Managerial Accounting,

Managerial Accounting, 2nd Asia Global Edition, By Ray Garrison, Eric Noreen, Peter Brewer, Nam Sang, Cheng Yuen (Solutions Manual All Chapters) (Download link at the end of this File)

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© The McGraw-Hill Companies, Inc., 2015. All rights reserved.Solutions Manual, Chapter 1 1 Chapter 1 Managerial Accounting and the Business Environment Solutions to Questions 1-1 Financial accounting is concerned with reporting financial information to external parties, such as stockholders, creditors, and regulators. Managerial accounting is concerned with providing information to managers for use within the organization. Financial accounting emphasizes the financial consequences of past transactions, objectivity and verifiability, precision, and companywide performance, whereas managerial accounting emphasizes decisions affecting the future, relevance, timeliness, and segment performance. Financial accounting is mandatory for external reports and it needs to comply with rules, such as generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS), whereas managerial accounting is not mandatory and it does not need to comply with externally imposed rules.1-2 Five examples of planning activities include (1) estimating the advertising revenues for a future period, (2) estimating the total expenses for a future period, including the salaries of all actors, news reporters, and sportscasters, (3) planning how many new television shows to introduce to the market, (4) planning each television show’s designated broadcast time slot, and (5) planning the network’s advertising activities and expenditures.Five examples of controlling activities include (1) comparing the actual number of viewers for each show to its viewership projections, (2) comparing the actual costs of producing a made-for-television movie to its budget, (3) comparing the revenues earned from broadcasting a sporting event to the costs incurred to broadcast that event, (4) comparing the actual costs of running a production studio to the budget, and (5) comparing the actual cost of providing global, on-location news coverage to the budget.1-3 The quantitative analysis would focus on determining the potential cost savings from buying the part rather than making it. The qualitative analysis would focus on broader issues such as strategy, risks, and corporate social responsibility. For example, if the part is critical to the organization’s strategy, it may continue making the part regardless of any potential cost savings from outsourcing. If the overseas supplier might create quality control problems that could threaten the end consumers’ welfare, then the risks of outsourcing may swamp any cost savings.Finally, from a social responsibility standpoint, a company may decide against outsourcing if it would result in layoffs at its domestic manufacturing facility.1-4 Companies prepare budgets to translate plans into formal quantitative terms. Budgets are used for various purposes, such as forcing managers to plan ahead, allocating resources across departments, coordinating activities across departments, establishing goals that motivate people, and evaluating and rewarding employees. These various purposes often conflict with one another, which makes budgeting one of management’s most challenging activities.1-5 The three broad categories of customer value propositions are—customer intimacy, operational excellence, and product leadership.Companies adopting a customer intimacy proposition are in essence saying to their target customers, “You should choose us because we understand and respond to your individual needs better than our competitors.” The Four 2 / 4

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• Managerial Accounting, Asia Global Edition

Seasons Hotel, BUPA and some bespoke travel agencies are the examples of companies executing such strategy successfully.Companies that pursue the second proposition, called operational excellence, are saying to their target customers, “You should choose us because we can deliver products and services faster, more conveniently, and at a lower price than our competitors.” Zara and Dell are examples of companies well-known for their operational excellence. Companies pursuing the third customer value proposition, called product leadership, are saying to their target customers, “You should choose us because we offer higher quality products than our competitors.” Intel and Nike are examples of companies that succeed in this proposition. Company may offer its customers a combination of these customer value propositions. For example, General Electric has achieved operational excellence in processes that lead to customer intimacy.Catalog and online retailers, L.L. Bean on the other hand, has historically competed on customer intimacy simultaneously strives for operational excellence.

1-6 Deere & Company is an example of a company that competes in terms of product leadership. The company’s slogan “nothing runs like a Deere” emphasizes its product leadership customer value proposition.Amazon.com competes in terms of operational excellence. The company focuses on delivering products faster, more conveniently, and at a lower price than competitors.Charles Schwab competes in terms of customer intimacy. It focuses on building personal relationships with clients so that it can tailor investment strategies to individual needs.1-7 Planning, controlling, and decision making must be performed within the context of a company’s strategy. For example, if a company that competes as a product leader plans to grow too quickly, it may diminish quality and threaten the company’s customer value proposition. A company that competes in terms of operational excellence would select control measures that focus on time-based performance, convenience, and cost. A company that competes in terms of customer intimacy may decide against outsourcing employee training to cut costs because it might diminish the quality of customer service.1-8 This answer is based on Nike, which has suppliers in over 40 countries. One risk that Nike faces is that its suppliers will fail to manage their employees in a socially responsible manner. Nike conducts Management Audit Verifications at its overseas plants to minimize this risk.Nike faces the risk that unsatisfactory environmental performance will diminish its brand image. The company is investing substantial resources to develop products that minimize adverse impacts on the environment.Nike faces the risk that customers will not like its new products. The company uses focus group research to proactively assess the customers’ reaction to its new products.1-9 Airlines face the risk that large spikes in fuel prices will lower their profitability.Therefore, they may reduce this risk by spending money on hedging contracts that enable them to lock-in future fuel prices that will not change even if the market price increases.Steel manufacturers face major risks related to employee safety, so they create and monitor control measures related to occupational safety compliance and performance.Restaurants face the risk that an economic downturn will reduce customer traffic and lower sales. They reduce this risk by choosing to create menus during economic downturns that offer more low-priced entrees.1-10 Barnes & Noble could segment its companywide performance by individual store, by sales channel (i.e., bricks-and-mortar versus on-line), and by product line (e.g. non-fiction books, fiction books, music CDs, toys, etc.).Procter & Gamble could segment its performance by product category (e.g., beauty and grooming, household care, and health and well-being), product line (e.g., Crest, Tide, and Bounty), and stock keeping units (e.g., Crest Cavity Protection toothpaste, Crest Extra Whitening toothpaste, and Crest Sensitivity toothpaste).1-11 Timberland publishes quarterly corporate social responsibility (CSR) metrics (see

http://responsibility.timberland.com/reporting/go

als-and-progress/). Multiple metrics measuring 3 / 4

© The McGraw-Hill Companies, Inc., 2015. All rights reserved.Solutions Manual, Chapter 1 3 climate, product, factories and services (the four CSR pillars) impacts are presented. Examples include metric tons of carbon emissions, use of renewable, organic, or recycled materials in footwear, and renewable energy in kilowatt hours and percentage of renewable energy.Timberland’s CSR slogan of “doing well by doing good” suggests that the company publishes CSR reports because it believes that its financial success (i.e., doing well) is positively influenced by its social and environmental performance (i.e., doing good).To ensure the CSR impacts and values are properly discussed and considered. Its Vice President (VP) of CSR sits on the company’s Senior Management Team and reports directly to its Brand President. The VP of CSR also leads Timberland’s Sustainability Steering Committee, which is comprised of North American and International leaders from business units across the company who manage Timberland’s core business functions. This committee provides regular feedback on strategy development and key issues within the four CSR pillars.1-12 Companies that use lean production only make units in response to customer orders.They produce units just in time to satisfy customer demand, which results in minimal inventories.1-13 Organizations are managed by people that have their own personal interests, insecurities, beliefs, and data-supported conclusions that ensure unanimous support for a given course of action is the exception rather than the rule. Therefore, managers must possess strong leadership skills if they wish to channel their co-workers’ efforts towards achieving organizational goals.1-14 Ethical behavior is the lubricant that keeps the economy running. Without that lubricant, the economy would operate much less efficiently—less would be available to consumers, quality would be lower, and prices would be higher.1-15 Corporate governance is the system by which a company is directed and controlled. If properly implemented, the corporate governance system should provide incentives for the board of directors and top management to pursue objectives that are in the interests of the company’s owners and its stakeholders and it should provide for effective monitoring of performance.Effective corporate governance enhances stockholders’ and stakeholders’ confidence that a company is being run in their best interests rather than in the interests of top managers.

1-16 Enterprise risk management is a process used by a company to help identify the risks that it faces and to develop responses to those risks that enable the company to be reasonably assured of meeting its goals. Even with a sophisticated enterprise risk management system, a company cannot guarantee all risks being eliminated. Nonetheless, many companies understand that managing risks is a superior alternative to reacting, perhaps too late, to unfortunate events.

1-17 In addition to the normal dimension of performance measure—economic, a company’s performance can also be measured in the dimension of environmental and social aspects, giving rise the triple bottom-line in the sustainability framework. Therefore, interests of all stakeholder groups, including but not limited to, customers, suppliers, stockholders, employees, communities and government, and environmental and human rights advocates are closely tied with a company’s performance.There may be argument that stockholders’ interest may be in conflict with other stakeholders’ interests. The all-win situation may arise when the pie (performance of the triple bottom-line) is enlarged.

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