CHAPTER 1 The Changing Role of Managerial Accounting in a Dynamic Business Environment

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. Businesses 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. In 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. 1.2 Plausible goals for the organizations listed are as follows: and maintain sales of books,

(a) (1) To achieve profitability, and (2) to grow on-line music, and other goods.

(b) American Red Cross: (1) To raise funds from the general public sufficient to have resources available to meet any disaster that may occur, and (2) to provide assistance to people who are victims of a disaster anywhere in the country on short notice. (c) General Motors: (1) To earn income sufficient to provide a good return on the investment of the
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company's stockholders, and (2) to provide the highestquality product possible. (d) J. C. Penney: (1) To penetrate the retail market in virtually every location in the United States, and (2) to grow over time in terms of number of retail locations, total assets, and earnings. (e) City of Pittsburgh: (1) To maintain an urban environment as free of pollution as possible, and (2) to provide public safety, police, and fire protection to the city's citizens. (f)Hertz: (1) To be a recognizable household name associated with rental car services, and (2) 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) Decision making: alternatives. Choosing among the available and

(b) Planning: Developing a detailed financial operational description of anticipated operations.

(c) Directing operations: Running the organization on a day-to-day basis. (d) Controlling: Ensuring that the organization operates in the intended manner and achieves its goals. 1-4 Examples of the four primary management activities in the context of a national fast-food chain, such as McDonald's or Pizza Hut, are as follows: (a) Decision making: Choosing among several possible locations for a new fast-food outlet. (b) Planning: Developing a cost budget for the food and paper products to be used during the next quarter in a particular fast-food restaurant.

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and these income reports are used to evaluate the earnings performance of each sector during the relevant time period. subunits. (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. and other employees within the organization: Quarterly income statements are prepared for each of the airline's major geographical sectors. (d) Controlling: Comparing 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. (d) Measuring the performance of activities. 1-5 Examples of the objectives of managerial-accounting activity in an airline company are described below: (a) Providing 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 New York to Miami and actively participate in making the decision about adding the flight. Managerial Accounting. The budget is given to the airline's baggage handling manager. (e) Assessing the organization's competitive position and working with other managers to ensure the organization's long-run competitiveness in its industry: McGraw-Hill/Irwin Inc.(c) Directing operations: Developing detailed schedules for personnel for the next month to provide counter service in a particular fast-food restaurant. 1-3 . 5/e © 2002 The McGraw-Hill Companies. who is expected to strive to achieve the budget. managers. (c) Motivating managers and other employees toward the organization's goals: A budget is provided for the cost of handling baggage at O'Hare Airport in Chicago.

mishandled baggage. such as departments. 1-7 The cost-accounting system is one part of an organization's overall accounting system. divisions. estimates. or product lines. Financialaccounting reports focus on the enterprise in its entirety. For example. ontime departures. Solutions Manual . and safety? 1-6 Four important differences between managerial accounting and financial accounting are listed below: (a) Managerial-accounting information is provided to managers within the organization. physical quantities of material and labor used in production. (b) Managerial-accounting reports are not required and are unregulated. whereas financial-accounting reports are required and must conform to generally accepted accounting principles. how does the airline stack up against its competitors in ticket prices. These reports are based on a combination of historical data. and average takeoff delays in airlines. The primary source of data for financial-accounting information is almost exclusively the organization's basic accounting system. (d) Managerial-accounting reports often focus on subunits within the organization. whereas financialaccounting information is provided to interested parties outside the organization. the purpose of which is to accumulate cost information.Information about industry-wide performance standards is obtained and compared with the airline's own performance. occupancy rates in hotels and hospitals. which accumulates financial information. These sources include such data as rates of defective products manufactured. 1-4 © 2002 The McGraw-Hill Companies. customer complaints. plus various other sources. and projections of future events. These reports are based almost exclusively on historical transaction data. geographical regions. (c) The primary source of data for managerialaccounting information is the organization's basic accounting system. Cost information McGraw-Hill/Irwin Inc.

but they are indirectly involved in operations. research and public service as its three primary goals. Universities. who is the university's chief executive officer. on the other hand. 1-5 . McGraw-Hill/Irwin Inc. between a profit-seeking enterprise and a nonprofit organization like a university. credit policy. 5/e © 2002 The McGraw-Hill Companies. 1. Among the treasurer's responsibilities is the management of an organization's investments. who is the university's chief lawyer. Managerial Accounting. and the other points on the balanced scorecard are oriented toward helping the entries achieve that goal of profitability.10 A college or university could use the balanced scorecard as a management tool just like any other business. which are sometimes in competition with each other. There is one important difference.accumulated by the cost-accounting system is used for both managerial-accounting and financial-accounting purposes. and the director of maintenance. and insurance coverage. and controlling an organization's operations. a land-grant university may have teaching. Examples of staff positions in a university are the university counsel. Managers in staff positions support the organization's overall objectives. For example. directing. who is charged with maintaining the university's facilities. and the provost. usually have multiple goals. Managerial accounting is the broad task of preparing information for making decisions about planning. 1-9 An organization's controller (or comptroller) is the chief managerial and financial accountant. The treasurer typically is responsible for raising capital and safeguarding the organization's assets. 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. Examples of line positions in a university are the president. A profit-seeking enterprise generally has long-term profitability as its foremost goal. however. who is the university's chief academic officer. 1-8 Managers in line positions are directly involved in the provision of services or the production of goods in an organization.

1-6 © 2002 The McGraw-Hill Companies. 1-13 Both manufacturing and service industry firms are engaged in production. 1-12 Managerial-accounting information often brings to the attention of managers important issues that need their managerial experience and skills. managerial-accounting information will not answer the question or solve the problem. The primary difference between these types of companies is that manufacturing firms produce inventoriable goods. but rather make management aware that the issue or problem exists. In many cases. and the extent to which the university’s facilities are up to date and well maintained. and publication of journal articles and books by faculty.  Innovation and learning: Dollars of research grants obtained. it is possible for a college or university to develop performance measures for each of the areas in the balanced scorecard. Managerial accountants are increasingly deployed as key members of management teams. whereas the services produced by service industry firms are not inventoriable. Solutions Manual . 1-11 This quote from a managerial accountant at Caterpillar suggests that managerial accountants are physically located throughout an organization where the day-to-day work is being done.  Customer: Class evaluations by students.Nevertheless. McGraw-Hill/Irwin Inc. and job placement rates for students. rather than being sequestered off by themselves as was the tendency some years ago. In this sense. managerial accounting sometimes is said to serve an attention-directing role. and the extent to which the university operates with a balanced budget.  Internal operations: Tenure rates for faculty. Some examples follow:  Financial: Amount of the unrestricted endowment supporting the university’s activities.

1-16 CMA stands for Certified Management Accountant. reduce costs. to determine the efficiency and effectiveness of all major activities. 1-15 E-commerce is defined as buying and selling over digital media. (d) Empowerment is the concept of encouraging and authorizing workers to take their own initiative to improve operations. to identify and eliminate non-value-added costs. and improve product quality and customer service. which not only encompasses e-commerce. The requirements for becoming a CMA McGraw-Hill/Irwin Inc. 1-14 (a) In a just-in-time (or JIT) production environment. but also includes the electronic business processes that form the engine of modern business. (e) Total quality management (or TQM) is the broad set of management and control processes designed to focus the entire organization and all of its employees on providing products or services that do the best possible job of satisfying the customer. E-business is a broader concept. raw materials and components are purchased or produced just in time to be used at each stage in the production process. (c) A cost management system is a management planning and control system with the following objectives: to measure the cost of the resources consumed in performing the organization's significant activities. and to identify and evaluate new activities that can improve the future performance of the organization. 1-7 . This title is the professional certification for managerial accountants administered by the Institute of Management Accountants.Services. such as air transportation or hotel service. 5/e © 2002 The McGraw-Hill Companies. with computers controlling the entire production process. Managerial Accounting. (b) A computer-integrated manufacturing (CIM) system is the most advanced form of automated manufacturing system. are consumed as they are produced.

directing. (d) Objectivity: Communication objectively. McGraw-Hill/Irwin Inc. and preparation of complete and clear reports for management. and controlling operations. and fully. planning. of information fairly. (c) Integrity: Avoidance of conflicts of interest in activities that would prejudice the managerial accountant's ability to carry out his or her duties ethically. 1-18 Non-value-added costs are the costs of activities that can be eliminated with no deterioration of product quality. using. or appearing to use confidential information acquired in the course of the managerial accountant's work. Solutions Manual . 1-21 Becoming the low-cost producer in an industry requires a clear understanding by management of the costs incurred in its production process. performance. adherence to regulations and technical standards. 1-8 © 2002 The McGraw-Hill Companies. Reports and analysis of these costs are a primary function of managerial accounting. 1-17 (a) Competence: Ongoing development of knowledge and skills. Examples of other information systems include economic analysis and forecasting. or perceived value. performance of duties in accordance with relevant laws. 1-19 Managers rely on many information systems in addition to managerial-accounting information. legal research and analysis. and refrainment from other activities that would discredit the profession. marketing research. Managers in nonprofit organizations also need managerial-accounting information for decision making. 1-20 Managerial accounting is just as important in nonprofit organizations as it is in profit-seeking enterprises.include fulfilling specified educational requirements and successfully passing the CMA examination. (b) Confidentiality: Refrainment from disclosing. and technical information provided by engineers and production specialists.

McGraw-Hill/Irwin Inc. 5/e © 2002 The McGraw-Hill Companies. Managerial Accounting.1-22 A professional is a person engaged in a specified occupation that requires advanced training. 1-23 Some activities in the value chain of a manufacturer of cotton shirts are as follows: (a) (b) (c) (d) (e) (f ) (g) Growing and harvesting cotton Transporting raw materials Designing shirts Weaving cotton material Manufacturing shirts Transporting shirts to retailers Advertising cotton shirts Some activities in the value chain of an airline are as follows: (a) (b) (c) (d) (e) Making reservations and ticketing Designing the route network Scheduling Purchasing aircraft Maintaining aircraft (f)Running airport operations. including handling baggage (g) (h) Serving food and beverages in flight Flying passengers and cargo is to the process of the organization's 1-24 Strategic cost management understanding and managing. 1-9 . According to this definition from Webster. a managerial accountant is a professional. skill. and a well-defined body of knowledge.

advantage. 1-10 © 2002 The McGraw-Hill Companies. Solutions Manual . McGraw-Hill/Irwin Inc. the cost relationships among the activities in an organization's value chain.

subunits. To be effective.SOLUTIONS TO EXERCISES EXERCISE 1-25 (20 MINUTES) 1. Data about the cost of maintaining the machine weekly or biweekly would be relevant. Estimates of the cost of lost merchandise due to shoplifting and the cost of employing security personnel would be relevant to this decision. 5/e . For example. the bonus system must provide incentives for managers to work toward achieving those goals. It is especially © 2002 The McGraw-Hill Companies. Estimating the benefits may require value judgments about the benefits to the public from having additional library space and more books. and other employees within the organization. the production manager should consider information about the likely rates of defective products under each maintenance alternative. McGraw-Hill/Irwin Inc. and insurance on the new vehicles would be useful. routine maintenance. and (2) measuring the performance of activities. In addition. 3. 2. 3. Managerial Accounting. 1-11 2. estimates of the cost of gasoline. Determining manufacturing costs is related to all of the objectives of managerial accounting. EXERCISE 1-26 (25 MINUTES) 1. Estimates of building costs for the library addition as well as estimates of benefits to the population from having the addition would be useful. managers. 4. Estimates of any operating costs associated with the proposed luxury cars would be relevant. Comparing actual and planned costs is consistent with two objectives of managerial accounting activity: (1) assisting managers in controlling operations. Developing a bonus reward system for managerial personnel is an example of motivating managers and other employees toward the organization's goals.

depending on the company chosen by each student. Managerial accounting can make an important contribution to all of these goals.closely related to the objective of providing information for decision making and planning. Measuring inventory costs is most closely associated with the first two objectives of managerial accounting activity: (1) providing information for decision making and planning. they are also relevant to measuring the performance of managers and subunits within the organization. EXERCISE 1-27 (30 MINUTES) Answers will vary widely for this exercise. growth in the stock price. 7. and (2) assisting managers in directing and controlling operational activities. Since inventory costs are used in external financial reports. Estimating costs is particularly relevant to the objective of providing information for decision making and planning. earnings per share. Comparing operating statistics such as those mentioned for a hotel is particularly relevant to the following objective of managerial accounting: Assessing the organization's competitive position and working with other managers to ensure the organization's long-run competitiveness in its industry. and so forth. McGraw-Hill/Irwin Inc. Companies’ financial goals often include profitability. Measuring operating costs is relevant to all of the objectives of managerial accounting activity. 4. sales growth. EXERCISE 1-26 (CONTINUED) 5. 6. Solutions Manual . 1-12 © 2002 The McGraw-Hill Companies.

controlling.. Did Nelson correctly identify all possible alternatives and then make the proper selection? The canoe-building activities and white-water rafting trips may be losing money. 2. a cross-functional team would be useful in this situation. directing. A performance report that identifies the company’s major areas of activity would be of assistance. interpreting. © 2002 The McGraw-Hill Companies. Managerial Accounting. bulging inventories and the fact that growth “…has occurred in spite of what we’ve done” may indicate the absence of a formal planning system—one that involves developing a detailed financial and operational description of anticipated activities. 5/e .SOLUTIONS TO PROBLEMS PROBLEM 1-28 (25 MINUTES) 1. Managerial accounting is defined as the process of identifying. actual costs and highlighted (directed attention toward) significant deviations for management attention.e. managers could better direct operational activities and ensure that the company achieves its goals (i. and decision-making expertise. For example. measuring. Several of the company’s problems affect multiple functional areas within the firm. especially if the report measured budgeted vs. and communicating information in pursuit of an organization’s goals. If such a report were prepared. Dangerously low cash balances and the need for shortterm 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 equipment may or may not have been the proper decision. 1-13 McGraw-Hill/Irwin Inc. For example. the control function). Several of the problems lie in this area and may be attributed to a lack of formal planning. analyzing. Yes. Managerial accounting can be of significant benefit when it comes to solving the company’s problems. Are costs skyrocketing hopelessly out of control? It is difficult to tell because the income statement does not provide adequate information —it is a summary of past transactions for the entire business.

may be the result of poor ordering practices and/or ineffective marketing programs. quality. © 2002 The McGraw-Hill Companies. These issues. operations. businesses order goods from other firms via business-to-business (b-to-b) channels. keeping in mind that there are some difficulties related to suppliers (e. and finance) represented. b-to-b channels may be of assistance as well. and measures of innovation and learning. Nelson’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 Florida. customersatisfaction measures..g. Consumer-to-business channels (sometimes called cto-b) allow consumers to order goods on line from businesses. In addition. Texas.bulging inventories. 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. reliability. coupled with the fact that a number of the key executives manage in “silos” and lack the “big-picture” outlook for the firm. Solutions Manual McGraw-Hill/Irwin Inc. PROBLEM 1-29 (25 MINUTES) 1. and New York. the firm is getting hammered by mail- PROBLEM 1-28 (CONTINUED) order businesses and businesses that operate via toll-free telephone numbers. Consumer-to-business channels would be a natural in dealing with the firm’s population and competitive problems. Although balanced scorecards differ from one firm to the next. However. and prices). seem to indicate the desirability of teams that have different employee backgrounds and interests (such as marketing. most have a combination of financial measures. internal operating measures. California. Issues related to the operation of a seasonal business may be overcome with the selection of different “off-season” product lines and aggressive marketing campaigns. In contrast. which impact profitability and cash balances. combined with Nelson’s Internet background. 1-14 . These problems. seem to make his firm a likely candidate for e-commerce. 3.

planning. purchasing. and information systems/technology.2.g. customer service. 5/e © 2002 The McGraw-Hill Companies. reservation flights agents. and scheduling). maintenance. accounting. lost Number of passenger complaints Average wait time when calling time for resolving reservations center problems Market share Response customer Internal operating measures: Percentage of on-time arrivals Number of cities/new cities served Percentage of on-time departures Number of aircraft in fleet Average trip length (in miles) Average age of aircraft in fleet Percentage of tickets sold through Aircraft turnaround time between travel agents. Functional areas for the airline include marketing. 1-15 .. reservations. and the Internet PROBLEM 1-29 (CONTINUED) Innovation/learning measures: Enhancements to product line Employee turnover (new class of service) Employee satisfaction scores New unique features of frequent-flier Employee training programs club McGraw-Hill/Irwin Inc. operations (e. Financial measures: Net income Operating expenses per seat mile Earnings per share Cost per meal served Passenger revenue per seat mile Revenue growth Customer-satisfaction measures: Load factors Number of bags 3. human resources. Managerial Accounting. finance.

and reporting operating information. A significant focus on profitability could result in the airline providing marginal service to its customers (poor meals. For example. the sale of too many inexpensive seats). and by working with others in the company to find solutions. poorlytrained crew. Allen's considerations are determined largely by her position as an accountant. other important facets of the business are ignored.4. which could lead to long-run problems. Yes. PROBLEM 1-30 (45 MINUTES) 1. 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. analyzing. she should protect proprietary information and should not violate the chain of command by discussing this matter with the controller's superiors. The quality control engineer has responsibilities for product quality and should protect overall company interests by continuing to study the quality of reworked rejects. b. long wait times when calling reservations centers. Solutions Manual . 2. and herself. with responsibilities to AccuSound Corporation.g. by informing the plant manager and his staff in McGraw-Hill/Irwin Inc. should the company have such a code. and so forth). Allen's job involves collecting. paying too much attention to load factors may result in a decrease in profitability (e. others in the company. By focusing on only one factor. Allen should determine whether the controller's request violates her professional or personal standards or the company's code of ethics. a large number of lost bags by a small.. As Allen decides how to proceed. 1-16 © 2002 The McGraw-Hill Companies. Although not responsible for product quality. Allen should exercise initiative and good judgment in providing management with information having potentially adverse economic impact.

1-17 .this matter. Managerial Accounting. McGraw-Hill/Irwin Inc. 5/e © 2002 The McGraw-Hill Companies. and by working with others in the company to find solutions.

Line activities are primary to the purpose of the organization. others in the company. Allen is vulnerable if she conceals the problem and it eventually surfaces. Absentee owners need information from management. Because this approach differs from the longstanding practice of highlighting information with potentially adverse economic impact. 3.PROBLEM 1-30 (CONTINUED) c. 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. They are the activities that create and distribute the goods and services of the organization. Allen needs to protect the interests of the company. and herself.g. Plant management should be sure that products meet quality standards. Solutions Manual . Line reporting refers to the reporting relationship between different hierarchical management levels in line activities (e. The reporting relationship between the McGraw-Hill/Irwin Inc.. 1-18 © 2002 The McGraw-Hill Companies. the reporting relationship between the general supervisor and the plant manager). The role of the division controller in the division is an example of a staff activity. and the controller's instructions in this matter. Staff activities are services provided by departments in the organization in support of its line activities. PROBLEM 1-31 (30 MINUTES) 1. The plant manager and his or her staff have responsibilities for product quality and cost and should protect overall company interests by exercising the stewardship expected of them. 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. the analysis made by her and the quality control engineer. Allen should write a report to the controller detailing the probable failure of reworks.

2. The division controller is being evaluated by two people whose responsibilities are not always congruent. b. the division controller is an employee of the controller's department and reports to the corporate controller. Thus. the division controller will have difficulty knowing what factors influence his or her progress in the company. 1-19 . The motivation of the division controller would be affected by this dual reporting relationship. Managerial Accounting. the division controller serves as a staff resource to the division manager. McGraw-Hill/Irwin Inc. The corporate controller assigns the division controller to the division and has final responsibility for promotion and salary. Thus. The division controller is responsible to both the corporate controller and the division manager. What may be considered good performance by one person may be considered unsatisfactory by the other. The division controller is required to file an independent commentary on the division's financial results.division controller and the division manager is an example of a staff reporting relationship. The circumstances described in the problem do not provide positive motivation for the division controller. a. PROBLEM 1-31 (CONTINUED) The division manager evaluates the division controller's performance and makes salary and promotion recommendations to the corporate controller. which could well differ from the division manager's commentary. At the same time. 5/e © 2002 The McGraw-Hill Companies.

 Refrain from either actively or passively subverting the attainment of the organization’s legitimate and ethical objectives. about Progressive’s cash flow problems. 1-20 © 2002 The McGraw-Hill Companies. Nolan is neither authorized nor legally obligated to do so. 2. Nolan has the responsibility to:  Refrain from engaging in any activity that would prejudice her ability to carry out her duties ethically. Integrity. Andrea Nolan’s ethical responsibilities require that she not tell her friend. As a management accountant. Under this standard for ethical conduct. Nolan has an ethical responsibility to inform Progressive that Borman has decided to postpone the paper order. Rob Borman. Nolan has the responsibility to:  Refrain from either actively or passively subverting the attainment of the organization’s legitimate and ethical objectives. Nolan. Nolan must refrain from disclosing confidential information acquired in the course of her work except when authorized. unless legally obligated to do so. Integrity. Nolan should refrain from appearing to use confidential information acquired in the course of her work for unethical advantage. In this situation. Solutions Manual .SOLUTION TO CASE CASE 1-32 (40 minutes) 1. McGraw-Hill/Irwin Inc. as a management accountant. Nolan must comply with the following standards of ethical conduct: Confidentiality. must comply with the following standards for ethical conduct: Confidentiality. either personally or through third parties. Under this standard for ethical conduct.

as well as favorable. 5/e © 2002 The McGraw-Hill Companies. Communicate unfavorable. Nolan should resolve this matter by discussing the situation with her immediate superior. she should make it clear that she has not and will not disclose confidential company information to Borman or any other outside party except when authorized or legally obligated to do so. If a satisfactory resolution to the problem is not achieved. However. Managerial Accounting. Nolan should submit the matter to the next-higher managerial level. McGraw-Hill/Irwin Inc. However. Nolan should tell her superior of her long-time friendship with Borman. information and professional judgments or opinions. she should inform her immediate superior that she is going to take this step. 1-21 . 3.

" THE WALL STREET JOURNAL.CURRENT ISSUES IN MANAGERIAL ACCOUNTING ISSUE 1-33 "DISNEY'S MAGIC TRANSFORMATIONS? COMPANY EYES BIGGER SHARE OF RETAILING WITH REVAMP OF STORES. 1-22 © 2002 The McGraw-Hill Companies. and managers are expected to strive to meet budgetary targets. 2000. (a) Providing 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 Disney’s retail operations. BRUCE ORWALL. (c) Assisting managers in directing and controlling operations: Managerial accountants would provide information about the actual costs of operating new stores and market segments. OCTOBER 4. subunits. NEW PRODUCTS. 1. which are listed below. and these income reports are used to evaluate the earnings performance of each sector during the relevant time period. Solutions Manual . All of the objectives of managerial accounting activity. managers. and other employees within the organization: Quarterly income statements would be prepared for each of the company’s major geographical sectors. (e) Assessing the organization's competitive position and working with other managers to ensure the organization's long-run competitiveness in its industry: McGraw-Hill/Irwin Inc. would be relevant in Disney’s major decision to expand its retail operation. (d) Measuring the performance of activities. (c) Motivating managers and other employees toward the organization's goals: A budget is provided for the cost of operating new stores and market segments.

1. it does stand to reason that Sony's web site will carry relevant information concerning the PS2. distribution. Disney also plans a retail pricing drop of about 30 percent. and information with a well-defined business model focused on core competencies McGraw-Hill/Irwin Inc. Research and development. The article primarily deals with Sony's marketing and customer service when bringing out its new PlayStation 2.800.200 to 2. down from 3. ROBERT THAMES." STRATEGIC FINANCE. A web site could help with marketing and customer service issues the company is trying to address. production. marketing to hard-core video gamers. design of products. Leveraging knowledge. 5/e © 2002 The McGraw-Hill Companies. or processes. The revamped stores and design changes will move beyond Disney character-based goods. The new store design will include a new multimedia sales pitch featuring computer terminals. marketing. Although the article does not mention e-business. 2. and broadening the PS2's appeal to a wider audience. Its dilemmas include the shortage of the product before Christmas. Each store will slim it offerings to about 1. OCTOBER 6.200. 2000. ISSUE 1-34 "SONY ROLLS OUT PLAYSTATION ADS DESPITE SHORTAGE. services." THE WALL STREET JOURNAL. Adult-oriented merchandise will focus more on parenting rather than general goods. relationships. Managerial Accounting. ISSUE 1-35 "PURSUE E-BUSINESS OR DIE. and customer service are important elements of the value chain for Disney. JOSEPH PEREIRA. MARCH 2000. 2.Information about industry-wide performance standards would be obtained and compared with Disney’s own retail performance.400. Disney will cut the number of licensees it uses from 4. 1-23 .

Removal of waste from the entire value chain is effectively achieved by implementing technology as well as through building strong alliances and partnerships. as well as online selling. A self-assessment of business processes carried out with the cooperation of employees can provide an in-depth aspect to this information. but realistically this takes years to achieve. A real-time information system provides controls and status information that allow forward decision-making. This information combined with clear and accurate information about the company's activities and costs. Waiting for the newest hardware or software means never achieving a system because it is never implemented. The ERP. allow a company to quickly modify itself to take advantage of opportunities. Integrated technology architecture is necessary for an ERP system to be valuable. knowing your customers. eliminating waste from the value chain. Solutions Manual . places a business in the position to gather information about customers' spending habits and preferences. 1-24 © 2002 The McGraw-Hill Companies. and receiving accurate profit information are cornerstones of this approach. Creating an enterprise resource planning system. McGraw-Hill/Irwin Inc. However. Lowering manufacturing costs and streamlining distribution are also key components. the system has to be up to date enough to provide just-in-time information. 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.allows a business to respond quickly within the e-business environment. Continuous testing of this information against best business practices can identify which redundant business processes to eliminate.

ISSUE 1-36 "SAP ACTS TO HEAD OFF MORE SYSTEM PROBLEMS. to keeping payroll and personnel records. These dimensions include becoming customer-centric. and placing an emphasis on the strategic dimensions that drive shareholder value growth. scope and organizational systems are the five dimensions upon which coke focused when revitalizing and reinventing itself. and licensing. The company moved from capturing value through product sales and service fees to financing. strategic control. 1-25 . ranging from supply ordering to filling customer orders. providing business solutions." JOURNAL OF BUSINESS STRATEGY. becoming expansive and dynamic in its view of the marketplace. 1999. 1." THE WALL STREET JOURNAL. Coke determined which sets of customers held the greatest potential for long-term growth and focused on them. adopting and creating ancillary products. For example. NOVEMBER 4. Managerial Accounting. The elements of coke's story are not unique. value capture. what new costs would be incurred. and what current costs could be avoided. SAP develops and sells ERP software which offers the benefits of implementing an enterprise resource planning system to handle an array of business functions in an organization. Coke's McGraw-Hill/Irwin Inc. NEAL E. Customer selection. It focused on activities that were customerrelevant in order to generate higher profits. 5/e © 2002 The McGraw-Hill Companies. Managerial accounting information could help the management team assess the costs and benefits of installing an ERP system. ISSUE 1-37 "WHY THINGS GO BETTER AT COKE. BOUDETTE. to product costing 2. JANUARY/FEBRUARY 1999. RICK WISE.

ISSUE 1-38 "COUNTING MORE. Coke has moved from syrup distribution to a highly-aligned and efficient manufacturerbottler-distribution system. computer systems and operations. process improvement. longterm strategic planning. SEPTEMBER 1999. "BUD" KULESZA. Management accountants will use several methods to broaden their role to that of strategic partners. KEITH A. Management accountants are redefining themselves. McGraw-Hill/Irwin Inc. 1-26 © 2002 The McGraw-Hill Companies. and has created a large number of solid positions in international markets. GARY H. Coke has become the world's strongest brand. Activities are shifting from traditional accounting work to the more value-added activities of internal consulting. AND then reorganized it business systems to focus on these elements. COUNTING LESS: TRANSFORMATION IN THE MANAGEMENT ACCOUNTING PROFESSION. and performing financial and economic analysis. Only 33 percent use the term accounting to describe their function. SIEGEL.S. managing the accounting/finance function. Already many (45 percent in the larger companies) have physically located themselves in the operating departments they service. These activities and methods to move toward strategic partnership have improved the image of management accountants to the extent that 70 percent of those outside the finance function believe that management accountants bring more value to their company. In the past twenty years. has become more cost-effective in advertising. RUSSELL. " THE WALL STREET JOURNAL. About two thirds use finance or some other descriptive term when defining their activities. Solutions Manual . About 56 percent are working on cross-functional teams and are actively involved in the decision making process.

5/e © 2002 The McGraw-Hill Companies." CFO. ISSUE 1-40 “INDUSTRY OUTLOOK: FOOD DISTRIBUTION. High-end software vendors have moved from the vanilla applications of the early 1990s to a business model more reminiscent of the 1980s.These changes in the role of the finance function are resulting in accountants becoming business partners and consultants in management decisions. 1. executives at General Mills knew the company was wasting money on empty truck miles. market niches and bundling broad-based valueadded applications such as analytics. ISSUE 1-39 "A MILE WIDE AND A MILE DEEP. 2001. Strategic positioning has resulted in nearly all software now being web-based and e-commerce based. They are targeting vertical industries. McGraw-Hill/Irwin Inc. These trends have resulted in a spree of buyouts and mergers in order to gain new software. a category of software.” BUSINESS WEEK. Through the managerial accounting process. and more analysis of profitability and performance evaluation. Changes expected over the next three years include less reporting of information and more planning and analysis. XENAKIS. team decision-making and evaluating company efficiency are other areas affecting accountants and the business roles within which they are involved. more computerized technology and software. As finance is more involved with other aspects of business. JOHN J. JULIE FORSTER. Managerial Accounting. more involvement with operations. Analytics. JANUARY 8. Computerized technology. 1-27 . accountants are becoming involved in more planning and strategic decisions. enables managers to gain meaningful information from the billions of transactions stored in accounting software databases. more partnering and consulting in management decisions. FEBRUARY 1999.

it would be successful only where the physical requirements make it feasible. capacities. ISSUE 1-41 “DESIGNED FOR INTERACTION. it allows people to live together. Since this type of team building is predicated on the physical closeness of the participants. and timetables. This allows them the flexibility to create teams 'on the fly'. SEI formation of management teams depends on moveable furniture and employees being able to connect into ceiling level communications ports.” FORTUNE. The environment allows more than closer communication.2. 1. Empty truck miles also occur when drivers transport less than a full load to a location. Empty 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. JANUARY 22. 2001. Solutions Manual . 2. By making available route information regarding loads. McGraw-Hill/Irwin Inc. Their no walls structure allows the moving of people and furniture into close proximity so everyone is visible and accessible to one another. 3. 1-28 © 2002 The McGraw-Hill Companies. The new approach to form management teams at SEI Investments depends on the close physical proximity of team participants. JESSICA SUNG. even the CEO. 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. competing companies can piggyback on each other's trucks and deliver goods at a lower cost by loading trucks to capacity.

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