CHAPTER 1 + MANAGERIAL ACCOUNTING, THE BUSINESS ORGANIZATION, AND PROFESSIONAL ETHICS 43 Highlights to Remember |. Describe the major users and uses of accounting information. Internal managers use accounting information for making short-tem planning and conteol decisions, for making nonrootine ‘cisions, and for formulating overall policies snd long-range plans. External users, soch as investors and regulators, use published financial statements to make investment decisions, regulatory rulings, ‘and many other decisions, Managers use accounting leeting, and problem-solving questions information to answer scorekeeping, attention . Describe the cost-benefit and behavioral issues involved in designing an accounting system. Companies des agers. These systems should be ju n management accounting information systems or the benefit of man. od by a cost-benefit crterion—the benefits of etter decisions should exceed the cast of the system. Behavioral factors —how the system affects managers and their decisions greatly influence the benefit of a system, Explain the role of budgets and performance reports in planning and control. Budgets and performance reports are essential tools for planning and control. Budgets result from the Planning process, Managers use them to translate the organization's goals into ation, A performance report compares actual results to the budget. Managers use these reports to monitor, evaluate, and reward performance and, thus, exercise contol |. Discuss the role accountants play in the company’s value-chain functions. Accountants Play @ key role in planning and control, Throxghout the company’s value chain, accountants gather and report cost and revenue information for decision makers. 5. Explain why accounting is important in a variety of career paths tscful in many functional areas of an organization, Ma Accounting skills sre ers witha strong understanding of account ing become prime candidates for promotions to operating and executive positions, Identify current trends in management accounting. Many factors have caused! changes in nt years. Most significant area shift toa service-based economy, increased 1 in technology, slobal competition, advan and changed business processes. Without continuous Jopation and improvement, accounting systems would soon become obsolete. Explain why ethics and standards of ethical conduct are important to accountants. (Users of accounting information expect accountants to adhere to high standards of ethical condo, Most ters cannot directly assess the quality ofthat information, and if they cannot rey on accountants o produce anbiasd information, the information will have litle valve to them, That is why professional accounting “ongniatons, as well as most companies, have codes of esical conduct, Many ethical dilemmas, however, rete more than coves and rules. The eal for value judgments ot the simple application of standards, Accounting Vocabulary Vocabulary isan essential and often troublesome phase of the leamin ing of ters hampe process, A fuzzy understand concepts and the ability to solve accounting problems. Before preceding tothe assignment material or to the next chapter, be sure you understand the words and ‘erm in the Accounting Vocabulary section of each chapter. Their meaning is explained within the hapierand in the glossary atthe end of this book. the learn feoountng system, p. 25 Atetion directing, p. 24 BOB. p. 35, BIC. p. 36 Dehua implications, p. 26 Fudge p28 Insiness process tified many ‘gountant (CMA), p. 34 Eetied public accountant OPA), p. 34 Barred accountant CA}, p34 336 chief financial officer (CFO), p.33 code of conduct, p. 38 computer-aided design (CAD), p. 36 computer-aided manufacturing (CAM) p. 36 ‘computer-integrated ‘manufacturing (CIM) systems, p.36 control p. 2 controller (compiroller) p. 33 cost-benefit balance, p. 26 decision making, p. 2 commerce), p. 35 enterprise resource planni (ERP) system, p. 35 e-commerce, p.35 ethics, p.37 financial accounting, p.23 Foreign Corrupt Practices Act p. generally accepted accounting principles (GAAP), p. 25PART 1 + FOCUS ON DECISION MAKING MyAccountinglab International Financial just-in-time UIT) Sarbanes-Oxley Act, p. 25 Reporting Standards philosophy, p. 36 seorekeeping, p. 24 (IFRS), p. 25, lean manufacturing, p.36 serviee organizations, IMA Statement of Ethical line managers, Six Sigma, p. 36 Professional Practice, p. 38 management accounting, p. 23. staff managers, p. 32 Institute of Management management audit, p. 26 total quality management Accountants (IMA), p.34 management by (TQM), p. 36 internal auditors, p. 26 ‘exception, p. 28 treasurer, p. 33 internal controls, p. 25, performance reports, p. 28 variances, p. 28 International Accounting planning. p. 27 value chain, p. 29 Education Standards Board, problem solving, p. 24 XBRL, p.36 « ESB), p. M4 product lie cycle, p. 29 Fundamental Assignment Material ‘The assignment material for each chapter is divided into two groups: fundamental and additional ‘The fundamental assignment material eonsists of two sets of parallel problems that convey’ the essential concepts and techniques of the chapter. The additional assignment material covers the chapter in more detail and includes questions, critical thinking exereises, exercises, problems, cases, Excel application exercises, a collaborative learning exereise, and an Intemet exercise. 1-Al Scorekeeping, Attention Directing, and Problem Solving For each ofthe following activites, identify the primary funetion thatthe accountant is performing— scorekeeping, attention directing, or problem solving—und explain why i best fis that category. 1, Preparing a schedule of depreciation for forklift trucks inthe receiving department of a General Electric factory in Scotland 2. Analyzing, for a Sony production superintendent, the impact on costs of purchasing some new assembly equipment 3, Preparing a scrap report forthe finishing department of a Toyota parts factory 4. Interpreting why the Colville Timber Resource Company did not adhere to its production schedule 5. Explaining the stamping department's performance report 6. Preparing a monthly statement of European sales for the Ford Motor Company's vice presi dent of marketing 7, Preparing, for the manager of production control of a Mittal Stee! plant, a cost comparison of two computerized manufacturing eontrol systems Interpreting variances on the University of Michigan’s purchasing department's performance report ing, for an Airbus manufacturing manager, the desirability of having some parts for the ‘A380 airplane made in Korea 10, Preparing the budget forthe dermatology department of Providence Mospital 1-A2 Management by Exception Beta Alpha Psi (BAP), the accounting honorary fraternity, held a homecoming party. The fraternity ‘expected aitendance of 70 persons and prepared the following bux Room rental 3 140 Food 700 Encortainment 600 Decorations _—20 Tor 31,60 After BAP paid al the bills for the party, the total cost came to $1,865, or $205 over budget. Details are $140 for room rental; $865 for food; $600 for entertainment; and $260 for decorations, Eighty-five persons attended the party. 1. Prepare a performance report for the party that shows how actual costs differed from the budget. ‘That is, include in your report the budgeted amounts, actual amounts, and variances, 2. Suppose the fraternity uses a management-by-exception rule, Which costs deserve further exam- ination? Why’?CHAPTER 1 + MANAGERIAL ACCOUNTING, THE BUSINESS ORGANIZATION, AND PROFESSIONAL ETHICS 45, 1-A3 Professional Ethics Exhibit 1-7 on page 39 lists four main categories of ethical standards for management account ants: competence, confidentiality, integrity, and credibility. For each of the following situations, indicate which of these four should influence the manager and what the appropriate action should be: 1. Ata dinner party, a guest asked a General Mills manager how a major new cereal was doing The manager had just read a report that said sales lagged much below expectation, What should he say? Felix just graduated from business school with an accounting major and joined the controller's department of Pioneer Enterprises. His boss asked him to evaluate a market analysis for a poten- tial new product prepared by the marketing department. Felix knows very litle about the industry, tind he never had class to teach him hows to make a market analysis. Should he just do the best fhe ean on the analysis without asking for help? Mary Sue prepared a budget for a division of Southeastern Electronics. Her supervisor, the division manager, was not happy that she ineluded results for an exciting new product that was tobe introduced in a month. He asked her to leave the results forthe product out of the budget. Tat way, the financial results for the product would boost actual profits well above the amount budgeted, resulting in favorable reviews for the division and its managers. What should Mary Sue do? |-BI Scorekeeping, Attention Directing, and Problem Solving Foreach of the following activites, identify the function the accountants performing —scorekeeping, attention directing, or problem solving. Explain each of your answers, 1. Estimating the operating costs and outputs that could be expected flor each of two large metal stamping machines offered forsale by different manufacturers; only one of these machines isto bbe acquired by your company Recording daily material purchase vouchers Analyzing the expected costs of acquiring and using each of tw altemate types of welding equipment Preparing a report of overtime labor costs by production department Estimating the costs of moving corporate headquarters to another city Ineqpreting increases in nursing costs per patient-day in a hospital rating ieviaton from the Budge he factor nsntnance department Feeney bythe manfactrig vice resident to deermine wether toby certain parts heeded in lange quantities for manufacturing products or to acquire facilites for manufacturing these parts Preparing estimated costs for a new marketing campaign Recording overtime hours of the product finishing department [1 Compiling data for a report showing the ratio of advertising expenses fo sales foreach branch store 12, Investigating reasons for increased returns and allowances for drugs purchased by a hospital 13. Preparing a schedule of fuel costs by months and government departments 14, Computing and reconting end-of-year adjustments for expire fre insurance onthe factory warehouse 1-82 Management by Exception “The Suguamish Indian tribe sels fireworks for the five weeks preceding July 4. The tribe's stand at the corner of Highway 110 and Eagle Drive had budgeted sales of $75,000. Expected expenses were a follows: ‘Cost of fireworks '$36,000 Labor cost 15,000 Other costs 8,000 Total costs 359,000 Actual sales were $74,600, almost equal to the budget. The tribe spent $35,500 for fireworks, $18,000 for labor, and $7,910 for other costs. 1. Compute budgeted profit and actual profit, 2, Prepare a performance report to help identify those costs that were significantly different from the budget 3, Suppose the tribe uses # management-by-exception rule, What costs deserve further explana: tion? Why?PART 1» FOCUS ON DECISION MAKING MyAccounting! 2b 1-B3 Ethical Code of Conduct A cording to the Financial Executives Institute, “corporate governance consultants and aca- ddemies agree that a company needs to have a code of conduct” for its employees. Most companies ‘even many of those who experienced ethi ‘questions about corporate codes of conduct, 1, What is @ corporate code of conduct? 1 breakdowns, have such a code. Answer the following 2. What types of issues are covered in a corporate code of conduct? At what level of detail?” 3. In some cases codes of conduct Were not effective, What, besides simply having a code, is eces- sary fora code of conduct to be effective? Additional Assignment Material QUESTIONS 1-1 Who uses information from an accounting 1-2 “The emphases of financial accounting and agement accountng differ” Explain. 1-3 “The field is les sharply defined. There is heavier use of economies, decision sci ences, and behavioral sciences.” Mlentity the branch of aecounting described in the quotation 1-4 Distinguish among scorekeepin diceting, and problem solving 1-5 “Generally accepted accounting princi ples (GAAP) assist the development of man- agement accounting systems." Do you wgree? Explain. 1-6 “The Foreign Comupt Practices Act applies to bribes paid outside the United States.” Do you 0? Explain, 1-7 Why is the Sarbanes-Oxley * controversial? 1-8 Why is integrity so important to accountants? 1-9 “Intezrty is more important for business professionals than itis for business students.” Do you agree? Explain. 1-10 Give three examples of service organiza- tions. What distinguishes service or from other types of 1-11 What two major considerations affect the design of all accounting systems? Explain each aveounting system is intertwined with operating management. Business opera hopeless ta the recordkeeping that is so often regarded with disdain.” Do you agree? Explain, examples 1-13 Distinguish among a budget. a perform ance report and a variance. izations? 1-14 "Management by exception means abdi cating management responsibility for planning Do you asree? Explain 1-15 Why are accountants concered about product life eyeles? 1-16 Name the six primary business functions (excluding support functions) that make up the value chain, and briefly deseribe each, 1-17 “Accountants in every company should ‘measure and report on every’ function in the Do you agree? Explain, 1-18 Distinguish between the duties of Hine ‘managers and staf managers 1-19 The role of management accountants is, changing, especially in companies with a “flat inizational structure. What are some of the changes? 1-20 Does every company have both a cone troller and a treasurer? Explain 1-21 Describe the two parts of the qualifying examination for becoming a CMA. 1-22 “The problem with acco saecountants never get to become top managers such as CEOs." Do you agree? Explain 1-23 How are changes in technology affecting ‘management secounting? 1-24 What isthe essence ofthe JIT philosophy’? 1-25 Briefly describe how a change in a plant's layout can make its operation more efficient 1-26 Standards of ethieal eonduet for manaze- ‘ment accountants have been divided into four ‘major responsibilities. Describe e in 20 words or less. 1-27 "Why are there ethical dilemmas? I thought accountants had standards that specified ‘hat is ethical behavior” Discuss this quote. and control. ‘company’s value cha is that of the four CRITICAL THINKING EXERCISES 128 ance and Management Accounting Often there is confusion between the roles played by the controller and t sures in an organization. ta ‘many small companies, a single person performs activities related to both functions.CHAPTER 1 * MANAGERIAL ACCOUNTING, THE BUSINESS ORGANIZATION, AND PROFESSIONAL ETHICS 47 Distinguish between the controller and the treasurer functions by isting typical activities th associated with each, I-29 Accounting’s Position in the Organization: Controller and Treasurer For each of the following activities, indicate whether it is more likely to be performed by the controller or by the treasurer. Explain each answer, Prepare divisional financial statements. Help managers prepare budgets, Advise which alternative action is east costly ‘Meet with financial analysts from Wall Steet Arrange short-term financing. Prepare tax returns, 7. Arrange insurance coverage. 8. Prepare credit chocks on customers. 1-30 Marketing and Management Accounting Actoss-functional team of managers, ineluding the management accountant, performs each ofthe fol- lowing activities. However, depending om the nature of the decision to be made, one functional area will ake the leadership role. Which of these activities is primarily a marketing decision? What would the management accountant contribute to cach of the marketing decisions? I. Porsche Motor Company must decide whether to buy a part for one of its ears or to make the part at one of its plants 2. Airbus must decide the price to charge For spare parts it sells over the Intemet using its Spare Parts Web site 3. St. Luke's Hospital must decide how to finance the purchase of expensive new medical lysis equipment. 4, Amazon.com must forecast the impact on video sales of a new advertising program. 5, Mission Foods, a leading producer and distributor of tonillas to retail and food service industries, must decide whether to accept a special order for torilla chips by a large, national retail chain. 6, Target Stores must decide whether to close one ofits real sores that is curently operating ata loss. I-31 Production and Management Accounting A cross-functional team of managers, including the management accountant, performed each of the following activites. However, depending on the nature of the decision to be made, one function will take the leadership role, Which of these activities is primarily a production decision” What would the management accountant contribute to each of the prexluction decisions? 1, Saab Automobile AB must decide whether to buy a part for one of its ears or to make the part one ofits plants, Boeing Company must decide the price For spare parts it sells over the Intemet using its Spare Parts Web si Se, Mary’s Hospital must decide how to finance the purchase of expensive new medical analysis equipment ‘Amazon.com must forecast how a new advertising program will fect DVD sales. Mission Foods a leading producer and distributor of tortillas to retail and food service industries, must decide whether to accept a special order for tortilla chips by a lange, national retail chain, 6. Konare must evaluate its overall vision and strategic goals in the light of competitive pressures from Target, Sears, and Wal-Mart. 7, Dell Cormputers must decide whether to spend money on training workers to perform setups and changeovers faster. This will free up capacity to be used to make more computers without purchasing more equipment, 8, Ford Motor Company must decide whether to keep or replace four-year-old equipment used in one ofits Escape plants, 1-32 Management Accounting and Consider the following short description. Indicate whether each ofthe following descriptions more closely relates toa major feature of Fnancial accounting or management accounting: 1, Field isles sharply defined Provides internal consulting advice to managers Has les flexibility48 PART 1 + FOCUS ON DECISION MAKING 4, Is characterized by detailed reports 5. Has a future orientation 6. Is constrained by GAAP 7, Behavioral impact is secondary 1-33 Planning and Control, Management by Exception Study the Searbucks store in Exhibit 1-2 on page 27. Suppose that for next year a particular store budgeted revenue of $330,000. a 10% increase over the current revente of $300,000. The actions listed in Exhibit 1-2 resulted in six new budgeted products and a total advertising budget of $30,000, [Actual results were as follows: New products added 7 Advertsing $ 33,000 Revenues $326,000 1. Prepare performance report for revenues and advertising costs using the format of Exhibit 1-3 con page 28. 2, Suppose the remaining cost elements of net income were not available until several months after the store implemented the plan, The net income results were disappointing to management— profits declined even though revenues increased because costs increased by more than revenues. Tist some factors that might have caused costs to increase so much and that management may not have considered when they formulated the store's plan. 1-34 Line Versus Staff and Value-Chain Responsibility For each ofthe following, indicate whether the employee has line oF staf responsibilty, Also indicate ‘whether the employee primarily provides support for other value chain functions oF performs a spe ciffe value-chain business function 1. President 2. District sales manager 3. Market research analyst 4, Cost accountant 5. Head of the legal department 6, Production superintendent 1-35 Microsoft's Value Chain ‘crosoftis the world’s largest software company. For each of the following value-chain functions discuss briefly what Microsoft managers would do to achieve that function and how important it isto the overall success of Microsoft. RAD Product (service) and process design Production Marketing Distriburion Customer service Support functions 36 Objectives of Management Accounting ‘The Institute of Management Accountants (IMA) is composed of nearly 70,000 members. The IMA “Objectives of Management Accounting” sates, “The management accountant participates, as part of management, in assuring that the organization operates asa unified whole in is long-run, intermedt ate, and short-run best interest.” Based on your reading inthis chapter, prepare a 100-word description of the prineipal ways that secountants participate in managing an entity 1-37 Cost-Benefit of the Ethical Environment 'A poor ethical environment results in costs tothe company. On te ether han & good ethical environment Greate benefits, List several costs of poor ethical environment and benefits of a good ethical environment. 1-38 Early Warning Signs of Ethical Conflict ‘The following statements are early warning signs of ethical conflict: 1 don’t care how you do it, just get it done! ‘No one will ever know.” List several other statements that are early warning signs of ethical conflictCHAPTER 1 * MANAGERIAL ACCOUNTING, THE BUSINESS ORGANIZATION, AND PROFESSIONALETHICS 49 PROBLEMS |-39 Management and Financial Accounting Lillian Choi, an able mechanical engineer, was informed that she would be promoted to assistant fae- tory managet Lillian was pleased but uncomfortable. In particular, she knew litle about accounting She had taken one course in financial accounting. Lillian planned to enrol ina management aecounting course as soon as possible. Meanwhile, she asked enspan, cost azcountant, to state three or four ofthe prineipal distinctions between financial and management accounting Prepare Walt’s written response to Lillian. 1-40 Use of Accounting Information in Hospitals Most US. hospitals da not derive their revenues directly from patients, Instead, revenues come through thin parties, such as insurance companies and government agencies. Until the 1980s, these payments emily reimbursed the hospital's costs of serving patients. Such payments, however, are now generally at foes for specified services, For example, the hospital might receive $7,000 for an appendectomy oF $28,000 for heat surgery —n0 more, no less. How might the method of payment change the demand for accounting information in hospitals? Relate your answer to the decisions of top management. 1-41 Costs and Benefits Marks & Spencer, a huge retailer in the United Kingdom with sales of more than £9 billion, was troubled by its paper bureaucracy. Looked atin isolation, each document seemed reasonable, but over Ha vescarcher reported that there was substantial effort in each department to verify the information. Basicaly, the effort seemed out of proportion to any value received, and, eventually, the company simplified or eliminated many of the documents ‘Deseribe the rationale that should govern systems design. How should a company such as Marks & Spencer decide what documents it needs and which can be eliminated” |-42 Importance of Accounting Some companies are run by engineers and other technical specialists, For example, a manager in @ Gnvision that s now part of ArvinMeritor, an automotive parts supplier, once said that “there'd be Sin or seventy guys talking technical problems, with never a word on profits.” Other companies. topecially consumer products companies such as General Mills, fill top management positions primarily with marketing executives. And still others, like Berkshire Hathaway with Warten Buffett {fs CEO, have top managers with strong finance skills. How might the role of management accountants differ in these types of companies? |-43 Changes in Accounting Systems Inthe last deeale, Boeing has made several significant changes to its accounting system. None of these changes were for reporting to external parties, Management believed, however, that the new sys= tem gave more accurate costs ofthe airplanes and other products produced. 1. Bowing had been a very successful company using its old accounting system. What might have motivated it vo change the system? 2, When Bocing changed its system, what criteria might its managers have used to decide whether to invest in the new system? 3, Iechanging to a system that provides more accurate product costs always a good strategy? Why or why not? 1-44 Value Chain Nike isan Oregon-hased company that focuses on the design, development, and workdwide market- ing of high-quality sports footwear, apparel, equipment, and accessory products. Nike isthe largest ler of athletic footwear and athletic apparel in the world. The company sells its products to more than 18,000 retail accounts in the United States and through a mix of independent distributors, jiemsees, and subsidiaries in approximately 180 countries around the world. Nike contracts with hore than 700 factories around the world to manufacture virtually ll the company’s products. Nike produces most footwear and branded apparel products outside the United States. 1, Kdentity one decision that Nike managers make in each of the six value-chain functions 2. For each decision in requirement |, identify one piece of accounting information that would aid the manager’s decision, 1-45 Role of Controller ‘anita Veracruz, newly hired controller of Braxton Industries, had been lured away from a competi- Torta revitalize the controller's department, Her first clay on the job proved to be an eye-opener. OnePART 1 + FOCUS ON DECISION MAKING of her first interviews was with Adrian Belton, production supervisor in the Cleveland factory Bellen commented, “I really don’t want to talk fo anyone from the controller's office, The only pent we see those aecountants is when our costs go over their budget. They wave what they cal a “performance report but i's actually just a bunch of numbers they make up. It has nothing fo do With what happens on the shop floor. Besides, my men can't afford the time to fill out all the paperwork thove accountants want, so I just plug in some numbers and send it back, Now if Jou! Tet me get back to important matters...” Veracruz left quickly, but she was already plan ning for her next visit with Belton 1. Identify some of the problems in the relationship between the controller's department and the pro ‘Hection departments (assuming that the Cleveland factory is representative of the production departments) 2, What should Juanita Veracruz do next? 1-46 The Accountant's Role in an Organization “The Business Hist box on page 33 described the ole of accountans in the Alghaniim Industries, @ onslomerate that produces prexucts such as consumer electronics nd home furnishings, and manu hnee construction materials. Others have described accountants as “internal consultants” Using the daformation in the box, discuss how accountants at Alghanim can act as internal consultants, What kind Urbackground and knowledge would an accountant require tobe an effective internal consulta? 1-47 Ethics and Accounting Personnel MeMillan Shipping Company has an equal opportunity employment policy. ‘This policy has the full Support of the company’s president, Rosemary Creighton, and is included in all advertisements fo nployee positions Hing in the accounting department is done by the controller, D. W. “Butch” Brigham. The assis- tant contrller, Jack Merton, also interviews candidates, but Brigham makes all decisions. Inthe last sear, the dzparunent hired 5 new people front pool of 175 applicants, Thirteen had been interviewed. Moluding 4 minority candidates, The 5 hired included 3 sons of Brigham's close friends and no aicvertice, Merton had felt that at least 2 of the minority canlidates were very well qualified and that the 3 cons of Brigham’ friends were defintely wot among the most qualified ‘When Merton questioned Brigham concerning his teservations about the hiring practices, he was © Brigham’s and not is, so he should not question them. 1. Explain why Brigham’s hiring practices were probably unethical. 2, What shoul Merton do about this situation? 1-48 Ethical Issues Suppose you are controller of « medium-sized oil exploration company in west Texas. You adhere 10 he tandands of ethical conduct for management accountants. How would those standards fect your behavior in each ofthe following situations? 1. Late one Friday afternoon you receive a geologists report on a newly purchased property: Itindeates Ctnveh higher probability of el than had previously been expected. You are the only one tore the report that day- Aa party on Saturday night, fiend asks about the prospeets for the property 2, Anil industry stock analyst invites you and your spouse 1o spend a week in Tahiti free of chy All she wants in return is to be the first fo know about any financial information your company is about 10 announce to the publi 43, Ihis time to make a forecast of the company’s annual earnings. You know that some additional nized before the eompay prepares final statements. The company’s president fore these losses in making your prediction because a lower-than-expected losses will be rec hhas asked you to amings forecast could adversely affect the chances of obtaining a Yoan that is Being negotiated ind that will be completed before actual earnings ane announced, 44, You do not know whether a particular expense is deductible for income tax purposes. You are ax laws of simply t0 assume that the item is deductible. After plead debating whether fo research the aL i'you are not audited, no one will ever know the difference. If you are audited, you ca ignorance of the law. 1-49 Hundred Best Corporate Citizens Each year Corporate Responsibility Ofcer magazine publishes its list ofthe 100 best corporate citizens “The chawarine rates companies on performance in 7 stakeholder categories: (1) environment, (2) cli arate change, 3) human Fights, (4) employee relations, (5) philanlropy (6) financial and (7) gover~ ance, 1n 2009, the top ten corporate citizens were Bristol Myers-Squibb, General Mills, International Business Machines, Merck, HP, Cisco, Mattel, Abbot Laboratories, Kimberly-Clark, and Entergy.CHAPTER 1 * MANAGERIAL ACCOUNTING, THE BUSINESS ORGANIZATION, AND PROFESSIONAL ETHICS Foreach ofthe 7 dimensions on which the magazine reported ratings. give a one-sentence descrip tion of what you think woukl make for good corporate citizenship. Based on your knowledge of the TO companies, however limited that is, predict the top 2 companies in cach of the 7 rated categories, 1-50 Line and Staff Authority Fidelity Leasing Company (FLC) leases office equipment to variety of customers. The company’s anization chat is below The four positions in blue inthe chart are described next J.P. Chen, assistant contoller—special projects. Chen works on projects assigned to him by the controller, The most recent projet was 0 design a new accounts payable system. Betty Hodge, leasing contacts manag. coordinates and implements leasing transac tions Her department handles all transactions after the sales department gets signed contract This includes requisitioning equipment from the purchasing department, maintaining appropei ate insurance, delivering equipment, issuing billing statements, and seeking renewal of leases. Larry Paperman, chief accountant, Papermsan supervises all the accounting fanetions. He pro- duces reports for the four supervisors in the functional areas Dawn Shevlin, director of human resources. Shevlin works with ll departments of FLC in hiring personnel, Her department advertises all postions and sereens candidates, but dhe individual {partments conduct interviews and make biting decisions. Shevlin also coordinates employee ‘valuations and adminsfers dhe company’s salar schedule and finge benefit program. J, Distinguish between line and staff positions in an organization and discuss why conflicts might arise between line and staff managers 2. For each of the 4 managers described, identify whether their postion is line or staf position and xplain why you classified it that way. Also, indicate any potential conflicts that might arise with bother managers in the organization. ee Cn Fidelity Leasing Organization Chart52 PART 1 + FOCUS ON DECISION MAKING 1-51 Professional Ethics and Toxic Waste Alberta Mining Company extracts and processes a variety of ores and minerals. One ofits operations isa coal-cleaning plant that produces toxic wastes, For many years, the wastes have been properly dis posed of through Canadian Disposal, an experienced company. However, disposal ofthe toxic Wastes is becoming an economic hardship because increasing government regulations caused the cost of such disposal to quadruple in the last 6 years. Rachel O'Casey, director of Financial reporting for Alberta Mining, was preparing the company’s financial statements for the current year. In researching the material needed for preparing a footnote ‘on environmental contingencies, Rachel found the following note scribbled in pencil at the bottom of ‘4 memo to the general manager ofthe coal-cleaning plant. The body of the memo gave details on the increases in the cost of toxic waste disposals: Ralph—We've got to keep these costs down or we won't meet budget. Can we mbx more of these wastes with the shipments of refuse 10 the Oak Hill landfill? Nobody seems 10 notice the coal-cleaning fluids when we mix it in well Rachel was bothered by the note, She considered ignoring it, pretending that she had not seen it But after a couple of hours, her conscience would not let her doit. Therefore, she pondered the follow= ing three alternative courses of action: ‘©. Seek the advice of her boss, the vice president of finance for Alberta, ‘© Anonymously selease the information tothe local newspaper, © Give the information to an outside member of Alberta’s board of directors, whom she knew ‘because he lived in her neighborhood. 1. Discuss why Rachel has an ethical responsibility 0 take some action about her suspicion of the illegal dumping of toxic wastes, 2, For each of the three altemative courses of action, explain whether the action is appropria 3, Assume that Rachel sought the advice of the vice president of finance and discovered that he both knew about and approved of the dumping of toxic wastes. What steps should she take t0 resolve the conflict inthis situation? NIKE 10K PROBLEM 1-52 Information in Nike's 10K Report USS. companies file 10K reports annually with the SEC. These reports contain the company’s annual Finaneial reports and much additional information about the company. Examine Nike's 10K report that is presented in Appendix C. Answer the following questions about Nike: 1. What is Nike's principal business activity? 2. How many retail outlets does Nike have in the United States? How many in other countries? 3. Who is Nike’s CFO? What is his accounting background? 4. Where does Nike manufacture most ofits footwear? What ethical issues might result from this manufacturing philosophy’? EXCEL APPLICATION EXERCISE 1-53 Budgets and Performance Evaluation Goal: Create an Excel spreadsheet to prepare a performance report, and use the results to answer questions about your findings. ‘Scenario: Beta Alpha Psi, the accounting honorary fraternity, has asked you to prepare a performance report about a homecoming party that it recently held. The background data for Beta Alpha Psis performance report appears in the Fundamental Assignment Material 1-A2. When yau have completed your spreadsheet, answer the following questions: |. Based on the formatting option used in che exercise, do the negative (red) variances represent amounts that are over or under budget? 2. Which costlcosts changed because the number of attendees increased? 3. Did the fraternity stay within the budgeted amount for food on a per person basis? ‘Step-by-Step: |. Open a new Excel spreadsheet. 2. Inccolumn A, create a bold-ced heading that contains the following: Row I: Chapter | Decision Guideline Row 2: Beca Alpha Psi Homecoming Party Row 3: Performance Report Row 4:Today’s Date 3, Merge and center the date across columns A-D.CHAPTER 1 + MANAGERIAL ACCOUNTING, THE BUSINESS ORGANIZATION, AND PROFESSIONAL ETHICS 53 4, In row 7, create the following bold-faced, right justified column headings: Column B: Budget Column C:Actual ‘Column D-Variance In column A, create the following row headings: Row 8: Room rental Row 9: Food Row 10: Entertainment Row I: Decorations Row 12:Total costs Skip row. Row I4:Attendees Skip a row. Row |6:Food per person Use the data from Fundamental Assignment Material !~A2 and enter the budget and actual amounts for room, food, entertainment, decorations, and attendees. Use budget minus actual formulas to generate variances for each of the cast categories. Use the SUM function to generate total costs for the budget, actual, and variance columns, Use a formula to generate the “per person” food amount for the budget and actual columns. Format all amounts as follows: Number tab: Category Currency Decimal places: 0 ‘symbol: None Negative numbers: Red with parentheses Change the format of the food per person amounts to display ewo decimal places and a dallar symbol CChange the format of the room rental and total cost amounts to display a dolar symbol. Change the format of the total costs data (row 12) to display as bold-faced, Change the format of the cotal costs heading to display as indented: ‘Alignment tab: Horizontal: Left (Indent) Indent: H Save your work to disk,and print a copy for your files. COLLABORATIVE LEARNING EXERCISE 1-54The Future Management Accountant Students should gather in groups of thiee to six. One-third ofeach group should read each ofthe fl Towing antcles. (Alternatively, you can do this exercise as a whole class, with one-third of the class rein ach anil.) © Roth, RT, “The CFO's Great Balancing Act.” Financial Executive, July/August 2004, pp. 60-61 ‘© Johnsson, M, “The Changing Role of the CFO.” Strategie Finance, June 2002, pp. 54-57. 67. ‘© Russell, K., G. Siegel, and C, Kulesza, “Counting More, Counting Less: ‘Transformations in the Management Accounting Profession,” Strategic Finance, September 1999, pp. 394. 1. Inlividuall, write down the three most important lessons you learned from the article you read, 2. Asa group. stall the lessons identified in requirement 1. Combine those that are essentially the same 3. Prvitize thelist you developed in requirement 2 in terms of their importance to someone consid- fing earer in management accountin 4. Discuss whether this exercise has changed your impression of management accounting and, ifs. how your impression has changed, INTERNET EXERCISE 1-55 Institute of Management Accountants The Institute of Management Accountants (IMA) is « major professional organization that is geared fuvard managerial accounting and finance, The IMA has chapters throughout the United States as ell as international chapters. The IMA is very concerned about ethies. Log on to www.imanet.org, the Web ste forthe IMA. J. Click on About IMA. What isthe IMA dedicated 10? 2. Fallow the lnk that shows the mission statement for the IMA. What isthe mission of the IMA? One of the stated missions ofthe IMA is to help its members’ professional development through elucaton, Click on the Professional Development link. What options does the IMA provide to hulp educate the members? 4. Click on the Ethies Center link under About IMA. Follow the link to code of ethics called the Siento Ethical Professional Practice. Read the code and comment on its importance to man agement acountants,