SCM and Management Accounting

MANAGEMENT Objectives
- Process of achieving organizational objectives
 Providing managers w/ information for
Functions decision making & planning
 Assisting managers in directing & controlling
Planning operations
- Translating the goals, objectives and  Motivating managers towards achieving
developing strategy or achieving goals organization’s goals
 Measuring performance of managers & sub-
Goals – Abstract achievements units w/in organization
Objectives – Desired quantifiable
achiev. Characteristics

Organizing  Has no constraints

- Coordinating resources & activities &  Behavioral implication is evident
delegation of responsibilities  Called to be “time focus”
 5-10 yrs coverage report
Leading  Reports could be in detailed
- Managing & guiding people
MANAGEMENT ACCOUNTANTS
Controlling - Should do all efforts or must strive harder
- Setting performance standards - Not required to adhere to GAAP in providing
- If goals are being met information for internal users
- Both information providers & users
Performance Evaluation - Provide quantitative and qualitative info
- Is a must in controlling
- Determining the degree of success Quantitative Information
- Allows managers to know the number
 Effectiveness – how well Impact of every alternative choice
 Efficiency – degree Qualitative Information
- Furnishes the facts that help eliminate
Decision Making some inherent uncertainties related to
- Choosing among possible solutions choices

STRATEGIC COST MANAGEMENT Main Goal

- Application of cost management techniques
w/c aims to reduce cost while strengthening  To maximize shareholders wealth
strategic position
INFORMATION
Applied in - Is processed in a systematic way through the
 Service use of information system
 Manufacturing
 Not-for-profit organization Sources

MANAGEMENT ACCOUNTING  Economics

- Focuses on information needed by internals  Finance
users that are related to planning, controlling,  Marketing
& decision making  Research
 Production
ACCOUNTING SYSTEM - Must define w/c data are relevant for a
- Formal mechanism for gathering, organizing & particular purpose
communicating information about - Must see that cost benefit from a specific
organizations activities course of action

MANAGERS Cost Benefit Analysis

- Need information to make decisions - Analytical process of comparing the
- Must review the accomplishments & compare relative cost & benefits from a specific
with what was planned course of action

Cost data required for Cost data required for

reporting such as cost management and
inventoriable costs, COST decision making
COGS and other costs
ACCOUNTING
FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING
Providing cost information
Information primary Information primary
for preparing, managing,
used by external users used by internal users
and decision making

DIFFERENCES FINANCIAL MANAGEMENT

Definition Field of accounting that Expected to be flexible in
develops information for
providing information and
external decision-makers appropriate cost estimations
Reports Balance sheet, SCI, & Cash flows
Detailed, preparation of
information for POLC
Users External Internal
Purpose General Special
Regulations Required & must conform to Not required since only
GAAP intended for management
Sources of data External information Accumulates the financial
statements
Subject Entirety or whole organization Sub-units or individual segments
w/in organization
Requirement Mandatory Not mandatory
Addresses Specific concerns Big picture
Product costing information Quantitative, cost-based
information
Verifiability Relevance for planning &
controlling
Precision Timeliness

ORGANIZATIONAL STRUCTURES
- Refers to how authority & responsibility for making decisions is distributed in organization

Common Officers
 Chief Executive Officer
 Chief Financial Officer
 Treasurer
 Comptroller or Controller
 Chief Accountant

Traditional Accountant to Financial Manager

Good financial management provide

 Better products/services to customers
 Pay higher wages & salaries
 Greater return to investors
 Contributes to the success of entity

Traditional accountants can also transform as a financial manager since accounting information used
in managerial decision making can contribute in good financial management that can continue to
add value to the entity

FINANCIAL MANAGEMENT
- Means planning, organizing, directing and controlling the financial activities such as procurement &
utilization of funds of the enterprise

FINANCIAL MANAGER
- Primary task is to plan for the acquisition & use of funds so as to maximize the value of the firm

Specific Activities

 Forecasting & planning

 Capital investment & financing decisions
 Controlling & coordination

CONTROLLER
- Responsible for accounting, financial reporting & tax departments

CPA by profession

 Accounting process
 Financial reporting
 Planning & control
 Internal audit & control
 Tax administration
 Statutory & government reporting
 Managerial accounting

TREASURER
- Responsible for managing cash & marketable securities, planning of capital structure, raising capital &
overseeing corporate pension fund

 Provision of capital
 Financial planning/management
 Baking & custody
 Managing pension fund & foreign exchange transactions
 Maintain investor relations

CORPORATE GOVERNANCE
- A system of organizational control that is used to define & establish lines of responsibility &
accountability among major participants

Participants

 Shareholders
 Board of directors
 Officers & managers
 Stakeholder

INSTITUTE OF MANAGEMENT ACCOUNTING

- Believes ethics is a cornerstone of its organization & recognizes the importance of ethical guidelines

ETHICAL CONDUCT
- Necessary asset of management accountant
- Reduce potential losses on litigations, creating & maintaining positive image & confidence

Standards of Ethical Conduct of MA

Competence
- Maintain professional competence by ongoing development of knowledge & skills
- Perform professional duties in accordance w/ laws, regulations & standards
- Prepare complete & clear reports from relevant & reliable information

Integrity
- Avoid conflicts of interest

- Refrain from doing activities that might prejudice their ability

- Refuse gift or favor
- Refrain from undermining attainment
- Communicate professional limitations
- Communicate favorable & unfavorable information
- Refrain from activity that will discredit profession

Confidentiality
- Information shall not disclosed unless legally obligated to do so
- Inform subordinates
- Do not use confidential information for personal advantage

Objectivity
- Communicate information fairly & objective
- Fully disclose all relevant information

Terms in Management Process

 Administrative Management
 Functionality authority
 Functional managers
 Functional structure
 Functional-level strategy
 Goal commitment
 Operating plans
 Strategic goals
 Strategic management
 Grand strategy
 Strategy formulation
 Strategy implementation
 Total quality management

MA INFORMATION SYSTEM
- New source of power is not money in the hands of the few, but information in the hands of the many
John Naisbit

- Knowledge is of two kinds. We know a subject ourselves or we know we can find information upon it
Samuel Johnsons

- Business system that provides past, present, & projected information about company & its
environment
David M. Kroenke & Kathleen A Nolan

- Formal method of making available to management the accurate & timely information
James A F. Stoner

- System that monitors & retrieves data from the environment, captures data from transactions
Robert G. Maurdick

COMPUTER BASED INFORMATION SYSTEM

- Powerful competitive weapon

MAS Elements

Motivational Elements
- Performance measures, reward structure, support of organization mission & competitive strategy

Informational Elements
- Budgeting, cost control, value added & non-value added activities

Reporting Elements
- Preparation of FS for both financial & management accounting

MANAGEMENT CONTROL SYSTEM

- Guides the organization in designing & implementing strategies

Components

Detector/sensor
- Measuring device

Assessor
- Significance is assessed by comparing
Effector
- Feedback, alters behavior

Communication Network
- Transmit information from D to A & A to E

COST MANAGEMENT SYSTEM

- Set of formal methods developed for planning & controlling

CMS Helps Managers

 Identify cost of resources

 Determine efficiency & effectiveness
 Identify & evaluate activities
 Accomplishing 3 functions

Characteristics & Qualities Information

Accuracy & Verifiability

- Free from error

Completeness
- Free from omissions

Relevance
- Appropriateness of information

Timeliness
- Time sensitivity of information

Sensitivity
- Effect of decision that should been
made if the information was given on
time or not

SYSTEM
- A group of components (people, events etc) that interface with & complement one another to achieve
goals

Components

Inputs
- Various human, material, financial, equipment produced goods/services

Transformation Processes
- Managerial & technological abilities to convert input into outputs

Outputs
- Products, services, information produced by the organization
Feedback
- Results & status relative to environment

Uses of Accounting System

 Routine reporting to management

 Special reporting
 Routine reporting on financial

Components of Accounting System

Forms
- Document which data is recorded

Equipment
- Devices & machines

Procedures
- Operations / steps

People
- Doer of duties

Guidelines in Setting Good Accounting System

Flexibility
- Adaptable to meet changes & demand

Reliability
- Accuracy & timeliness, deliberate

Simplicity
- Simple & easy to understand

Helpfulness
- Usefulness of the system

Economy
- Too good but too costly

Control Mechanisms
- Must contain control to ensure

 Accuracy
 Honesty
 Efficiency
 Speed
Elements of Good Internal Control

Reliable Personnel
- Should give duties inline of their interest and experience

Separation of Duties
- Recording & custodianship should not be on hand of one person

Supervision
- Oversees and appraise the performance of subordinates

Responsibility
- Who should be praised & punished

Document Control
- Immediate, complete, tamper-proof recording

Job Rotations & Forced leaves & Bonds

- Forced to take vacation leave

Periodic Review of the System

- System of internal or external auditors

Physical Safeguards
- Safety measure must be installed

Routine & Spot Checks

- Unscheduled checks must be done by authorized personnel to prevent fraud

Cost Feasibility
- Benefits should outweigh costs in setting costs in setting up internal control systems

Common Transaction System

Order (sales or services) Entry System

- Orders are processed and customer billed purchases

Cash Receipt System

- Receipts form customers recorded & cash are deposited

Purchases System
- Items are ordered, received, & delivered

Production Planning & Control System

- set, made, monitored & scheduled

Cash Disbursement System

- All payments are recorded
Personnel System
- Personnel events are recorded. Hiring, benefits, evaluation & payroll

General Accounting System

- FS re generated

Elements of a Computerized Acctg System

Input Data
- Customer’s name, details of items, terms of sale

Process
- Recorded, Invoice and billings are prepared

Output Information
- Sales reports generated, daily, weekly or monthly by product line

CHAPTER 1: STRATEGIC COST MANAGEMENT AND MANAGEMENT ACCOUNTING

TRUE OR FALSE STATEMENTS.

1. Reports prepared in management accounting are general-purpose reports, whereas reports prepared in financial
accounting are usually special-purpose reports.

2. Management accounting information generally pertains to an entity as a whole and is every detailed.

3. Management accounting applies only to manufacturing companies.

4. Determining the unit cost of manufacturing a product is an output of management accounting.

5. Management accounting internal reports are prepared less frequently than classified financial statements.

6. The management function of planning is mainly concerned with setting goals and objectives for the entity.

7. An organization chart in a manufacturing company replaces the chart of accounts.

8. Directing is the process of determining whether planned goals are being met
9. Decision-making is an integral part of the planning, directing and motivating functions, but not of the controlling
function.

10. The theory of constraints is used to measure performance.

11. The focus of a TQM system is to reduce defects in finished products.

12. Recognize and communicate professional limitations or other constraints that would preclude responsible
judgment or successful performance of an activity is an integrity ethical conduct of professionals.

13. Management accountants must refrain from disclosing confidential information acquire in the course of their
work, except when authorized, unless legally obligated to do so.

14. Competence is one of the underlying ethical conduct professionals must maintain.

15. The plans of management are expressed in quantitative form as budgets.

16. In practice, the planning, organizing, and controlling functions of management are kept separate from the
decision-making function.

17. Staff departments in an organization generally have direct authority over line departments.

18. The accounting information produced by a management accounting system does not include the expenses
incurred in an operating department.

19. Future-oriented reports are not a basic feature of a financial accounting system.

20. Management accounting deals with providing economic information to internal constituencies.

21. The functions of management accounting information are: operational control, product and customer costing,
management control, and external reporting.

22. The steps to be followed in implementing an organization's objectives are set down through strategic planning.

23. Strategic planning is sometimes referred to as setting policy.

24. "Controlling" refers primarily to setting maximum limits on spending in organization.

25. Management accountant must understand and anticipate the reactions of individua information and
measurements.

26. A balanced report is a measurement system for clarifying, communicating, implementing business strategy.

27. Management accounting produces information that helps workers, manager, and executives in organizations
make better decisions and improve their processes and performance.

28. Internal reporting is the preparation of financial reports based on GAAP

29. Accounting system is often the principal means of gathering data to aid and coordinate the process of making
the best collective operating or routine decision in light of the overall goals or objectives of an organization.

30. An effective accounting system provides information only to internal managers for use in planning and
controlling routine operations and in strategic planning.

31. Data processing includes the preparation of documents (such as checks and invoices), and the flow of the data
contained in these documents through the major accounting steps of recording, classifying and summarizing.

32. Information generated or processed by computers is said to be free from any errors, thus, it possesses the
quality of accuracy.

33. Computers can make decisions in the sense of exercising judgment and can choose among alternatives by
following the specific instructions contained in the program.

34. Designing a good accounting system is a specialized job requiring a high degree of skill.

35. Accounting system must contain controls to achieve accuracy, reliability and efficiency.
36. Information system is a combination of hardware, software, people and events to provide information for
decision making.

37. Data collection via an accounting system facilitates the best collective decision making.

38. A program is a series of steps planned to carry out a certain process, such as the preparation of a payroll.

39. Accounting machines is usually applied to mechanical or electronic equipment capable of performing arithmetic
functions and not used to produce a variety of accounting records and reports.

40. The input in a computer-based system corresponds to the journals in a manual system.

41. One of the first steps in the development of an accounting system is the preparation of a chart of accounts.

42. Accounting system must contain controls to achieve accuracy, honesty, and efficiency and speed.

43. The accuracy quality of information refers to the degree to which information is free from error.

44. Information is said to be complete if the user could accumulate as many information as possible.

45. Information is said to be timely if it still useful to the decision makers before a decision has been made.

46. Management control systems guides the organizations in designing and implementing strategies to achieve its
objectives

47. A detector is a measuring device that identifies what is actually happening in the process being controlled.

48. Communications network is a part of cost management system that identifies the cost of resources of the firms.

49. The firm's organizational structure refers to how authority and responsibility for decision making are
distributed.

50. Costs-benefits trade-offs may be considered by managers in designing management information system.

MULTIPLE CHOICE QUESTIONS.

1. Management accounting
a. is concerned with costing products
b. is governed by generally accepted accounting principles.
c. pertains to the entity as a whole and is highly aggregated.
d. places emphasis on special-purpose information.

2. What broad functions do the management of an organization perform?

a. Directing, manufacturing, and controlling c. Planning, directing, and selling
b. Planning, directing, and controlling d. Planning, manufacturing, and controlling

3. Management accounting information is generally prepared for

a. stockholders. c. regulatory agencies.
b. managers. d. investors.

4. Management accounting information

a. pertains to the entity as a whole and is highly aggregated.
b. must be prepared according to generally accepted accounting principles
c. pertains to subunits of the entity and may be very detailed
d. is prepared only once a year.
5. Which of the following is not an internal user?
a. Corporate officers c. Stockholders
b. Staff employees. d. Department manager

6. Which of the following is not part of management accounting?

a. Determining whether planned goals are being met
b. Reporting financial information to the shareholders
c. Calculating product costs
d. Controlling costs

7. Which of the following uses management accounting

a. Manufacturing and service entities, but not merchandising
b. Profit-oriented businesses only
c. Service, manufacturing, and merchandising entities
d. Only manufacturing entities

8. Which one of the following tasks would not be performed by a management accountant?
a. Being concerned with the impact of cost and volume on profits
b. Strategic cost management
c. Assisting in budget planning
d. Preparing reports primarily for external users

9. How often are internal management reports communicated?

a. As frequently as needed c. During every audit by the company's CPA
b. Annually d. Monthly

10. Which description identifies financial statements that are prepared for external users?
a. External reports c. User-specific
b. Special-purpose d. General-purpose

11. Which term describes management accounting reports?

a. GAAP reports C. General-purpose
b. Special-purpose d. Regulatory reports

12. Which one of the following involves coordinating a company's activities to produce a smooth-running
operation?
a. Auditing c. Planning
b. Controlling d. Directing

13. Which of the following statements about internal reports is true?

a. Most internal reports are summarized rather than detailed.
b. Internal reports focus on general purpose needs of users.
c. The content of internal reports extends beyond the double-entry accounting system.
d. Internal reports are often very general.

14. Which one of the following describes internal reports?

a. They are often audited by CPAs. c. They are aggregated.
b. They are highly regulated by the SEC. d. They are detailed.
15. Which one of the following does the planning function involve?
a. Analyzing financial statements
b. Setting goals and objectives for an entity
c. Hiring the right people for a particular job
d. Coordinating the accounting information system

16. Which one of the following is true concerning the managerial function of controlling?
a. It includes performance evaluation by management.
b. It is concerned mainly with operating a manufacturing segment.
c. It is performed only by the controller of a company.
d. It includes hiring and training employees.

17. Which of the following represents two management functions?

a. Regulating and directing c. Controlling and auditing
b. Controlling and directing d. Auditing and planning

18. Which management function is a manager performing when objectives are being established?
a. Regulating c. Motivating
b. Planning d. Directing

19. Which one of the following shows the delegation of responsibility within a company?
a. Authority outline c. Company's charter
b. Organization chart d. Sarbanes-Oxley Act

20. Management and financial accounting are used for which of the following purposes?

Management accounting Financial accounting

a. internal external
b. external internal
c. internal internal
d. external external

21. Management accounting

a. Is more concerned with the future than financial accounting.
b. Is less concerned with segments of a company than financial accounting.
c. Is more constrained by rules and regulations than financial accounting.
d. all of the above are true.

22. Which of the following statements is false?

a. A primary purpose of cost accounting is to determine valuations needed for external financial statements.
b. A primary purpose of management accounting is to provide information to managers for use in planning,
controlling, and decision making.
c. The act of converting production inputs into finished products or services necessitates cost accounting.
d. Two primary hallmarks of cost and management accounting are standardization of procedures and use of
generally accepted accounting principles.

23. The key link between managing resources and managing change in an organization is
a. responsibility accounting
b. information.
c. strategies.
d. conversion activities

24. In comparing financial and management accounting, which of the following more accurately describes
management accounting information?
a. historical, precise, useful
b. required, estimated, internal
c. budgeted, informative, adaptable
d. comparable, verifiable, monetary

25. One major difference between financial and management accounting is that
a. financial accounting reports are prepared primarily for external users.
b. management accounting is not under the jurisdiction of the SEC.
c. government regulations do not apply to management accounting
d. all of the above are true.

26. Which of the following statements about management or financial accounting is false?
a. Financial accounting must follow GAAP.
b. Management accounting is not subject to regulatory reporting standards.
c. Both management and financial accounting are subject to mandatory record keeping requirements.
d. Management accounting should be flexible.

27. Broadly speaking, cost accounting can be defined as a(n)

a. external reporting system that is based on activity-based costs.
b. system used for providing the government and creditors with information about a company's internal
operations.
c. internal reporting system that provides product costing and other Information used by managers in performing
their functions.
d. internal reporting system needed by manufacturers to be in compliance with Cost Accounting Standards Board
pronouncements.

28. Cost accounting is directed toward the needs of

a. Regulatory agencies. c. internal users
b. external users. d. stockholders.

29. Financial accounting

a. is primarily concerned with internal reporting
b. is more concerned with verifiable, historical information than is cost accounting.
c. focuses on the parts of the organization rather than the whole
d. is specifically directed at management decision-making needs

30. Which of the following topics is of more concern to management accounting than to cost accounting?
a. generally accepted accounting principles
b. inventory valuation
c. cost of goods sold valuation
d. impact of economic conditions on company operations

31. The ethical standards established for management accountants are in the areas of
a. competence, licensing, reporting, and education.
b. budgeting, cost allocation, product costing, and insider trading
c. competence, confidentiality, integrity, and objectivity.
d. disclosure, communication, decision making, and planning

32. Management accounting-

a. must follow generally accepted accounting principles.
b. information should be developed within the same general accounting system as financial accounting.
c. deals primarily with the needs of parties external to the firm such as investors and creditors.
d. is just another financial accounting term

33. Which of the following is a true statement?

a. Neither financial nor management accounting are mandatory.
b. Both financial and management accounting emphasize relevance and flexibility
c. Both financial and management accounting place more emphasis on the past.
d. Both financial and management accounting are based upon the concept of stewardship

34. Financial accounting is concerned with:

a. The company as a whole rather than with the segments of a company.
b. The needs of stockholders and creditors.
c. Meeting the requirements of internal users only
d. Recording the financial history of an organization

35. The basic difference between management and financial accounting is that:
a. Financial accounting is a division of accounting that is concerned with providing information to stockholders
whereas management accounting is concerned with providing information to managers for their use in directing
the activities of the organization.
b. Financial accounting relies on information gathered from sources outside the business whereas management
accounting relies on internally generated information.
c. Financial accounting system relies on accounting information whereas management accounting does not
d. Management accounting relies upon the concept of responsibility accounting when financial accounting does
not.

36. Financial accounting statements must be prepared in accordance with generally accepted accounting principles.
Managers of a company
a. are required to follow GAAP as they utilize accounting information in their decisions
b. can disregard GAAP only for non-financial accounting data
c. can set their own ground rules on the form and content of information which is to be used internally.
d. can set their own ground rules on the form and content of information which is to used internally and externally
to the firm.

37. Concerning the management process of an organization:

a. A chart detailing the organizational relationships of a company is commonly called performance report.
b. The controller usually has "staff authority" elsewhere. " in his own department and "line authority” elsewhere
c. The implementation of objectives is called strategic planning
d. Principles of management accounting relate to private profit-oriented businesses but not to public non-profit
entities.

38. Management accounting differs from financial accounting in that management accounting:
a. Is internal and future oriented, and governed by GAAP, whereas financial accounting is not.
b. Is future oriented and focuses on the organization as a whole, whereas financial accounting is not.
c. Emphasizes relevant and flexible information whereas financial accounting does not
d. Emphasizes relevant historical information about the whole firm, whereas financial accounting does not.

39. Which of the following is a false statement?

a. Financial accounting is governed by generally accepted accounting principles whereas management accounting is
not.
b. Management accounting places more emphasis on the past than does financial accounting.
c. Financial accounting tends to emphasize precision while management accounting emphasizes relevance and
flexibility.
d. Management accounting draws heavily from other disciplines.

40. Management accounting is primarily concerned with providing information to:

a. Stockholders of the firm. c. Creditors of the firm
b. Decision makers inside the firm d. The public

MANAGEMENT ACCOUNTING INFORMATION SYSTEM

1. A management information system should do which of the following?

Collect data Organize data for managers Analyze data for management
a. yes no yes
b. yes yes no
c. no no yes
d. yes yes yes

2. A management information system should emphasize satisfying

a. external demands for information.
b. external and internal demands for information. internal demands for information.
d. the Accounting Department's demands for information

3. Who of the following are external users of data gathered by a management information system?
Creditors Regulatory Bodies Suppliers
a. yes no yes
b. no no no
c. no yes yes
d. yes yes yes

4. Which of the following would be considered a detector?

a. computer program
b. source document
c. variance report
d. all of the above

5. Feedback is reflected in which component of a management control system?

a. Sensor c. Effector
b. Assessor d. Detector

6. Reactions to information provided by the management control system are

a. formulated in the organization's strategic plan.
b. judgmental, and are based on interpretations and circumstances.
c. assessed by the communications network of the MCS.
d. determined as those activities that will be most efficient and effective given the organization's available
technology.

7. A management accounting system should provide information to

a. all functional areas of the organization.
b. only the accounting area of the organization.
c. only the production area of the organization.
d. organizational managers, but not to staff personnel.in

8. Which of the following is not a primary goal of a cost management system?

a. use cost drivers to develop product costs
b. improve understanding of activities
c. develop organizational strategies
d. measure performance

9. A cost management system will provide the means to develop

a. the most accurate product or service costs.
b. a reasonably accurate product or service cost given cost-benefit analysis
c. a product or service cost that does not include any non-value-added overhead.
d. a costing system that traces all costs directly to individual products or services.
10. The costs generated by the cost management system are used to
a. assess product/service profitability
b. establish prices for products with significant competition.
c. determine underlying reasons for variations from standards.
d. all of the above.

11. Information about the life-cycle performance of a product or service should be provided in the

Cost management system Financial accounting system

a. yes yes
b. yes no
c. no yes
d.no no

12. Which of the following organizational characteristics critically affect the design of a cost management system?

Culture Critical success factors Mission Form

a. yes yes yes yes
b. yes no yes no
c. no yes no yes
d. no yes yes no

13. A management accounting system

a. is finalized when the information currently being produced is the same as the information currently desired.
b. can be generically designed to fit the information needs of the majority of domestic (but not global)
organizations.
c. must be continuously improved to adapt to changes in an organization's internal and external environment.
d. that has been appropriately designed from gap analysis, does not need to be changed unless there is a change in
organizational management or culture.

14. Which of the following statements is true?

a. A good cost management system is a key consideration in determining an organization's mission
b. The organization's mission is a critical success factor in assessing how to react to competition.
c. Knowledge of an organization's critical success factors helps to clarify organizational mission and develop a cost
management system
d. An organization must establish a position of cost leadership to compete in a global business environment.
15. An increase in the use of technology has caused
a. fewer costs to be susceptible to short-run control.
b. companies to be more flexible in responding to changing short-term conditions.
c. managers to be less concerned about capacity utilization because of the increased ability to produce in large
quantities.
d. a decline in the amount of fixed costs in an organization.

16. In conjunction with a cost management system, gap analysis refers to comparing
a. the information being received by competitors' managers to the information being received by in-house
managers.
b. the information needed to what is available.
c. current cost information to projected cost information.
d. budget figures to actual spending

17. Which of the following is considered a "feeder" system to the cost management system?
Payroll Budgeting Inventory valuation
a. yes no yes
b. yes yes yes
c. no no no
d. yes yes no

18. Which of the following is a primary element of a cost management system?

Information Reporting Motivation Evaluation

a. yes yes yes yes
b. no yes yes no
c. yes no no yes
d. yes yes yes no

19. Organizational form directly affects which of the following?

Decision making Authority Cost of capital Taxation Mission

a. no yes yes yes
b. yes yes yes no
c. no yes no yes
d. yes yes no no

20. As an organization moves to decentralize its operations, an effective reporting system will have ____ when the
organization was centralized
a. about the same importance as
b. less importance than
c. more importance than
d. a level of importance that depends on organizational size as compared to

21. The performance measurement system should encourage each manager to act in a manner that
a. makes the manager's units profits as high as possible.
b. most positively supports the organization's mission and competitive strategies.
c. increases his/her performance reward in the form of profit sharing.
d. reduces the need for informational elements in support of the manager's planning function.

22. Performance reports are useful only to the extent that performance is measured against
a. a meaningful benchmark.
b. the performance of all other units or managers.
c. the budget as adopted for the period.
d. competitors' achievements.
23. The accounting function in an organization is expected to support managers in which of the following
functions?

Planning Controlling
a. yes yes
b. no yes
c. no no
d. yes yes

Evaluating performance
no
no
yes
yes
24. The reward system for subunit managers of mature businesses should emphasize
a. Long-term competitive prospects.
b. near-term profit and cash flow.
c. success in product design and development.
d. exceeding last year's subunit profit.

25. Most managers evaluate decision alternatives based on how

a. much the decision will increase or decrease organizational profits.
b. the outcomes may affect selected performance measurement and reward criteria.
c. much the outcome will reduce the organization's cost of capital.
d. easily the decision impacts can be quantified in the organization's cost management system.

26. Performance measurements and a reward system are part of which cost management element?
a. Motivational
b. Informational
c. Reporting
d. all of the above

27. Focus on cost control and assessing core competencies are part of which cost management element?
a. Motivational
b. Informational
c. Reporting
d. all of the above

28. Which of the following should be able to provide the financial information needed for budget
preparation?

Cost management system Financial accounting system Cost accounting system

a. no yes yes
b. no yes no
c. yes no yes
d. yes yes yes

29. A responsibility accounting system provides information to top management about the
a. organizational responsibilities of each subunit manager.
b. performance of each organizational subunit and its manager.
c. ability of each subunit manager to ensure a satisfactory cost to revenue relationship.
d. all of the above.

30. Which of the following should be considered in a cost management system design?

Cost no
Personnel training principles Investment management
a. yes principles
b. no yes yes
с. no yes yes
d. yes no no
yes