1-31 Management accounting guidelines.

For each of the following items, identify which of

the management accounting guidelines applies: cost–benefit approach, behavioral and technical

considerations, or different costs for different purposes.

1. Analyzing whether to keep the billing function within an organization or outsource it.

2. Deciding to give bonuses for superior performance to the employees in a Japanese subsidiary

and extra vacation time to the employees in a Swedish subsidiary.

3. Including costs of all the value-chain functions before deciding to launch a new product, but

including only its manufacturing costs in determining its inventory valuation.

4. Considering the desirability of hiring an additional salesperson.

5. Giving each salesperson the compensation option of choosing either a low salary and a
highpercentage sales commission or a high salary and a low-percentage sales commission.

6. Selecting the costlier computer system after considering two systems.

7. Installing a participatory budgeting system in which managers set their own performance

targets, instead of top management imposing performance targets on managers.

8. Recording research costs as an expense for financial reporting purposes (as required by U.S.

GAAP) but capitalizing and expensing them over a longer period for management

performance-evaluation purposes.

9. Introducing a profit-sharing plan for employees.

SOLUTION

(15 min.) Management accounting guidelines.

1. Cost-benefit approach

2. Behavioral and technical considerations

3. Different costs for different purposes

4. Cost-benefit approach

5. Behavioral and technical considerations

6. Cost-benefit approach

7. Behavioral and technical considerations

8. Different costs for different purposes

9. Behavioral and technical considerations