1.E: Accounting as a Tool for Managers (Exercises)

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Multiple Choice

The managers of an organization are responsible for performing several broad functions. They are ________.
1. planning, controlling, and selling
2. directing, controlling, and evaluating
3. planning, evaluating, and manufacturing
4. planning, controlling, and evaluating

Answer:: d

Management accountants help the management of an organization in their planning function through ________.
1. monitoring anti-theft systems
2. strategic planning
3. evaluating costs
4. analyzing profits
Which of the following is a primary aspect of the evaluating function within an organization?
1. comparing actual results against expected results for products, departments, divisions, or the company as a whole
2. reviewing only the quantitative or financial results of the company
3. setting goals
4. putting controls in place for the upcoming year

Answer:: a

During the control function, the measurements taken of the performance must be accurate enough to see ________.
1. only positive results
2. deviations and variances
3. the primary focus
4. only the negative results
Which of the following is false regarding strategic planning?
1. It is the sole responsibility of supervisors.
2. It will span many years.
3. It should include both short-term and long-term goals.
4. Strategic objectives will be diverse and vary from company to company.

Answer:: a

Managerial accounting produces information:
1. to meet the needs of external users
2. that is often focused on the future
3. to meet the needs of investors
4. that follows the rules of GAAP
Management accounting:
1. emphasizes special-purpose information
2. relates to the company as a whole
3. is limited to strictly cost figures
4. is controlled by GAAP

Answer:: a

Internal users of accounting information would not include ________.
1. managers
2. employees
3. creditors
4. officers
External users of accounting information would include ________.
1. employees
2. managers
3. investors
4. supervisors

Answer:: c

Which of the following statements is incorrect?
1. The practice of management accounting is fairly flexible.
2. The information gathered from management accounting is not required by law.
3. Management accounting focuses mainly on the internal user.
4. Reports produced using management accounting must follow GAAP.
The stockholders of a company are:
1. the owners
2. policy setters
3. responsible and liable for the financial well-being of the company
4. operating within the company as independent shareholders

Answer:: a

The controller of a corporation:
1. reports to the CFO and is in charge of the finance side of the business
2. reports to the CFO and is in charge of the accounting side of the business
3. reports to the CEO and implements all cash policies
4. reports to the board of directors
The Certified Financial Analyst (CFA) certification:
1. only requires a high school diploma
2. is administered by the AICPA
3. consists of three separate exams that must be taken in succession
4. is the most popular certification among accountants in the United States

Answer:: c

The Certified Management Accountant (CMA) certification:
1. signifies someone specializing in tax accounting
2. requires an associate’s degree and four years of work experience
3. includes a two-part exam, education requirements, and a work experience requirement
4. is offered to managers who take special courses in accounting
Which of the following terms means the ability to work in cross-functional teams in order to complete a task?
1. supervisory skills
2. conceptualization
3. collaboration
4. resource planning

Answer:: c

Which of the following terms means knowing how a business is run and how it is influenced by external forces, and knowing and understanding the overall industry?
1. commercial awareness
2. conceptualization
3. collaboration
4. imagination
What is the law that protects investors from fraudulent financial accounting activity?
1. FASB
2. SACS
3. SOX
4. CPAS

Answer:: c

What year was the Sarbanes-Oxley Act enacted?
1. 2007
2. 1992
3. 1997
4. 2002
When a representative of an organization gives money to another business official in order to gain favor and/or manipulate a business decision, this is known as ________.
1. whistleblowing
2. bribery
3. buyer debits
4. face value

Answer:: b

The law that specifically prohibits payments to foreign officials in order to attain business is known as ________.
1. FCPA
2. AICPA
3. SOX
4. IFRS
Which of the following is not a step in the outline for examining ethical issues?
1. Establish the facts of the situation.
2. Evaluate each course of action.
3. Make a decision.
4. Confirm decision with FASB.

Answer:: d

Which of the following is not an objective used in the balanced scorecard approach?
1. Customer
2. Financial
3. Vendor
4. Learning and growth
Which of the following is not true regarding continuous improvement?
1. It applies to both service and manufacturing companies.
2. It is used to reduce performance costs.
3. It rejects the idea of “good enough.”
4. It can be applied only to improve processes and products but not services and practices.

Answer:: d

A company’s attempts to utilize sustainable business practices with regard to its employees, the environment, and society are known as ________.
1. a balanced scorecard
2. corporate social responsibility
3. total quality management
4. value chain
A process that is often linked to Six Sigma and is designed toward continuous improvement by eliminating waste is ________.
1. kamikaze
2. value chain
3. total quality management
4. kaizen

Answer:: d

An inventory system that organizations use to increase efficiency and decrease waste is ________.
1. corporate social responsibility
2. just-in-time manufacturing
3. total quality management
4. Lean Six Sigma
A quality control program that depends on multiple team members for removing waste and diminishing defects within products is ________.
1. kaizen
2. total quality management
3. Lean Six Sigma
4. a balanced scorecard

Answer:: c

Questions

Carlita believes an important part of the planning process for managers is being sure to position the company to achieve its goals. She thinks that positioning is an extensive concept and can depend on the right information and that managerial accountants assist in positioning the company. Is she correct? Explain.

Answer:: Answers will vary but should include that cost analysis, branding, pricing, and competition all fall under positioning, and this information comes from the managerial accounting staff. It is used to plan for future processes.

What are some activities and tasks a manager might perform when engaging in the controlling function of management responsibilities?
If there are deviations from the stated goals and objectives, what steps can managers take to get back on track? Provide at least two specific examples.

Answer:: Answers will vary but should include the following: Managers must determine what modifications and changes need to be made to operations to get back on track to meet the stated goals and objectives. Managers need to decide if stated goals and objectives should continue to be pursued as they are, or if they should be modified or completely scrapped. Examples may include revising inventory controls to include antitheft tags that trigger an alarm when inventory is moved from an approved location in order to reduce inventory losses; installing more cameras in more strategic locations to further reduce theft from shoplifting; revising the financial metrics such as ratios or other performance measurements to provide more meaningful and timely insight to help determine how to get back on track; investigating why market share has not changed as expected by talking to the sales force and analyzing market data; evaluating same-store sales to understand how to expand sales in accordance with goals and objectives; and investigating why a production process has experienced a bottleneck and how to relieve the pressure in that specific area, such as making sure appropriate raw materials are available in a timely manner to avoid machine shutdowns waiting on materials to arrive.

Explain how managerial accountants help managers plan, control, and evaluate.
How do the subject matter of reports and the verification of reports differ between financial accounting and managerial accounting?

Answer:: Reports generated from financial accounting are a compilation of a company’s various transactions and contain aggregated information for the entire company in the form of financial statements. For publicly traded companies, these reports follow the rules set forth by the Financial Accounting Standards Board (FASB). In addition, the financial statements are verified by external auditors. Reports generated by managerial accounting are varied in nature because they are driven by the questions that need to be addressed by management. Different companies and different questions require different reports. Managerial accounting reports are therefore on a more detailed level, such as on a product or division level. There are no specific rules guiding the creation of these reports, and they are usually unaudited.

What is the purpose of management accounting?
Who are the primary users of the information gathered by managerial accountants?

Answer:: The primary users of information gathered by managerial accountants are internal users, including management, employees, and officers.

What are the key differences between financial accounting and managerial accounting?
Other than accounting skills, what six qualities must be prevalent in a managerial accountant?

Answer:: Six qualities a managerial accountant should exhibit are commercial awareness, collaboration, effective communication, strong technology skills, analytical skills, and ethics.

Explain how having more than one of the accounting credentials would be beneficial to an accounting career.
Briefly discuss the chain of command for someone being hired into an organization as a staff managerial accountant.

Answer:: The chain of command for someone being hired into an organization as a staff managerial accounting is: Management accounting supervisor → Controller → CFO → CEO → Board of Directors

According to the information available at http://www.accounting.com/careers/, what are six different areas of accounting on which you can focus your career?
According to the information on management accounting available at http://www.accounting.com/careers/, what are some areas of specialization?

Answer:: Specialization areas for management accountants includes budget analyst, financial analyst, accounting manager, controller, chief financial officer.

Go to http://www.accounting.com/careers/ and look up your state to find projected job growth and projected salaries.
What other professional business organizations have a code of ethics?

Answer:: Professional business organizations that have a code of ethics include the American Institute of Public Accountants, the Association of Certified Fraud Examiners, the Financial Executives Institute, the American Marketing Association, and National Society of Professional Engineers

How can having a bonus system based purely on sales goals create an environment that encourages unethical behavior?
What led to the United States Congress passing the public accounting reform act called Sarbanes-Oxley?

Answer:: Several accounting scandals involving publicly traded companies (Enron, WorldCom, and Arthur Andersen) led to the act. It was aimed particularly at public accounting organizations that performed audits of publicly traded corporations.

What is an enterprise resource planning (ERP) system? What are the principal benefits of such a system?
Describe what is meant by the term “balanced” in the term balanced scorecard method.
What is corporate social responsibility, and who are the stakeholders?

Exercise Set A

Indicate whether each statement describes financial accounting or managerial accounting.
1. The information is directed at external users who are making decisions pertaining to investing, extending credit, and other decisions.
2. The principal users are the organization’s managers.
3. The key focus is on the entity as a whole.
4. The rules and principles are very flexible.
5. The information gathered is usually available after an independent audit has been completed.
Identify the following as True or False:
1. Managerial accounting reports must comply with the rules set in place by the FASB.
2. Financial accounting reports are typically general-purpose reports.
3. Financial accounting reports pertain to the entity as a whole, whereas managerial accounting focuses more on subunits of the organization.
4. The main users of the financial accounting information are the internal users.
5. Managerial reports are prepared on an as-needed basis.
6. Financial accounting reports often must be audited at least annually by an independent auditor.
Define each of these users of accounting information as an internal user of external user:
1. Management
2. Employees
3. Investors
4. Creditors
5. Customers
6. Tax authorities
Discuss what information would be most useful for these users of accounting information:
1. Management
2. Employees
3. Investors
4. Creditors
5. Customers
6. Tax authorities
Taylor Speedy has prepared the following list of statements about managerial accounting, financial accounting, and the functions of management. Identify each statement as true or false.
1. Financial accounting centers on providing information to internal users.
2. Staff positions are directly involved in the company’s primary revenue-generating activities.
3. Preparation of budgets is part of financial accounting.
4. Managerial accounting applies only to merchandising and manufacturing companies.
5. Both managerial accounting and financial accounting deal with many of the same economic events.
Match the term with the description:

Certified Public Accountant	Specialist in corporate accounting management; favors financial analytics, budgeting, and strategic domains
Certified Financial Analyst	Considered the top tier in accounting certifications; must pass a four-part exam, with education and work experience requirements
Certified Management Accountant	Designation that is exclusively for auditors of the public sector
Certified Internal Auditor	Credential for auditors who work within organizations and is one of a few that is accepted worldwide
Certified Fraud Examiner	Certification for those with a career in finance and investment areas
Certified Government Auditing Professional	Designation that proves proficiency in fraud prevention, detection, and deterrence

After the passage of the Sarbanes-Oxley Act in 2002, many new responsibilities were put into place for organizations and their management. What are the four significant issues that were addressed by the act and its provisions as presented in this chapter? How does the act and its various requirements help deter fraudulent activity?
Indicate whether each of the following statements is true or false.
1. Bribery in the world of business typically happens when an organization or representative of an organization gives financial benefits to an official to gain favor or manipulate a business decision.
2. The Foreign Corrupt Practices Act was implemented in the aftermath of disclosures that businesses were violating the IMA Code of Ethics.
3. Managers are required to follow specific rules issued by the IMA for internal financial reporting.
4. Ethics is more than obeying laws.
5. The Sarbanes-Oxley Act addressed public company accounting reform.
Match each lean business method to the best description:

Just-in-time manufacturing	The focus is on quality throughout the entire process.
Continuous improvements	Inventory is attained or produced only as needed.
Total quality management	A combined effort of team members is used to eliminate waste and defects.
Lean Six Sigma	All managers and employees are always looking for ways to improve operations.

For each of the activities listed, choose the manufacturing concept that applies: (i) just-in-time inventory, (ii) continuous improvement, or (iii) total quality management.
1. A company receives inventory daily based on customer orders.
2. Manufacturing factories have been arranged in such a fashion to reduce inefficiencies.
3. Companies organize customer focus groups in order to look at customer needs and expectations.
4. The entire production process is standardized and written down with procedures.
5. Each customer receives a survey of satisfaction with their product.
6. All orders are complete and shipped within three business days.
Look up the definitions for the following terms:
1. Budget
2. Capital budget
3. Balanced scorecard
4. Break-Even point

Provide examples of how each of these terms is used in your own life and how using these practices is useful.

Exercise Set B

Indicate whether the statement describes reporting by the financial accounting function or the managerial accounting function of an organization.
1. The users of the report are managers who need a daily summary of work done each shift.
2. The report is a job cost sheet for jobs completed in a 24-hour period.
3. The annual report is released each year on the company’s website.
4. The report is audited by the company’s certified public accountant firm.
5. The report is prepared every day because the customer service manager needs information about inventory ready to be shipped to customers.
Identify the following as true or false:
1. Financial accounting reports are not released to external users.
2. Managerial accounting reports are not used by employees inside the organization.
3. Managerial accounting reports include only monetary information.
4. Financial accounting reports are monetary in nature.
5. If a result of a company’s operations is nonmonetary in nature, it must be converted to monetary units for managerial reporting.
6. Tax authorities and government regulatory agencies are external users of financial information.
Companies need to report both monetary and nonmonetary data and information.
1. Define these two terms and provide examples of each.
2. Discuss what sources are available that provide companies with both types of data and information.
Marvin has been thinking about the fields of managerial and financial accounting and the functions of management within an organization. He has the following list of statements to understand. Identify them as true or false.
1. Managerial accounting reports are prepared only quarterly and annually.
2. Financial accounting reports are general-purpose reports.
3. Managerial accounting reports pertain to subunits of the business.
4. Managerial accounting reports must comply with GAAP.
5. The company treasurer reports directly to the vice president of operations.
Match the term with the description.

Chief Executive Officer	has responsibilities that include transferring monies between accounts and monitoring deposits
Chief Financial Officer	the corporation officer who has the overall responsibility of the management of a company
Enrolled Agent	a corporate officer who reports to the chief executive officer and oversees all of the accounting and finance concerns of a company
Cash Management Accountant	the financial officer of a corporation reporting to the chief financial officer who is responsible for the accounting records and financial statements
Controller	credential focusing on a career in taxation created by the IRS to signify significant knowledge of the US tax code
Financial Analyst	Someone who assists in preparing budgets, tracking actual costs and performs other tasks that support other management personnel in organizing forecasts and projections