The Changing Role of Managerial Accounting in a Dynamic Business Environment

CHAPTER 1

The Changing Role of Managerial Accounting in a Dynamic Business Environment

ANSWERS TO REVIEW QUESTIONS

1-1 The explosion in e-commerce will affect managerial accounting in significant ways. One effect will be a drastic reduction in paper work. Millions of transactions between businesses will be conducted electronically with no hard-copy documentation. Along with this method of communicating for business transactions comes the very significant issue of information security. Businesses need to find ways to protect confidential information in their own computers, while at the same time sharing the information necessary to complete transactions. Another effect of e-commerce is the dramatically increased speed with which business transactions can be conducted. In addition to these business-to-business transactional issues, there will be dramatic changes in the way managerial accounting procedures are carried out, one example being e-budgeting, which is the enterprise-wide and electronic completion of a company's budgeting process.

1-2 Plausible goals for the organizations listed are as follows:

(a) Amazon.com: (1) To achieve and maintain profitability, and (2) to grow on-line sales of books, music, and other goods.

(b) American Red Cross: (1) To raise funds from the general public sufficient to have resources available to meet any disaster that may occur, and (2) to provide assistance to people who are victims of a disaster anywhere in the country on short notice.

(c) General Motors: (1) To earn income sufficient to provide a good return on the investment of the company's stockholders, and (2) to provide the highest-quality product possible.

(d) Wal-Mart: (1) To penetrate the retail market in virtually every location in the United States, and (2) to grow over time in terms of number of retail locations, total assets, and earnings.

(e) City of Seattle: (1) To maintain an urban environment as free of pollution as possible, and (2) to provide public safety, police, and fire protection to the city's citizens.

(f) Hertz: (1) To be a recognizable household name associated with rental car services, and (2) to provide reliable and economical transportation services to the company's customers.

1-3 The four basic management activities are listed and defined as follows:

(a) Decision making: Choosing among the available alternatives.

(b) Planning: Developing a detailed financial and operational description of anticipated operations.

(c) Directing operations: Running the organization on a day-to-day basis.

(d) Controlling: Ensuring that the organization operates in the intended manner and achieves its goals.

1-4 Examples of the four primary management activities in the context of a national fast-food chain are as follows:

(a) Decision making: Choosing among several possible locations for a new fast-food outlet.

(b) Planning: Developing a cost budget for the food and paper products to be used during the next quarter in a particular fast-food restaurant.

(c) Directing operations: Developing detailed schedules for personnel for the next month to provide counter service in a particular fast-food restaurant.

(d) Controlling: Comparing the actual cost of paper products used during a particular month in a restaurant with the anticipated cost of paper products for that same time period.

1-5 Examples of the objectives of managerial-accounting activity in an airline company are described below:

(a) Providing information for decision making and planning, and proactively participating as part of the management team in the decision making and planning processes: Managerial accountants provide estimates of the cost of adding a flight on the route from New York to Miami and actively participate in making the decision about adding the flight.

(b) Assisting managers in directing and controlling operations: Managerial accountants provide information about the actual costs of flying the routes in the airline's northeastern geographical sector during a particular month.

(c) Motivating managers and other employees toward the organization's goals: A budget is provided for the cost of handling baggage at O'Hare Airport in Chicago. The budget is given to the airline's baggage handling manager, who is expected to strive to achieve the budget.

(d) Measuring the performance of activities,