ACC 241 - Uses of Accounting Info II - Chapter 1
The CEO is hired by the _____.
board of directors
Do they use financial accounting information, managerial accounting information, or both? SEC examiner
financial
As CEO of OceanView Marine, Rhonda Wilson knows it is important to control costs and to respond quickly to changes in the highly competitive boat-building industry. When IDG Consulting proposes that OceanView Marine invest in an ERP system, she forms a team to evaluate the proposal: the plant engineer, the plant foreman, the systems specialist, the human resources director, the marketing director, and the management accountant. A month later, management accountant Mark Cole reports that the team and IDG estimate that if OceanView Marine implements the ERP system, it will incur the following costs: a. $380,000 in software costs b. $117,000 to customize the ERP software and load OceanView's data into the new ERP system c. $113,000 for employee training The team estimates that the ERP system should provide several benefits: a. More efficient order processing should lead to savings of $105,000. b. Streamlining the manufacturing process so that it maps into the ERP system will create savings of $115,000. c. Integrating purchasing, production, marketing, and distribution into a single system will allow OceanView Marine to reduce inventories, saving $225,000. d. Higher customer satisfaction should increase sales, which, in turn, should increase profits by $160,000. 1. If the ERP installation succeeds, what is the dollar amount of the benefits? 2. Should OceanView Marine install the ERP system? Why or why not? Show your calculations. 3. Why did Wilson create a team to evaluate IDG's proposal? 4. Consider each piece of cost-benefit information that management accountant Cole reported. Which person on the team is most likely to have contributed each item? (Hint: Which team member is likely to have the most information about each cost or benefit?)
1. If the ERP installation succeeds, the dollar amount of the benefits is $605,000. 2. Expected benefits: $605,000 Expected costs: $610,000 Net benefits (costs): ($5,000) Since the expected value of the benefits are less than the total costs, OceanView should not undertake the project. 3. Wilson formed a team to evaluate the feasibility of installing an ERP system for the following reasons. The project was probably too big for one person. The representatives of different functional functional business areas have different knowledge and information to contribute. 4. See image.
Sun Gas wants to move its sales order system online. Under the proposed system, gas stations and other merchants will use a secure site to check the availability and current price of various products and place an order. Currently, customer service representatives takedealers' orders over the phone; they record the information on a paper form, then manually enter it into the firm's computer system. CFO Lori Jennings believes that dealers will not adopt the new online system unless Sun Gas provides financial assistance to help them purchase or upgrade their computer systems. Jennings estimates this one-time cost at $755,000. Sun Gas will also have to invest $155,000 in upgrading its own computer hardware. The cost of the software and the consulting fee for installing the system will be $215,000. The online system will enable Sun Gas to eliminate 25 clerical positions. Jennings estimates that the benefits of the new system's lower labor costs will have saved the company $1,220,000. Jennings revises her estimates of the benefits from the new system's lower labor costs. She now thinks the savings will be only $927,000. 1. Compute the expected benefits of the online ordering system. 2. Would you recommend that Sun Gas accept the proposal? 3. Before Jennings makes a final decision, what other factors should she consider?
1. The expected benefits of the online ordering system are $927,000. 2. Expected benefits: $927,000 Expected costs: $1,125,000 Net benefits (costs): ($198,000) Because the costs exceed the benefits, a cost-benefit analysis does not justify proceeding with the online system. 3. Electronic order processing should reduce human errors, and therefore decrease costs. Employee layoffs may hurt morale and efficiency, thus increasing costs. The difficulty and cost of laying off employees may reduce the expected benefits. Providing dealers with current information could help Sun Gas reduce its inventory levels.
Lunar Industries manufactures iPhone case covers. Allison Castro, the CEO, is trying to decide whether to adopt a lean thinking model. She expects that adopting lean production would save $98,000 in warehousing expenses and $43,500 in spoilage costs. Adopting lean production will require several one-time up-front expenditures: $12,000 for an employee training program, $35,000 to streamline the plant's production process, and $6,500 to identify suppliers that will guarantee zero defects and on-time delivery. 1. What are the total costs of adopting lean production? 2. What are the total benefits of adopting lean production? 3. Should the company adopt lean production? Why or why not?
1. The total costs of adopting lean production are $53,500. Add the cost of the employee training program, the cost of streamlining the production process, and the cost of identifying ideal suppliers. 2. The total benefits of adopting lean production are $141,500. Add the warehousing expenses and the spoilage costs as those are to be eliminated by the lean production model. 3. The company should adopt lean production because the expected benefits are greater than the costs.
Classic Industries manufactures iPhone case covers. Glenda Olivier, the CEO, is trying to decide whether to adopt a lean thinking model. She expects that adopting lean production would save $67,000 in warehousing expenses and $51,000 in spoilage costs. Adopting lean production will require several one-time up-front expenditures: $12,000 for an employee training program, $55,000 to streamline the plant's production process, and $7,500 to identify suppliers that will guarantee zero defects and on-time delivery. 1. What are the total costs of adopting lean production? 2. What are the total benefits of adopting lean production? 3. Should the company adopt lean production? Why or why not?
1. The total costs of adopting lean production are $74,500. Add the cost of the employee training program, the cost of streamlining production, and the cost of identifying suppliers. 2. The total benefits of adopting lean production are $118,000. Add the warehousing expenses and spoilage costs as these would be eliminated by the lean production strategy. 3. The company should adopt lean production because the benefits are greater than the costs.
Which of the following is false? A. Globalization has increased the necessity for more detailed and accurate cost information. B. The triple bottom line focuses on three items: net income, net assets, and return on investment. C. Lean operations is a philosophy and business strategy of operating without waste. D. ERP systems integrate information from all company functions into a centralized data warehouse.
B
Which of the following persons or groups would be least likely to receive detailed managerial accounting reports? A. Sales territory managers B. Current shareholders C. CEO D. Plant managers
B. Current shareholders
Which of the following is false? A. Globalization has increased the necessity for more detailed and accurate cost information. B. ERP systems integrate information from all company functions into a centralized data warehouse. C. The triple bottom line focuses on three items: net income, net assets, and return on investment. D. Lean operations is a philosophy and business strategy of operating without waste.
C. The triple bottom line focuses on three items: net income, net assets, and return on investment
The internal audit function reports to the CFO or the _____ and the _____.
CEO, audit committee
According to SOX, a company's financial statements must be certified by the company's _____ and _____.
CFO, CEO
The _____ and the _____ report to the CEO.
CFO, COO
The company's operations are the direct responsiblity of the
COO
Competence, Confidentiality, Integrity, or Credibility? Maintain an appropriate level of professional expertise by continually developing knowledge and skills.
Competence
Competence, Confidentiality, Integrity, or Credibility? Perform professional duties in accordance with relevant laws, regulations, and technical standards.
Competence
Competence, Confidentiality, Integrity, or Credibility? Provide decision support information and recommendations that are accurate, clear, concise, and timely.
Competence
Competence, Confidentiality, Integrity, or Credibility? Recognize and communicate professional limitations that would preclude responsible judgment or successful performance of an activity.
Competence
Match each statement to the standard of ethical professional practice being fulfilled (Competence, Confidentiality, Integrity, or Credibility). Continue to develop skills and knowledge.
Competence
Match each statement to the standard of ethical professional practice being fulfilled (Competence, Confidentiality, Integrity, or Credibility). If you do not have the skills to complete a task correctly, do not pretend you do.
Competence
Which professional standard requires management accountants to continually develop their knowledge and skills?
Competence
Competence, Confidentiality, Integrity, or Credibility? Inform all relevant parties regarding the appropriate use of confidential information. Monitor subordinates' activities to ensure compliance.
Confidentiality
Competence, Confidentiality, Integrity, or Credibility? Keep information confidential except when disclosure is authorized or legally required.
Confidentiality
Competence, Confidentiality, Integrity, or Credibility? Refrain from using confidential information for unethical or illegal advantage.
Confidentiality
Match each statement to the standard of ethical professional practice being fulfilled (Competence, Confidentiality, Integrity, or Credibility). Do not disclose company information unless authorized to do so.
Confidentiality
Which professional standard requires management accountants to not disclose private information about their organizations?
Confidentiality
Which of the corporate positions is responsible for general financial accounting, managerial accounting, and tax reporting?
Controller
Planning, Decision Making, Directing, or Controlling? Determining whether the company's units are operating according to plan.
Controlling
Planning, Directing, and/or Controlling? Management analyzes the impact of a recent advertising campaign by comparing budgeted sales to actual sales.
Controlling
Competence, Confidentiality, Integrity, or Credibility? Communicate information fairly and objectively.
Credibility
Competence, Confidentiality, Integrity, or Credibility? Disclose all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, analyses, or recommendations.
Credibility
Competence, Confidentiality, Integrity, or Credibility? Disclose delays or deficiencies in information, timeliness, processing, or internal controls in conformance with organization policy and/or applicable law.
Credibility
Match each statement to the standard of ethical professional practice being fulfilled (Competence, Confidentiality, Integrity, or Credibility). Don't bias the information and reports presented to management.
Credibility
All of the following are business trends affecting management accounting except: A. sustainability. B. shifting economy. C. big data. D. all of the above.
D
Which of the following ethical standards are required of management accountants by the IMA's Statement of Ethical Professional Practice? A. Integrity B. Confidentiality C. Competence D. All of the above
D. All of the above
All of the following are business trends affecting management accounting except: A. sustainability. B. big data. C. shifting economy. D. all of the above.
D. all of the above
Planning, Decision Making, Directing, or Controlling? Identifying alternative courses of action and choosing among them.
Decision Making
Planning, Decision Making, Directing, or Controlling? Running the company on a day-to-day basis.
Directing
Planning, Directing, and/or Controlling? Management reviews hourly sales reports to determine the level of staffing needed to staff the customer service desk.
Directing
Planning, Directing, and/or Controlling? Management uses information on product costs to determine sales prices.
Directing
Planning, Directing, and/or Controlling? To lower production costs, management moves production to China.
Directing, Controlling
What is being described? "We have just installed a system at our company that integrates all of our company's data across all systems. We have one central data warehouse that contains information about our suppliers, our customers, our employees, and our financial information. The software retrieves information from this single data warehouse and all systems are integrated. The process of implementing this system has been very expensive and time consuming, but we are reaping the benefits of being more streamlined, of being able to respond more quickly to changes in the market, and of not having several different software systems operating independently."
Enterprise Resource Planning system (ERP)
Northern Gas wants to move its sales order system online. Under the proposed system, gas stations and other merchants will use a secure site to check the availability and current price of various products and place an order. Currently, customer service representatives takedealers' orders over thephone; they record the information on a paper form, then manually enter it into the firm's computer system. CFO Kitty Flores believes that dealers will not adopt the new online system unless Northern Gas provides financial assistance to help them purchase or upgrade their computer network. Flores estimates this one-time cost at $765,000. Northern Gas will also have to invest $170,000 in upgrading its own computer hardware. The cost of the software and the consulting fee for installing the system will be $230,000. The online system will enable Northern Gas to eliminate 25 clerical positions. Flores estimates that the benefits of the new system's lower labor costs will have saved the company $1,335,000. Use a cost-benefit analysis to recommend to Flores whether Northern Gas should proceed with the online ordering system. Give your reasons, showing supporting calculations.
Expected benefits: $1,335,000 Expected costs: $1,165,000 Net benefits (costs): $170,000 Since the expected value of the benefits are greater than the total costs, Northern Gas should proceed with the online system.
True or False? The globalization of business has little bearing on management accounting.
False Globalization has significant implications for management accounting.
True or False? Management accountants should be technically proficient, but they don't need strong oral and written communication skills.
False Management accountants must be able to effectively communicate with people throughout the organization, and as a result, they must have strong oral and written communication skills.
True or False? Management accounting is geared toward external stakeholders, such as investors and creditors.
False Management accounting is geared toward helping internal managers run efficiently and effectively.
True or False? Most business decisions are now based on gut feelings and hunches, rather than being data-driven.
False Most decisions are now data-driven.
True or False? Manufacturing makes up the largest sector of the U.S. economy.
False Service makes up the largest sector of the U.S. economy.
True or False? Computer systems that integrate all of a company's worldwide functions into one database are known as Integrated Worldwide Systems (IWSs).
False Such systems are called Enterprise Resource Planning systems (ERPs).
True or False? The AICPA (American Institute of Certified Public Accountants) issues the CMA (Certified Management Accountant) certification.
False The IMA (Institute of Management Accountants) issues the CMA certification.
Managerial or Financial accounting? Describes historical transactions with external parties.
Financial
Managerial or Financial accounting? Focus is on the past.
Financial
Managerial or Financial accounting? Information is verified by external auditors.
Financial
Managerial or Financial accounting? Is formatted in accordance with GAAP.
Financial
Managerial or Financial accounting? Is intended to be used by creditors and investors.
Financial
Managerial or Financial accounting? It is governed by Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).
Financial
Managerial or Financial accounting? Primary users are external (i.e., creditors, investors).
Financial
Managerial or Financial accounting? Reporting is based mainly on the company as a whole.
Financial
Managerial or Financial accounting? Reports are usually prepared quarterly and annually.
Financial
Managerial or Financial accounting? The primary characteristics of information are that it must be reliable and objective.
Financial
Which organization is the professional association specifically for management accountants?
Institute of Management Accountants (IMA)
Which organization is the professional association specifically for management accountants?
Institute of Management Accountants (IMA)
Competence, Confidentiality, Integrity, or Credibility? Abstain from engaging in or supporting any activity that might discredit the profession.
Integrity
Competence, Confidentiality, Integrity, or Credibility? Mitigate actual conflicts of interest. Regularly communicate with business associates to avoid apparent conflicts of interest. Advise all parties of any potential conflicts.
Integrity
Competence, Confidentiality, Integrity, or Credibility? Refrain from engaging in any conduct that would prejudice carrying out duties ethically.
Integrity
Match each statement to the standard of ethical professional practice being fulfilled (Competence, Confidentiality, Integrity, or Credibility). Avoid actual and apparent conflicts of interest.
Integrity
Managerial or Financial accounting? Focus is on the future.
Managerial
Managerial or Financial accounting? Is not required by an authoritative body such as the SEC.
Managerial
Managerial or Financial accounting? It is not governed by legal requirements.
Managerial
Managerial or Financial accounting? Main characteristic of information is that it must be relevant.
Managerial
Managerial or Financial accounting? Primary users are internal (i.e., company managers).
Managerial
Managerial or Financial accounting? Reports are prepared as needed.
Managerial
Managerial or Financial accounting? Reports on the company's subunits, such as products, geographical areas, and departments.
Managerial
Managerial or Financial accounting? Reports tend to be prepared for the parts of the organization rather than the whole organization.
Managerial
_____ systems are chosen by comparing the costs versus the benefits of the system and are not restricted by GAAP (or International Financial Reporting Standards, IFRS, in the case of companies headquartered in many countries outside of the United States).
Managerial accounting
_____ systems report on various segments or business units of the company.
Managerial accounting
Planning, Decision Making, Directing, or Controlling? Setting goals and objectives for the company and determining strategies to achieve them.
Planning
Planning, Directing, and/or Controlling? Management decides to increase sales growth by 20% next year.
Planning
What is being described? "I just started a new job in the Auditing Department. My new duties include assisting in the development of testing procedures and methods for determining internal controls effectiveness. I also oversee the testing for assurance of compliance with corporate policies. I am coordinating the review of SEC filings with our external auditors. I also am responsible for preparing periodic compliance status reports for management, the audit committee, and the external auditors."
Sarbanes-Oxley Act (SOX)
Which law requires the company's CEO and CFO to assume responsibility for the company's financial statements and disclosures?
Sarbanes-Oxley Act of 2002 (SOX)
Custom Motorcycles estimates it will cost $920,000 to convert an existing building to motorcycle production. Workers will need training, at a total cost of $75,000. The additional costs to organize the business and to establish relationships is estimated to be $120,000. The CEO believes the company can earn profits from this expansion (before considering the costs in the preceding paragraph) of $1,686,000. Use cost-benefit analysis to determine whether Custom should expand into Germany.
See image.
Faced with rising pressure for a $12 per hour minimum wage rate, the farming industry is currently exploring the possible use of robotics to replace some farm workers. The Field Friend is one such robot; its job is to thin out a field of lettuce, removing the least promising buds of lettuce. By removing these weaker plants, the stronger lettuce plants have more room to grow. Assume the following facts: 1. One Field Friend would do the work of 20 farm workers. 2. Each farm worker typically works 50 hours on the lettuce thinning process each year. 3. Each farm worker would earn $12 per hour plus 7.65% payroll tax. 4. The Field Friend is estimated to cost $9,500 plus $600 for delivery. 5. Annual costs of operating the Field Friend are expected to be $1,800. While the Field Friend itself may be in workable condition for up to five years, assume that the farm would view its implementation as a one-year experiment. Perform a cost-benefit analysis for the first year of implementation to determine whether the Field Friend would be a financially viable investment if the minimum wage is raised to $12 per hour. (Round your answers to the nearest whole dollar.)
See image.
Faced with rising pressure for a $16 per hour minimum wage rate, the farming industry is currently exploring the possible use of robotics to replace some farm workers. The Farmhand is one such robot; its job is to thin out a field of lettuce, removing the least promising buds of lettuce. By removing these weaker plants, the stronger lettuce plants have more room to grow. Assume the following facts: 1. One Farmhand would do the work of 15 farm workers. 2. Each farm worker typically works 45 hours on the lettuce thinning process each year. 3. Each farm worker would earn $16 per hour plus 7.65% payroll tax. 4. The Farmhand is estimated to cost $6,000 plus $750 for delivery. 5. Annual costs of operating the Farmhand are expected to be $2,000. While the Farmhand itself may be in workable condition for up to five years, assume that the farm would view its implementation as a one-year experiment. Perform a cost-benefit analysis for the first year of implementation to determine whether the Farmhand would be a financially viable investment if the minimum wage is raised to $16 per hour. (Round your answers to the nearest whole dollar.)
See image.
What is being described? "My company is working to demonstrate its commitment to continuous quality improvement. We are currently undergoing an extensive audit of our quality management processes. We hope to gain a competitive advantage through this process."
Six Sigma
True or False? Critical thinking can be improved by asking yourself a series of questions about any issue or problem you encounter. These questions, for example, include: What is the objective What data will I need? What assumptions am I making? Is my conclusion logical?
True
True or False? Lean thinking focuses on eliminating waste from operations.
True
True or False? Management accountants are now more often looked upon as internal business advisors rather than "bean counters" recording historical transactions.
True
True or False? Management accountants often work in cross-functional teams throughout the organization.
True
True or False? Management accountants should be proficient in Excel.
True
True or False? Managers' three primary responsibilities are planning, directing, and controlling.
True
True or False? The Sarbanes-Oxley Act of 2002 (SOX) imposes stricter requirements over financial reporting and internal controls and stricter consequences for those who engage in financial statement misconduct and other white-collar crimes.
True
True or False? The internal audit function reports to the audit committee of the board of directors.
True
True or False? The triple bottom line assesses company performance on three factors: people (social impact), planet (environmental impact), and profit (economic impact).
True
Barb Perot is the new controller for EduTechno Software, which develops and sells educational software. Shortly before the December 31 fiscal year-end, Tony Cattrall, the company president, asks Perot how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 15% for the first time in the company's five-year history. Cattrall explains that financial analysts have again predicted a 15% earnings growth for the company and that he does not intend to disappoint them. He suggests that Perot talk to the assistant controller, who can explain how the previous controller dealt with this situation. The assistant controller suggests the following strategies: a. Persuade suppliers to postpone billing until January 1. b. Record as sales certain software awaiting sale that is held in a public warehouse. c. Delay the year-end closing a few days into January of the next year so that some of next year's sales are included as this year's sales. d. Reduce the allowance for bad debts (and bad debts expense). e. Postpone routine monthly maintenance expenditures from December to January. Which of these suggested strategies are inconsistent with IMA standards? What should Perot do if Cattrall insists that she follow all of these suggestions?
a. Is inconsistent with IMA standards b. Is inconsistent with IMA standards c. Is inconsistent with IMA standards d. Is not clear whether it would violate IMA standards e. Does not violate IMA standards Perot should resist attempts to implement a, b, and c and should gather more information about d. If Cattrall ignores Perot, then Perot needs to consider if she wants to work for a company that engages in unethical behavior.
A subcommittee of the board of directors is called the _____.
audit committee
Do they use financial accounting information, managerial accounting information, or both? Board of directors
both
Do they use financial accounting information, managerial accounting information, or both? Division controller
both
Do they use financial accounting information, managerial accounting information, or both? Internal auditor
both
Failing to read the specifications of the software package before purchasing it violates the _____ standard.
competence
Which of the professional standards requires management accountants to continually develop their knowledge and skills?
competence
Skipping continuing education sessions could violate the requirement to maintain professional _____. If your company paid for you to attend the conference, skipping the sessions also violates the _____ standard.
competence, integrity
Providing earnings information to your sister before it is publicly announced violates the _____ standard.
confidentiality
Which of the professional standards requires management accountants to not disclose private information about their organizations?
confidentiality
Financial accounting, managerial accounting, and tax reporting are the direct responsibilities of the _____.
controller
When managers evaluate the company's performance compared to the plan, they are performing the _____ role of management.
controlling
Which of the management responsibilities often involves evaluating the results of operations against the budget?
controlling
Failing to provide job description information to management because you fear it may be used to cut a position in your department violates the _____ standard.
credibility
Financial accounting develops reports for external parties such as _____ and _____.
creditors, shareholders
Management accountants often work on _____.
cross-functional teams
Of the following skills, which are needed by today's management accountants? A. Cost management B. Strategic thinking C. Decision analysis D. all of the above
d. all of the above
What is being described? "Our company is considering whether to set up a sales division in India where we feel there is untapped market potential. However, we have to carefully consider the costs of such an expansion against the increased sales we would see from the new division."
data analytics
Managerial accounting differs from financial accounting in that managerial accounting
emphasizes data relevance over data objectivity
Do they use financial accounting information, managerial accounting information, or both? Bookkeeping Department
financial
Do they use financial accounting information, managerial accounting information, or both? Current stockholders
financial
Do they use financial accounting information, managerial accounting information, or both? External auditor (public accounting firm)
financial
Do they use financial accounting information, managerial accounting information, or both? Loan officer at the company's bank
financial
Do they use financial accounting information, managerial accounting information, or both? Potential investors
financial
Do they use financial accounting information, managerial accounting information, or both? Reporter from The Wall Street Journal
financial
Do they use financial accounting information, managerial accounting information, or both? State tax agency auditor
financial
Do they use financial accounting information, managerial accounting information, or both? Wall Street analyst
financial
CPAs audit the _____ statements of public companies.
financial accounting
Companies must follow GAAP (or International Financial Reporting Standards, IRFS, in the case of companies headquartered in many countries outside of the United States) in their _____ systems.
financial accounting
Information on a company's past performance is provided to external parties by _____.
financial accounting
US companies must follow GAAP (or International Financial Reporting Standards, IFRS, in the case of companies headquartered in many countries outside of the United States) in their _____ systems.
financial accounting
Stealing from your employer is a violation of the _____ standard.
integrity
Do they use financial accounting information, managerial accounting information, or both? Manager of the Service Department
managerial
Do they use financial accounting information, managerial accounting information, or both? Regional divisional managers
managerial
Decision makers inside a company are the _____.
managers
Choosing goals and the means to achieve them is the _____ function of management.
planning
What is being described? "My company has a new initiative at work. All employees are encouraged to recycle paper and other materials. Employees are also given one work day a year to volunteer to help local nonprofit organizations. Employees are also urged to think outside the box to find ways to reduce the companys carbon footprint. The company has also begun an internal reporting system that reports on its triple bottom line."
sustainability
Raising capital and investing funds are the direct responsibilities of the _____.
treasurer
What requires the company's CEO and CFO to assume responsibility for the company's financial statements and disclosures?
Sarbanes-Oxley Act of 2002 (SOX)
