concerns a!out
profita!ilit# and organizational growth'
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3*' /he internal !usiness perspective of the !alanced scorecard addresses sta;eholder concerns a!out
profita!ilit# and organizational growth'
+,-. 2 012. 8oderate O45. 164
31' /he customer value perspective of the !alanced scorecard addresses sta;eholder concerns a!out
profita!ilit# and organizational growth'
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32' +n organization"s return on assets <(O+= is an e7ample of a lead indicator'
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33' Line personnel give assistance to staff emplo#ees'
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34' Line managers are directl# responsi!le for achieving organizational goals'
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%
3$' /he -ar!anes6O7le# +ct of 2**2 provides legal protection for individuals who report illegal
organizational activities to appropriate persons or agencies'
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3%' /he 2oreign :orrupt >ractices +ct of 1)&& provides legal protection for individuals who report illegal
organizational activities to appropriate persons or agencies'
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COM'LETION
1' /he !ranch of accounting that is most concerned with addressing the needs of the firm as a whole is
??????????????????? accounting
+,-. financial
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2' /he !ranch of accounting that is most concerned with addressing the needs of specific departments of
the firm is ??????????????????? accounting
+,-. managerial
012. 3as# O45. 161
3' /he !ranch of accounting that serves as a !ridge !etween financial and managerial accounting is
?????????? accounting'
+,-. cost
012. 3as# O45. 161
4' /he !alanced scorecard perspective that focuses on using a firm"s intellectual capital to adapt to
customer needs through product or service innovations is the ???????????????????
perspective'
+,-. learning and growth
012. 8oderate O45. 164
$' /he !alanced scorecard perspective that addresses things that an organization needs to do well to meet
customer needs and e7pectations is the ????????????????????????????????
perspective'
+,-. internal !usiness
012. 8oderate O45. 164
%' /he !alanced scorecard perspective that addresses how well the organization is meeting specific
customer6!ased criteria is the ???????????????????????????? perspective'
+,-. customer value
&
012. 8oderate O45. 164
&' /he !alanced scorecard perspective that addresses concerns a!out organizational growth is the
???????????????????? perspective'
+,-. financial
012. 8oderate O45. 164
9' /he ????????????????????????? restates an organization"s strateg# into clear and o!jective
performance measures'
+,-. !alanced scorecard
012. 3as# O45. 164
)' Outcomes that have resulted from past actions are also referred to as ????????? indicators'
+,-. lag
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1*' 0ata that reflects future financial and non6financial outcomes is referred to as ???????? indicators'
+,-. lead
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11' /he e7pression of what an organization wishes to accomplish and how it will serve its customers is
contained in the ??????????????????????????'
+,-. mission statement
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12' /he plan in which an organization indicates how it will fulfill its goals is referred to as a ??????????'
+,-. strateg#
012. 3as# O45. 162
13' + function or activit# in which an organization see;s to e7cel a!ove its competitors is a
???????????????????????????'
+,-. core competenc#'
012. 3as# O45. 162
14' /he wa# in which authorit# and responsi!ilit# are distri!uted in an organization is
?????????????????????????'
9
+,-. organizational structure
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M#LTI'LE C(OICE
1' 1n comparing financial and management accounting, which of the following more accuratel# descri!es
management accounting information?
a' historical, precise, useful
!' re@uired, estimated, internal
c' !udgeted, informative, adapta!le
d' compara!le, verifia!le, monetar#
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2' 8anagement and financial accounting are used for which of the following purposes?
8anagement accounting 2inancial accounting
a'
internal external
!'
external internal
c'
internal internal
d'
external external
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3' One major difference !etween financial and management accounting is that
a' financial accounting reports are prepared primaril# for users e7ternal to the compan#'
!' management accounting is not under the jurisdiction of the -ecurities and 37change
:ommission'
c' government regulations do not appl# to management accounting'
d' all of the a!ove are true'
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4' Which of the following statements a!out management or financial accounting is )a*se?
a' 2inancial accounting must follow A++>'
!' 8anagement accounting is not su!ject to regulator# reporting standards'
c' 4oth management and financial accounting are su!ject to mandator# record;eeping
re@uirements'
d' 8anagement accounting should !e fle7i!le'
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$' 8anagement accounting
a' is more concerned with the future than is financial accounting'
!' is less concerned with segments of a compan# than is financial accounting'
c' is more constrained !# rules and regulations than is financial accounting'
d' all of the a!ove are true'
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%' 8odern management accounting can !e characterized !# its
a' fle7i!ilit#'
!' standardization'
)
c' comple7it#'
d' precision'
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&' Which of the following is not a valid method for determining product cost?
a' ar!itrar# assignment
!' direct measurement
c' s#stematic allocation
d' cost6!enefit measurement
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9' 4roadl# spea;ing, cost accounting can !e defined as a<n=
a' e7ternal reporting s#stem that is !ased on activit#6!ased costs'
!' s#stem used for providing the government and creditors with information a!out a
compan#Bs internal operations'
c' internal reporting s#stem that provides product costing and other information used !#
managers in performing their functions'
d' internal reporting s#stem needed !# manufacturers to !e in compliance with :ost
+ccounting -tandards 4oard pronouncements'
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)' :ost accounting is directed toward the needs of
a' regulator# agencies'
!' e7ternal users'
c' internal users'
d' stoc;holders'
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1*' :ost accounting is necessitated !#
a' the high degree of conversion found in certain !usinesses'
!' regulator# re@uirements for manufacturing companies'
c' managementBs need to !e aware of all production activities'
d' managementBs need for information to !e used for planning and controlling activities'
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11' /he process of ??????????? causes the need for cost accounting'
a' conversion
!' sales
c' controlling
d' allocating
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12' 2inancial accounting
a' is primaril# concerned with internal reporting'
!' is more concerned with verifia!le, historical information than is cost accounting'
c' focuses on the parts of the organization rather than the whole'
d' is specificall# directed at management decision6ma;ing needs'
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1*
13' 2inancial accounting and cost accounting are !oth highl# concerned with
a' preparing !udgets'
!' determining product cost'
c' providing managers with information necessar# for control purposes'
d' determining performance standards'
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14' Which of the following topics is of more concern to management accounting than to cost accounting?
a' generall# accepted accounting principles
!' inventor# valuation
c' cost of goods sold valuation
d' impact of economic conditions on compan# operations
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1$' :ost and management accounting
a' re@uire an entirel# separate group of accounts than financial accounting uses'
!' focus solel# on determining how much it costs to manufacture a product or provide a
service'
c' provide productCservice cost information as well as information for internal decision
ma;ing'
d' are re@uired for !usiness record;eeping as are financial and ta7 accounting'
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1%' Which of the following statements is true?
a' 8anagement accounting is a su!set of cost accounting'
!' :ost accounting is a su!set of !oth management and financial accounting'
c' 8anagement accounting is a su!set of !oth cost and financial accounting'
d' 2inancial accounting is a su!set of cost accounting'
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1&' Which of the following statements is )a*se?
a' + primar# purpose of cost accounting is to determine valuations needed for e7ternal
financial statements'
!' + primar# purpose of management accounting is to provide information to managers for
use in planning, controlling, and decision ma;ing'
c' /he act of converting production inputs into finished products or services necessitates cost
accounting'
d' /wo primar# hallmar;s of cost and management accounting are standardization of
procedures and use of generall# accepted accounting principles'
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19' + long6term plan that fulfills the goals and o!jectives of an organization is ;nown as a<n=
a' management st#le'
!' strateg#'
c' mission statement'
d' operational mission'
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1)' :ore competencies are not
a' internal functions crucial to the success and survival of a compan#'
11
!' attri!utes that ;eep a firm from competing'
c' different for ever# organization'
d' considered influences on corporate strategies'
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2*' /he set of processes that convert inputs into services and products that consumers use is called
a' a core competenc#'
!' an operational plan'
c' the value chain'
d' the product life c#cle'
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21' /he !alanced scorecard perspective that focuses on using a firm"s intellectual capital to adapt to
customer needs through product or service innovations is the.
a' learning and growth perspective c' customer value perspective
!' internal !usiness perspective d' financial perspective
+,-. + 012. 3as# O45. 164
22' /he !alanced scorecard perspective that addresses things that an organization needs to do well to meet
customer needs and e7pectations.
a' learning and growth perspective c' customer value perspective
!' internal !usiness perspective d' financial perspective
+,-. 4 012. 3as# O45. 164
23' /he !alanced scorecard perspective that addresses how well the organization is meeting specific
customer6!ased criteria is the.
a' learning and growth perspective c' customer value perspective
!' internal !usiness perspective d' financial perspective
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24' /he !alanced scorecard perspective that addresses concerns a!out organizational growth is the.
a' learning and growth perspective c' customer value perspective
!' internal !usiness perspective d' financial perspective
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2$' /he world has essentiall# !ecome smaller !ecause of
a' improved technolog#'
!' trade agreements'
c' !etter communications s#stems'
d' all of the a!ove'
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2%' /he value chain
a' reflects the production of goods within an organizational conte7t'
!' is concerned with upstream suppliers, !ut not downstream customers'
c' results when all non6value6added activities are eliminated from a production process'
d' is the foundation of strategic resource management'
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12
2&' 1n a glo!al econom#,
a' the trade of goods and services is focused on trade !etween or among countries on the
same continent'
!' the international movement of la!or is prohi!ited e7cept for multilingual persons'
c' the international flows of capital and information are common'
d' all of the a!ove happen in a glo!al econom#'
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29' Which of the following D'-' legislation relates to !ri!es !eing offered to foreign officials?
a' (ac;eteer 1nfluenced and :orrupt Organizations +ct
!' 2oreign 1llegal +ctivities +ct
c' 2oreign :orrupt >ractices +ct
d' 2ederal 4ri!er# and :orrupt >ractices +ct
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2)' /he organization whose primar# function is to provide a means to share information among cost and
management accountants in the Dnited -tates is the
a' 1nternal (evenue -ervice'
!' +merican 1nstitute of :>+s'
c' 1nstitute of 8anagement +ccountants'
d' 1nstitute of :ertified 8anagement +ccountants'
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3*' /he 1nstitute of 8anagement +ccountants issues
a' -tatements on +ccounting (esearch for 8anagers'
!' -tatements on 8anagement +ccounting'
c' -tatements on 8anagerial and :ost +ccounting'
d' :ost +ccounting -tandards'
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31' /he 1nstitute of 8anagement +ccountantsB :ode of 3thics
a' is a legall# enforcea!le contract with all management accountants'
!' should !e viewed as a goal for professional !ehavior'
c' is a legall# enforcea!le contract with all :>+s'
d' provides wa#s to measure departures from ethical !ehavior'
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32' /he ethical standards esta!lished for management accountants are in the areas of
a' competence, licensing, reporting, and education'
!' !udgeting, cost allocation, product costing, and insider trading'
c' competence, confidentialit#, integrit#, and o!jectivit#'
d' disclosure, communication, decision ma;ing, and planning'
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33' /he 2oreign :orrupt >ractices +ct is directed at
a' D'-' !usinesses operating overseas'
!' foreign !usinesses operating in the D'-'
c' all !usinesses dealing with D'-' consumers'
d' D'-' !usinesses operating in developed nations'
13
+,-. + 012. 8oderate O45. 16%
34' + managerial accountant who communicates information o!jectivel# is e7ercising which of the
following standards?
a' o!jectivit# c' competence
!' integrit# d' confidentialit#
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3$' + managerial accountant who prepares clear reports and recommendations after anal#zing relevant
facts is e7ercising which of the following standards?
a' o!jectivit# c' competence
!' integrit# d' confidentialit#
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3%' :ost accounting standards
a' are legal standards set !# the 1nstitute of 8anagement +ccountants for use in all
manufacturing and professional !usinesses'
!' are set !# the :ost +ccounting -tandards 4oard and are legall# !inding on all
manufacturers, !ut not service organizations'
c' do not e7ist e7cept for those legal pronouncements for companies !idding or pricing cost6
related contracts with the government'
d' are developed !# the :ost +ccounting -tandards 4oard, issued !# the 1nstitute of
8anagement +ccountants, and are legall# !inding on :8+s'
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!(ORT AN!+ER
1' On what needs do <1= management accounting and <2= financial accounting focus?
+,-.
8anagement accounting focuses on the needs of users inside an organization' 8anagers need
information related to planning, controlling, decision ma;ing, and performance evaluation' /heir needs
are satisfied through the providing of information designed for their particular uses' 2inancial
accounting focuses on the needs of users outside the organization, such as stoc;holders, creditors, and
regulator# agencies' /hese users re@uire information that is in conformit# with generall# accepted
accounting principles and, thus, is standardized in the form of general purpose financial statements'
012. 8oderate O45. 161
2' 0efine value chain and provide a graphic of the interacting flows of information within the value
chain'
+,-.
/he value chain is the set of processes that convert inputs into products and services for a firmBs
customers' 1t includes !oth internal and e7ternal processes' 1t encompasses !oth upstream and
downstream entities' + depiction of the value chain and its information flows is shown in 37hi!it 16%'
012. 8oderate O45. 16$
3' List and e7plain the four perspectives of the !alanced scorecard <4-:='
14
+,-.
Learning and growth perspective662ocuses on using an organization"s intellectual capital to adapt to or
influence changing customer needs'
1nternal !usiness perspective66+ddresses those things that an organization needs to do well to meet
customer needs and e7pectations'
:ustomer value perspective66+ddresses how well the organization is doing relative to important
customer criteria'
2inancial perspective66+ddresses the concerns of sta;eholders a!out profita!ilit# and organizational
growth'
012. 8oderate O45. 164
4' 0istinguish !etween lead indicators and lag indicators, and provide an e7ample of each' Which of
these indicators is a !etter guide for strategic planning?
+,-.
+ lag indicator is an outcome that has resulted from past actions' + common lag indicator is
profita!ilit#' Other similar performance measures are also accepta!le answers'
+ lead indicator reflects future financial and nonfinancial outcomes' +n good e7ample would !e the
num!er of emplo#ees trained on a new transaction processing s#stem' Lead indicators are !etter
guides for strategic planning, !ecause the# provide information on outcomes more @uic;l# than do lag
indicators'
012. 8oderate O45. 164
$' What four areas are covered !# the -tandards of 3thical :onduct for :ertified 8anagement
+ccountants? ow are these areas defined?
+,-.
/he four areas covered !# the -tandards of 3thical :onduct for :ertified 8anagement +ccountants
are. competence, confidentialit#, integrit#, and o!jectivit#' :ompetence means having the capacit# to
function in a particular manner'
:onfidentialit# means having the a!ilit# to maintain or ;eep information undisclosed' 1ntegrit# is
defined as adherence to a code of moral values' O!jectivit# is defined as e7pressing or using facts
without distortion !# personal feelings or prejudices'
012. 8oderate O45. 16%
1$