Solutions to Questions

Copyright © 2023 McGrawHillLtd. All rights reserved.Solutions Manual, Chapter 1 1 Chapter 1 An Introduction to Managerial Accounting Solutions to Questions 1-1 Managerial accounting is concerned with providing information primarily to managers for their use internally in the organization for the purposes of strategy, planning, implementation and control. Financial accounting is concerned with providing information primarily to investors, creditors, and others outside of the organization.1-2 Essentially, the manager carries out three major activities in an organization: planning, implementation, and control. All three activities involve decision- making and use managerial accounting information. This is depicted in Exhibit 1- 1.1-3 The Planning, Implementation and Control Cycle involves the following steps: (1) formulating plans which often includes preparing budgets, (2) overseeing day-to- day activities which includes organizing, directing and motivating people, resource allocation and decision making, and (3) controlling which includes providing feedback via performance reports.1-4 In contrast to financial accounting, managerial accounting: (1) focuses on the needs of the manager; (2) places more emphasis on the future; (3) emphasizes relevance and timeliness, rather than verifiability and precision; (4) emphasizes the segments of an organization; (5) is not governed by IFRS or ASPE; and (6) is not mandatory.1-5 The lean business model focuses on continuous improvement by eliminating waste in the organization. Companies that adopt the lean business model usually implement one or more of the following management practices.

• Just-in-time (JIT): A production and inventory control system in which

materials are purchased and units are produced only as needed to meet actual customer demand.

• Total quality management (TQM): An approach to continuous

improvement that focuses on serving customers and uses teams of front- line workers to systematically identify and solve problems.

• Process re-engineering: An approach to improvement that involves

completely redesigning business processes in order to eliminate unnecessary steps, reduce errors, and reduce costs.

• Theory of constraints (TOC): A management approach that

emphasizes the importance of managing constraints.Introduction to Managerial Accounting, 7th Canadian Edition, 7e Brewer, Garrison, Noreen, Kalagnanam, Vaidyanathan (Solutions Manual All Chapters) Supplement files download link at the end of this file. 1 / 4

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• Introduction to Managerial Accounting, Seventh Canadian Edition

1-6 Benefits • Improves operational processes that makes the business efficient • It leads to reduction or elimination of waste • It improves profitability and reduces costs • It reduces the turnaround time to fulfill customer orders improving customer satisfaction

Limitations • Production schedule can get hampered if any external shocks lead to supply chain disturbance • Lean processes must be complimented with agile processes to adapt swiftly to changing customer needs.1-7 Pros • Funds tied up in maintaining inventory can be used elsewhere • Areas previously used to store inventories are made available for other more productive uses • The time required to fill an order is reduced, resulting in quicker response to customers and consequentially greater potential sales • Defect rates are reduced resulting in less waste and greater customer satisfaction • More effective operations

Cons • Increased number of purchase orders to buy raw materials and/or other components used in manufacturing products • There is little room for errors and defects in products because this could throw the production facility off schedule • There is a high reliance and dependence on suppliers to meet delivery deadlines as well as supply products that have no defects and require minimal inspection

1-8 Agree. Ethical behaviour is the foundation of a successful market economy. If we cannot trust people to act ethically in their business dealings with us, we will be inclined to invest less, scrutinize more and waste money and time (scarce resources) trying to protect ourselves. Ethical standards and Codes of Conduct aid the smooth running of the economy. In addition, the lack of regulatory requirements (IFRS, ASPE) regarding managerial accounting makes ethical behaviour even more critical.

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Copyright © 2023 McGraw Hill Ltd. All rights reserved.Solutions Manual, Chapter 1 3 Solutions to Exercises

Exercise 1-1 (LO1 CC2) Item Financial Accounting Managerial Accounting

a) Preparing budgeted statements

of income and financial position for the next year X

b) Analyzing the profitability of a

new project X

c) Preparing the income

statement and balance sheet X

d) Preparing a weekly

performance report for the product manager X

e) Costing and pricing a new

product X

Exercise 1-2 (LO1 CC1) Planning Implementation Control

a) Doing a cost–benefit

analysis of buying new planes versus leasing them X

b) Estimating the cost of

utilities to be incurred during the next quarter X

c) Documenting variances

from standard costs of different products

X 3 / 4

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• Introduction to Managerial Accounting, Seventh Canadian Edition

d) Compiling the raw material

wastage report for the past month X

e) Changing procurement

process based on an internal audit report X

f) Documenting the savings

from reductions in raw materials inventory resulting from the adoption of a just-in-time inventory system X

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