Instructor’s Manual

to accompany

First Canadian Edition prepared by

Linda Lindsay
University of Lethbridge
Instructor’s Manual to accompany Cornerstones of Managerial
Accounting, First Canadian Edition
By Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger, George A. Gekas, and
David J. McConomy

Instructor’s Manual prepared by Linda Lindsay, University of Lethbridge

Available on Instructor’s Resource CD ISBN 0176616888 and at www.mowen1ce.nelson.com

COPYRIGHT © 2012 by Nelson Education Ltd. Nelson is a registered trademark used herein under
licence. All rights reserved.

For more information contact Nelson, 1120 Birchmount Road, Toronto, Ontario M1K 5G4. Or you can
visit our Internet site at www.nelson.com.

ALL RIGHTS RESERVED. No part of this work covered by the copyright hereon may be reproduced or
used in any form or by any means—graphic, electronic, or mechanical, including photocopying, recording,
taping, web distribution or information storage and retrieval systems—without the written permission of
the publisher

ii Copyright © 2012 by Nelson Education Ltd.

 CONTENTS

PART 1: Planning
Chapter 1 Introduction to Managerial Accounting ...................................................... 1-1
Chapter 2 Basic Managerial Accounting Concepts ................................................... 2-1
Chapter 3 Cost Behaviour .......................................................................................... 3-1
Chapter 4 Cost-Volume-Profit Analysis: A Managerial Planning Tool ........................ 4-1

PART 2: Costing
Chapter 5 Job-Order Costing ..................................................................................... 5-1
Chapter 6 Process Costing ........................................................................................ 6-1
Chapter 7 Activity-Based Costing and Management .................................................. 7-1
Chapter 8 Absorption and Variable Costing, and Inventory Management ................. 8-1

PART 3: Control
Chapter 9 Budgeting, Production, Cash, and Master Budget .................................... 9-1
Chapter 10 Standard Costing: A Managerial Control Tool ....................................... 10-1
Chapter 11 Flexible Budgets and Overhead Analysis .............................................. 11-1
Chapter 12 Performance Evaluation and Decentralization ....................................... 12-1

PART 4: Short- and Long-Term Decision Making

Chapter 13 Short-Run Decision Making: Relevant Costing ..................................... 13-1
Chapter 14 Capital Investment Decisions ................................................................ 14-1

Copyright © 2012 by Nelson Education Ltd. iii

 PREFACE

This Instructor’s Manual is intended to complement Cornerstones of Managerial

Accounting, by Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger, George A.
Gekas, and David J. McConomy. The Instructor’s Manual is part of an extensive
teaching package that includes the following resources (most of which are available on
the Instructor’s Resource CD, ISBN 13: 978-0-17-661688-5 / ISBN 10: 0-17-661688-8).

1. Solutions Manual. The Solutions Manual contains the complete solutions to the
discussion questions, multiple-choice exercises, Cornerstone exercises, end-of-
chapter exercises, problems, cases, and CMA problems.
2. Microsoft® PowerPoint®. Key concepts from Cornerstones of Managerial
Accounting are presented in PowerPoint format, including key figures and tables
from the text.
3. Image Library. Exhibits from the text are provided, allowing instructors to create
their own presentations.
4. Nelson Education Testing Advantage (NETA) Test Bank and computerized
ExamView® Test Bank, with over 1,100 multiple choice, true/false, matching,
problems, and essay questions, plus answers and page references to the text.
(NETA is a Nelson initiative that ensures that subject-matter experts who author
test banks have had training in avoiding common errors in test construction and
in developing multiple-choice test questions that assess higher-level thinking.
See the Test Bank for details.)
5. Spreadsheet Solutions. The complete solutions to the Excel-based Spreadsheet
Exercises in the textbook.
6. Solution Transparency Masters. Also included are separate files for the Solution
Transparency Masters.
7. Chapter Opening Videos. A separate DVD (0-17-662882-7), featuring videos
showing how companies use managerial accounting to improve business
performance, is also available. It contains manufacturing and service examples
to connect the text concepts to the business world.
8. Day One—Prof InClass PowerPoint® presentation that instructors can customize
to orient students to the class and their text at the beginning of the course.

This manual was adapted by Linda Lindsay at the University of Lethbridge. It includes
the following:

LEARNING OBJECTIVES
This section provides an overview of the main learning objectives for the chapter along
with a brief summary of each.

CORNERSTONES
This section provides an overview of the Cornerstones in the chapter. Cornerstones are
boxed examples in the textbook that offer students step-by-step instructions to help
them understand concepts and complete related homework assignments.

iv Copyright © 2012 by Nelson Education Ltd.

Each Cornerstone includes three sections:
 The Information portion provides the necessary data to arrive at a solution.
 The Required section outlines each step that must be completed.
 The Solution ends each Cornerstone, showing the calculations for each of the
required steps in the problem.
Each Cornerstone has an online video offering a step-by-step presentation of each part
of the Cornerstone example. These videos provide students with visual and auditory
reinforcement of the content.

CHAPTER OUTLINE
This section provides an overview of the entire chapter, in outline format. Important
equations and instructions for how to best use the Cornerstones are provided
throughout, as well as Teaching Tips.

APPLICATIONS
This section outlines each of the ways in which the concepts in the textbook can be
applied in practice. Each Multiple-Choice Exercise, Cornerstone Exercise, Exercise,
and Problem is listed along with the applicable AACSB and IMA tag (see Tagging
Guidelines Below).

In addition, a Video Integration Guide outlining how to best use the videos that
accompany each chapter-opening vignette is included. These videos centre on cutting-
edge success, showing how progressive companies use managerial accounting to fuel
better business performance. They include both service and manufacturing company
examples to connect concepts to the business world. This series features top
companies such as:
 BuyCostumes.com – Business Strategy
 EasyWash – Cost Behaviour
 Boyne Resorts – Cost-Volume-Profit Analysis
 Creating Dinners – Job Order Costing
 BP – Process Costing
 Tim Hortons/Cold Stone Creamery – Activity-Based Costing
 The Second City – Overhead Analysis
 High Sierra Sport Company–Profit Planning
 Navistar – Standard Costing and Relevant Costs
 Hard Rock Café – Capital Investment

Critical thinking exercises accompany each video to test student comprehension and
stimulate class discussion.

Suggested Follow-up Experiential Exercises are also provided to help you refresh
your approach to the course and further engage students.

Copyright © 2012 by Nelson Education Ltd. v

TAGGING GUIDELINES
Assurance of learning outcomes in business schools is now considered a general faculty
responsibility to ensure that students learn critical skills and acquire knowledge deemed
important and appropriate by college faculty members. As part of the program-level
measurement of learning outcomes, the measurement of specific program-level and course-
level learning goals needs to occur in multiple university and college-level core courses at
various levels (freshman, sophomore, junior, and senior).

To assist educators in assessing student performance and to assist schools with the
accreditation process, the assignments in Cornerstones of Managerial Accounting are tagged to
outcomes suggested by the Association to Advance Collegiate Schools of Business (AACSB)
and the IMA (Institute of Management Accountants). Using this information can help illustrate
the effectiveness of a business program in addressing these learning standards and can help
the program gain accreditation.

The tagging guidelines used in assessing the content in Cornerstones of Managerial Accounting
for these accrediting bodies are listed below.

Association to Advance Collegiate Schools of Business (AACSB):

LABEL / TAG Related General Knowledge & Skill Area:
AACSB Communication abilities.
Communication  Organization of Ideas and Factual Information. An ability to organize ideas and
factual information into coherent, logical sequences that convey the intended
message as effectively as possible.
 Written Presentation Skill. An ability to prepare written documents that are free
of mechanical errors, have sophisticated sentence and paragraph structure, and
adhere to APA or other appropriate guidelines.
 Oral Presentation Skill. An ability to speak before an audience without
embarrassment or affectation and to use appropriate volume, inflection, pace,
posture, body language and other components of competent public speaking.
 Graphical Presentation Skill. An ability to create images to communicate
quantitative and qualitative ideas and factual information. Graphics for
quantitative information include graphs of all types: pie, bar, line, scatter, box-
and-whisker, histogram, Gantt charts, etc. Students are expected to prepare
graphs with appropriate axes, symbols, legends, titles, annotations, use of
colour, animation, sound effects, etc. to elicit clear understanding on the part of
the viewer. Graphics for qualitative information include the design of
presentation media such as PowerPoint slides, symbolic images such as flow
charts and organizational charts, and photographic or artistic images that evoke
emotional responses appropriate to the intended message.
AACSB Ethics Ethical understanding and reasoning abilities.
 Legal Responsibilities. Knowledge of legal responsibilities relevant to the
student’s profession and the ability to fulfill those responsibilities in professional
practice.
 Codes of Ethics. Knowledge of the codes of ethics of relevant professional
organizations as well as current theories of personal ethics and the ethics of

vi Copyright © 2012 by Nelson Education Ltd.

 societies and organizations.
 Ethical Decision Making. An ability to recognize ethical conflicts in real-world
environments, apply analytical tools to understand the consequences of various
options, and take action consistent with ethical integrity.
AACSB Analytic Analytic skills
 Economics. An understanding of how value is created through the integrated
production and distribution of goods, services, and information, and an ability to
analyze (compare and contrast, show causality, examine assumptions of)
economic systems.
 Finance. An understanding of current financial theories and markets; an ability
to analyze markets and financial reports; and an ability to prepare financial
reports in accordance with professional standards.
 Organizational Behaviour. An understanding of group and individual dynamics in
organizations, and an ability to analyze business policies from the perspective of
organizational behaviour.
 Statistics and Management Science. An ability to use statistical data analysis and
management science to support decision-making processes throughout an
organization.
AACSB Use of information technology.
Technology  Technological Literacy. An ability to use current technology: Word Processing,
Spreadsheets, Presentation Software, Databases, Web Browsers, Search
Engines, Statistical Analysis Packages, Project Resources Planning Packages, Tax
Preparation Packages, Management Information Systems, and other software
relevant to the discipline, and an ability and desire to learn new technologies as
they become available.
 Technological Security. An understanding of the threats to information systems
and knowledge of how to minimize those threats.
 Technology and Organizations. An understanding of how information
technologies influence the structure and processes of organizations and
economies and how they influence the roles and techniques of management.
AACSB Diversity Multicultural and diversity understanding.
 An understanding of and respect for the cultural diversity of the United States
and knowledge of the historical context of our diverse nation.
 An understanding of and respect for non-Western cultures.
 An understanding of the domestic and global economic environments of
organizations.
AACSB Reflective Reflective thinking skills.
Thinking  An understanding that knowledge is constructed from evidence and can be
changed and reconstructed with the appearance of new evidence, perspectives,
or methods of inquiry; and the ability to “construct knowledge” by examining
evidence and assumptions and applying logical and reasoning to determine the
most likely meaning of a particular situation.
 An ability and desire to regularly reexamine past experiences to clarify their
meaning, especially with respect to personal responses, behaviours and actions.

Copyright © 2012 by Nelson Education Ltd. vii

Institute of Management Accountants (IMA):
LABEL / TAG Related General Knowledge & Skill Area:
IMA-Business Economics Business Analysis - Business Economics
The candidate should be knowledgeable of micro economics and
should be able to demonstrate an understanding of the laws of
supply and demand. The candidate should be able to define and
apply knowledge of various costs including fixed, variable, and
marginal.
The candidate should be able to identify and understand pure
competition, monopoly, monopolistic competition, and oligopoly.
The candidate will be able to explain resource planning and the cost
of resources.
The candidate should be knowledgeable of macro economics and
should be able to demonstrate an understanding of inflation,
unemployment and economic growth. The candidate should be
define and calculate Gross Domestic Product (GDP). The candidate
will be knowledgeable of the business cycle and demonstrate an
understanding of fiscal monetary policies.
IMA-Global Business Business Analysis - Global Business
The candidate should be able to define terms associated with global
trade, including net exports and net imports. The candidate should
be knowledgeable of foreign currency terms and policies and be able
to apply calculations relevant to foreign monetary exchanges.
The candidate should be aware of the functions of the World Bank
and International Monetary Fund and be able to identify legal and
ethical issues in conducting business worldwide.
IMA-Internal Controls Business Analysis - Internal Controls
The candidate should be able to demonstrate an understanding of
risk assessment and the management of risk and be able to define
inherent risk, control risk, and detection risk. The candidate should
be able to define and give examples of segregation of duties.
The candidate should be able to define the internal audit function
and recognize that the internal audit function provides information
concerning activities reviewed to assist management.
The candidate should be able to identify threats to information
systems and be knowledgeable of controls to limit the threats. The
candidate should understand and be capable of implementing a
disaster recovery plan.
IMA-Quantitative Methods Business Analysis - Quantitative Methods
The candidate should be able to show an understanding of the
regression equation and identifying assumptions of simple
regression analysis. The candidate should be able to demonstrate an
understanding of the objectives of linear programming and
demonstrate the mathematical formulation of a constraint.
IMA-FSA Business Analysis - Financial Statement Analysis
The candidate should be able to demonstrate an understanding of
the development of accounting standards and the distinct
responsibilities of management and of auditors for the financial

viii Copyright © 2012 by Nelson Education Ltd.


IMA-Budget Preparation
IMA-Cost Management
IMA-Information Management
IMA-Performance Measurement
IMA-Reporting
Copyright © 2012 by Nelson Education Ltd.
statements.
The candidate should be able to identify related provisions of the
Sarbanes-Oxley Act of 2002 and the related rulings of the Public
Company Accounting Oversight Board (PCAOB).
The candidate should be able to calculate financial ratios and use the
information to measure the organization's financial performance.
Management Accounting and Reporting – Budget Preparation
The candidate should understand budgeting concepts and should be
familiar with budgeting systems. The candidate should be able to
use the knowledge of budgeting concepts and budgeting systems to
prepare operational, financial, and capital budgets and pro forma
financial statements.
Management Accounting and Reporting - Cost Management
The candidate should know and be able to apply terminology related
to cost principles. The candidate should demonstrate an
understanding of cost behaviour cost drivers. The candidate should
be able to apply this knowledge to inventorialable costs, cost of
goods sold and other cost applications.
The candidate should be able to implement various cost
accumulation systems, including job, process, activity, lifecycle and
other costing methods. The candidate should understand the nature
of overhead expenses; the nature of cost drivers and other relevant
principles applicable to overhead.
Management Accounting and Reporting - Information Management
The candidate should be able to identify the different types of
business information processing systems and recognize that
information systems support the business functions of accounting,
finance, marketing, operations management, and human resources.
The candidate should be able to demonstrate an understanding of
the technology of information systems including networks,
applicable software, electronic commerce and enterprise-wide
planning systems.
Management Accounting and Reporting - Performance
Measurement
The candidate should be able to design procedures for measuring
operational goals through a variety of methods and be able to apply
analysis of variances in using standard cost techniques.
The candidate should be able to recognize responsibility centres and
reporting segments. The candidate should understand and be able
to apply transfer pricing to organizational segments.
The candidate should be able to apply the concepts and applications
related to balanced scorecard.
Management Accounting and Reporting - External Financial
Reporting
The candidate should be able to identify the objectives of external
financial reporting; identify and demonstrate an understanding of
basic accounting assumptions and conventions; identify financial
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IMA-Strategic Planning
IMA-Strategic Marketing
IMA-Corporate Finance
x Copyright © 2012 by Nelson Education Ltd.
statement elements for each of the financial statements and be
knowledgeable of special accounting topics.
The candidate should be able to identify the two major Acts
establishing the SEC and its powers; and demonstrate knowledge of
the major provisions of each Act; identify and explain the major
provisions of the Sarbanes-Oxley Act of 2002; and be identify the
functions and responsibilities of the Public Company Accounting
Oversight Board (PCAOB)
The candidate should be able to identify the basic components of the
annual report; demonstrate an awareness of the Audit Committee’s
level of responsibility for the integrity of the financial information
presented in the annual reports; and identify and describe the other
sections in the annual report
Strategic Management - Strategic Planning
The candidate must be knowledgeable of various manufacturing
paradigms including just-in-time manufacturing, MRP, theory of
constraints, and capacity management
The candidate must be able to assess business process performance.
The candidate will be familiar with value chain analysis; understand
value added concepts; process analysis; benchmarking; activity
based management; and continuous improvement concepts.
Strategic Management - Strategic Marketing
The candidate should be able to identify the interrelationships
between strategy and marketing and recognize the critical
importance of customer value and customer satisfaction. The
candidate should be able to identify marketing information needs.
The candidate should be able to distinguish between products and
services; classify products and services; demonstrate an
understanding of product line decisions and product mix decisions;
demonstrate an understanding of new product development
strategy and product life-cycle strategies.
The candidate should be able to identify internal and external factors
affecting pricing decisions; demonstrate an understanding of general
pricing approaches; demonstrate an understanding of product mix
pricing strategies; and recognize that public policy can influence
pricing decisions.
Strategic Management - Corporate Finance
The candidate should be able to calculate rates of return ;
demonstrate an understanding of the different types of risk; and
define hedging and demonstrate how hedging can be used to
manage financial risk.
The candidate should be able to define and identify the
characteristics of various financial instruments; value bonds,
common stock, and preferred stock using discounted cash flow
methods; and recognize how income taxes impact financing
decisions.
The candidate should be able to define the cost of capital and
demonstrate an understanding of its applications in capital structure

IMA-Decision Analysis
IMA-Investment Decisions
IMA-Business Applications
Copyright © 2012 by Nelson Education Ltd.
decisions.
Strategic Management - Decision Analysis
The candidate should identify and demonstrate an understanding of
the steps needed to reach a decision. The candidate should be able
to identify and apply concepts relevant to decision analysis, including
sunk costs and opportunity costs.
The candidate must be able to use cost/volume/profit analysis.
The candidate will be able to apply marginal analysis for making
decisions related to special orders and pricing; make versus buying
decisions; sale or process further decisions; and to determine if a
segment should be added or dropped. Finally, the candidate will be
able to apply concepts and knowledge related to setting prices and
target costing.
Strategic Management - Investment Decisions
The candidate must be able to develop information to assist
management in making investment decisions. In order to do this in
candidate must be knowledgeable of capital budgeting; discounted
cash flow analysis; payback and discounted payback; and ranking of
investment projects.
Business Applications
The candidate will be familiar with the provisions of "Standards of
Ethical Conduct for IMA Members" in the evaluation and resolution
of relevant ethical issues.
All topics from parts 1, 2, and 3, plus organization management,
organization communication, behavioural issues, and ethical
considerations.
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