Evolutions 10e By - Solutions Manual, Chapter 1 1-1 CHAPTER 1 Intr...

Cost Accounting Foundations & Evolutions 10e By Kinney, Raiborn, Dragoo (Solutions Manual All Chapters) 1 / 4

©Cambridge Business Publishers, 2021 Solutions Manual, Chapter 1 1-1

CHAPTER 1

Introduction to Cost Accounting

QUESTIONS

Q1-1. Management accounting stresses the informational needs of internal users over those of external users (the focus of financial accounting). Because of this perspective, management accounting provides information in a format that is flexible and relevant to a particular manager’s usage. Fi- nancial accounting, on the other hand, must provide some uniformity in the manner in which in- formation is presented for it to be comparable among companies and in compliance with generally accepted accounting principles.

Q1-2. It is more important to have legally binding cost accounting standards for defense contractors than for other manufacturers because government contracts are often awarded on a low-bid ba- sis. Without legally binding cost accounting standards, different bidders could include costs in dif- ferent categories, making the bids noncomparable. With specified cost accounting standards, there is a higher probability (although not absolute certainty) that comparison among bids is con- sistent. Although contracts for nongovernment manufacturers may be awarded on a bid basis, it is more common in this arena to consider a wide variety of factors in addition to cost.

Q1-3. A mission statement is important to an organization because it provides a clearly worded view of what the organization wants to accomplish and how the organization uniquely meets or plans to meet its targeted customers’ needs with products and services. Without a mission statement, an organization may veer away from its “view of itself” and find that it is engaging in activities that are not, and can never be, part of what it wants to do.

Q1-4. Organizational strategy is the link between a firm’s goals and objectives and its operational plans.Strategy is therefore a specification of how a firm intends to compete and survive. Each organiza- tion will have a unique strategy because it has unique goals, objectives, opportunities, and con- straints.

Q1-5. Core competencies are the special proficiencies possessed and valued by an organization. If a particular strategy requires core competencies that are not possessed by a firm, executing such a strategy would be very difficult. For example, a strategy of Internet business expansion would be difficult to execute in a firm that does not possess a core competency in web design or web secu- rity. Similarly, a growth strategy would be impossible in a not-for-profit that did not have a core competency in attracting volunteers or donors.

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©Cambridge Business Publishers, 2021 1-2 Cost Accounting, 10 th Edition Q1-6. Although polluting might be less expensive in the short run, there is no guarantee that such a low- cost tactic may continue in the long run, especially if fines are incurred or additional legal regula- tions are enacted that would require retroactive cleanup. Being green may be viewed from a self- serving standpoint: a proactive green strategy may attract environmentally conscious consumers and provide a positive organizational image (which could help attract labor talent). Further, such an approach may actually be less expensive through reduced energy and waste costs. Current research indicates that being green can be profitable to a business. Consumers may, in fact, be willing to pay a bit more for products that are nondamaging to the environment and could cause an organization to refocus on a product differentiation strategy that might be more profitable than a low-cost strategy.

Q1-7. Authority is the right, generally because of position or rank, to use resources to accomplish a task or achieve an objective. Responsibility is the obligation to accomplish a task or achieve an objec- tive. Authority can be delegated, but responsibility must be assumed and maintained by the per- son to whom it is assigned. However, sufficient authority must accompany responsibility or the assignment of responsibility cannot endure.

Q1-8. This statement is false. All firms have capital constraints, although the constraints are more bind- ing for some firms than others. For any firm, as the amount of capital raised through either stock or bond offerings increases, the perceived riskiness of the offerings also rises. The perceived risk rises because there is greater uncertainty associated with the new investment relative to the firm’s existing investments. As the perceived risk rises, the rate of return required by the investors also rises. At some point, the rate of return required by the investors will exceed the return that the firm can generate with the new funds.

Q1-9. Workforce diversity may affect organizational culture because the work ethic of individual workers may be less homogeneous, communication may become more difficult, and observation of differ- ent religious holidays may create difficulties or new patterns of absenteeism. As workforce diver- sity increases, organizational culture must change to reflect this diversity.

Some potential benefits of workforce diversity include an opportunity to reduce prejudices, having workers who prefer different holiday schedules (minimizing the need for closure for specific holi- days), and having workers who have different workplace characteristics (for example, some cul- tures may prefer to work in groups; others alone). Some potential difficulties of workforce diversity include the possibility of different work ethics (for example, some cultures may perform at differ- ent “speeds,” desire different workplace “formats” such as afternoon siestas, or view communica- tion within the workplace about outside activities differently). There may also be less tolerance if one employee group demands a greater number of religious holidays than another or lacks un- derstanding of why a particular employee (or employee group) does not believe in the need for a specific holiday that the majority observes.

Q1-10. A change in laws or regulations may remove a constraint to competition or to a particular strate- gy. For example, the U.S. Mexico Canada Agreement (USMCA) requires that 75% of automobile components must be manufactured in Mexico, the U.S. or Canada to quality for zero tariffs. This provides a disincentive for companies to manufacture a significant portion of automobiles outside of these countries.

Q1-11. An organization’s value chain is the set of processes that converts inputs into products and ser- vices for the firm’s customers. The value chain includes both internal and supplier processes, and captures the structure of activities by which an organization competes. The value chain and strat- egy interface because optimizing value is the objective when managers strategize relative to the structure of the value chain.

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©Cambridge Business Publishers, 2021 Solutions Manual, Chapter 1 1-3 Q1-12. The balanced scorecard is a framework that restates an organization’s strategy into clear and objective performance measures. The balanced scorecard is used to evaluate performance from four perspectives: learning and growth, internal business, customer values, and financial.These perspectives include financial, quantitative, qualitative, lead and lag indicators, and short- and long-run measures. Managers choosing to apply the balanced scorecard are demonstrating a belief that traditional financial performance measures, such as ROI, alone are insufficient to assess how the firm is doing and what specific actions must be taken to improve performance. When organizations operate globally, it is less likely that a single meas- ure of performance (such as ROI) is sufficient to indicate success because of multiple goals and objectives.

Q1-13. Operating in a global environment means that more decision and control variables must be tracked. For example, a firm operating in many countries must track variables such as national rules of income taxation, national corporate governance laws, sets of local laws of commerce (in- cluding those for labor and the environment), production and sourcing sites, and currencies. In addi- tion, the multinational firm must monitor markets in many countries, deal with a multitude of local cultures and customs, and be aware of communication differences among languages. For example, product names may not “translate” equally well into different languages. In the pharmaceutical in- dustry, nuances in product names may mean the difference between life and death: the FDA indi- cated that approximately 10 percent of medication errors arise from from name confusion (https://www.onhealth.com/content/1/drug_name_confusion_preventing_medication_errors).

Some other valuable information for the global firm would be currency exchange rates; national inflation rates; details of import/export laws; prices for commodities in likely sourcing sites; distribution costs for various modes of moving goods, components, equipment, and materials; political issues in all relevant markets; and competitors’ prices in all markets. These types of information are important to generating an optimal return on capital.

Q1-14. The purpose of this question is to get students to think about the role of laws and ethics in con- ducting business. Among the important points that should be made in the position papers include whether the laws in the firm’s home country or local foreign law should govern the actions of firms, whether ethics or law should be the standard governing actions in foreign jurisdictions, and the extent to which “being competitive” should be a criterion in choosing a business course of ac- tions. Venezuela was selected because it has not signed the OECD Anti-Bribery Convention; it has also been rated as 188 out of 190 economies for overall “ease of doing business” (http://www.doingbusiness.org/data/exploreeconomies/venezuela). There have been currency devaluations, power and water rationing, nationalization of organizations, and a high level of polit- ical instability. All of these issues could result in ethical issues for a U.S. company.

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