Accounting for Decision Making and Control for the 9th Edition Solution
Follow Below Link to Download File
Email us for original and Plagiarism Free
Work At ( info.homeworklance@gmail.com ) or order us at
Accounting for Decision Making and Control for
the 9th Edition Solution
PART II: SOLUTIONS TO PROBLEMS AND CASES
Chapter 1
Introduction
P 1–1:
Solution to
MBA Students (10 minutes)
[Using
accounting information for decision making and control]
Together
the two observations highlight the extremes in the trade-offs of using
accounting information for decision and control. In the first case, there
is more analysis of opportunity costs that are hard to capture with typical
accounting information. In the second case, there is less intended
interest in opportunity cost and greater emphasis on control.
P 1–2:
Solution to
One Cost System Isn’t Enough (15 minutes)
[Economic
Darwinism]
The
first part of the quote describes the tension (and conflict) that arises when a
single accounting system is used for multiple purposes. This part of the
statement is an accurate description of practice. However, the quote has
a couple of problems, including:
·
While the quote describes the costs of using a single system (“a
single system … can’t perform important managerial functions adequately”), the
quote does not describe the benefits derived from using a single system (lower
bookkeeping costs, a single audit, less confusion).
·
Because the quote ignores the benefits of a single system, it
ignores the concept of economic Darwinism. It does not address the question of
how surviving (successful) companies can compete if a single system “can’t
perform important managerial functions adequately.”
·
Also, the quote assumes that managers are bound to their
internal accounting systems, that no other alternative information sources are
available. Often managers develop their own ad hoc, “off-line” information
systems for decision making. These systems include spreadsheets, informal
observation, and “walking around.”
P 1–3: Solution to U.S. and Japanese Tax Laws (15
minutes)
[Influence
of conflicting demands on cost systems]
The
internal accounting system supports multiple uses, including financial
reporting, taxes, contracting (debt and management compensation), internal
decision making, and internal control. Because multiple purposes are
served, trade-offs must be made among the competing demands. When more
emphasis is placed on one purpose (taxes), less consideration can be given to
other uses (internal decision making and control). By linking taxes to
external reporting, Japanese firms’ financial reports will be based on
accounting procedures that give more weight to tax considerations. In the
U.S., companies can keep two sets of books, one for taxes and the other for
financial reporting. Thus, in the U.S., there is more of a decoupling of
taxes and everything else. Except for the additional bookkeeping costs of
producing the two separate sets of reports, tax considerations are predicted to
have less influence on the choice of internal (and thus external) accounting
procedures in the U.S. than in Japan.
The
question is raised as to why firms use the same accounting procedures for
internal reports as they do for external reports. Or for that matter, why
do tax laws and external financial reporting considerations have any effect on
internal accounting procedures? Why don’t firms maintain multiple sets of
accounts, one for each purpose (e.g., financial reporting, internal decision
making, and internal control)? Clearly there are additional bookkeeping
costs for maintaining multiple sets of accounts. But also, there are
confusion costs and, in many instances, firms explicitly link senior executive
compensation to externally reported financial statements. Such explicit
linkage of executive pay to externally reported net income presumably exists to
control agency costs between management and shareholders. Once senior
management performance and rewards are linked to external reports, the internal
reporting system will become linked to the external reports and basically less
consideration will be given to choosing accounting procedures that aid in
internal decision making and internal control.
In
Japan, the firm’s accounting systems are less likely to be used for internal
uses (decision making and control) than in the U.S. Because they cannot
rely as much on their accounting systems for internal uses (because more weight
is placed on using accounting procedures to reduce taxes), Japanese managers
are more likely to use non-accounting-based systems for internal decision
making and control.
P 1-4:
Solution to Using Accounting for Planning (15
minutes)
[Usefulness
of historical costs]
1. Historical
costs are of limited use in making planning decisions in a rapidly changing
environment. With changing products, processes and prices, the historical
costs are inadequate approximations of the opportunity costs of using
resources.
Historical
costs may, however, be useful for control purposes, as they provide information
about the activities of managers and can be used as performance measures to
evaluate managers.
1. The
purpose of accounting systems is to provide information for planning purposes
and control. Although historical costs are not generally appropriate for
planning purposes, additional measures are costly to make. An accounting
system should include additional measures if the benefits of improved decision
making are greater than the costs of the additional information.
P 1–5:
Solution to
Budgeting (15 minutes)
[Trade-off
between decision making and control]
In this
firm, the bonus is based on meeting the budget. Two incentives
exist: sales people will under-forecast future sales and they have little
incentive to sell more than the budget.
This
firm tries to use the budget for two functions: decision making and
control. In deciding on next year’s production plans, sales peoples’
forecasts of future sales are important. However, these same forecasts
(after revision by supervisors) are used as part of the compensation scheme to
motivate the sales people to achieve their goals. By using the budget
(forecasts) as part of the control system, the firm gives up some of the
budget’s usefulness as a decision making tool to set production plans.
While senior managers might recognize that the sales people’s forecasts are
low, they don’t know exactly how low. This introduces more uncertainty
into planning for next year’s production.
P
1-6:
Solution to Golf Specialties (20 minutes)
[Average
versus variable cost of an incremental order]
1. Given
that the variable cost per head cover is 1.10 euros, the fixed cost per week
is:
AC = FC
/ Q + VC
3.10 =
FC/600 +
1.10
3.50 = FC/500 + 1.10
FC =
1,200
euros
FC = 1,200 euros
1. The
change in total cost if the 100 unit Kojo offer is accepted is:
600 ×
3.10 euros – 500 × 3.50 euros = 110 euros
Or,
each head cover has variable cost of 1.10 euro. Since Kojo is willing to
pay 2 euros per head cover or 200 euros for 100 covers, by accepting this order
GS makes 90 euros a week. Therefore, GS should accept Kojo’s offer if
these are all the relevant facts.
1. GS
should consider the following non-quantitative factors:
·
What prevents Kojo from reselling the head covers back to
dealers in Europe at prices below GS’s current price of 4.25 euros?
·
If GS sells the head covers to Kojo at 2 euros, what prevents
GS’s European customers from learning of this special deal and demand similar
price concessions. In other words, why do we expect to be able to implement
this price discrimination strategy?
·
Will Kojo purchase other GS products and import them to Japan?
·
What is Kojo’s credit worthiness and will they pay for the head
covers upon taking delivery?
P 1–7:
Solution to
Parkview Hospital (25 minutes)
[Changes
in the environment cause accounting system changes]
1. Parkview’s
accounting system was probably adequate 10 years ago. It faced little
competition and had little incentive to have detailed cost and revenue data at
the clinical levels.
3. With
increased pressure to reduce costs, Parkview management wants detailed cost and
revenue data at the clinic level to help identify units with excess revenues or
deficits. This would help guide their decisions as to how to respond to the
$3.2 million shortfall. The accounting system doesn’t provide as much
help as management would like.
1. The
question of changing the accounting system should be approached as a
cost-benefit decision. What will such changes cost, how long will they take to
implement, and what benefits are derived?
While
it is tempting to say more accurate tracking of costs and benefits allows
better decision making, changing the accounting system, including all the data
processing changes that are likely necessary, usually is a very costly and time
consuming process. Often special studies based on approximations of
clinical department costs and revenues might prove to be faster and cheaper
than waiting to revamp the accounting system.
Notice
the change in competition in the health insurance market caused by Trans
Insurance’s entry prompted a series of changes in Parkview, including a
re-examination of its accounting system.
P 1–8:
Solution to
Montana Pen (25 minutes)
[Incremental
cost of outsourcing]
1. The
average cost information given in the problem does not tell us what 400 clips
cost. Like in the Vortec example from the chapter, the incremental cost
of the 400 clips must be estimated from the following:
=
= B130/clip
At the
current volume of 1,200 clips, the total cost is B222,000 (B185 × 1,200).
If 400 clips are outsourced, reducing in-house volume to 800, the total cost
falls to B170,000 (B212.5 × 800). Hence, total cost falls B52,000
(B222,000 – B170,000), or B130 per clip (B52,000 ÷ 400). Therefore, if
400 clips are outsourced to the Chinese company, Montana saves B130 per clip,
but must pay the Chinese firm 136 per clip. Therefore, based solely on
the cost data presented in the problem, do not outsource the gold clips.
1. There
are a number of additional factors that must be considered besides just the
costs:
1. How
does the quality of the Chinese clips compare to Montana’s quality? If it
is significantly higher, then it might be worth paying six Baht more per clip
(approximately $0.10). What about delivery reliability? Is the
Chinese firm more or less reliable than producing the clips in-house?
1. What
alternative use can be made of the manufacturing capacity of the 400 clips
freed up if they are outsourced? Is the Bangkok plant’s manufacturing
capacity constrained because there are not enough skilled goldsmiths or because
of space or equipment? If so, by outsourcing the 400 clips to the
Chinese, what other pen parts can these goldsmiths manufacture?
iii.
What long-term benefits are created by
developing a business relation with this Chinese firm? For example, might
this Chinese firm become a possible business partner or useful in opening a
Chinese pen factory? Will Montana’s management learn anything new about
business dealings with Chinese firms from outsourcing these clips? Will
purchasing these clips in China help Montana sell more pens in China?
Comments
Post a Comment