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GROUP MEMBERS:

Mitch T. Minglana
Bambie Y. Montilla
Bamboo Y. Montilla

CHAPTER 1: REVIEW QUESTIONS

1. Give four examples of firms you think would be significant users of cost management
information and explain why.

ANSWER: There are various examples of firms or any other business organizations that
significantly uses Cost Management Information. The following are the few examples:
 Grocery Store: This type of firm uses cost management information to keep costs low
by streaming restocking and sales of different products.
 A Small Volcanizing Shop: this firm need cost management in a way to determine
whether it needs to repair a certain vehicle or replace it with particular equipment to
keep the vehicle run on its own.
 A Musical Studio: to plan for the different compensation for its teachers and to
determine whether they will expand their business by opening another station for
Musical Studio.
 Resort & Restaurant: To assess the profitability of their hotels (rooms) as well as
their foods.

2. Give three examples of firms you think would NOT be significant users of cost
management information and explain why.

ANSWER: Firms with a focus on forming strategic alliances, innovation and research,
product leadership firms, and sports teams and fashion companies are examples of non-users
of Cost Management.
 Fashion Company like Nike: This is a luxury fashion company type that competes on
innovation and product leadership.
 “Palarong Pambansa” (league Sports): highly dependent primarily on good
coaching and player acquisition.
 Other Fashion Industry

3. What is meant by the term COST MANAGEMENT? Who is the typical firm or
organization is responsible for cost management?

ANSWER: When we say Cost Management it simply means to plan and control the budget
of a business. Hence, the manager needs information about the business to effectively manage
the firm or non-for-profit organization- both financial information about costs and revenues
and relevant non-financial information about productivity, quality, and other key success
factors for the firm. And a typical firm or organization that is responsible for cost
management is the Chief Financial Officer (CFO) who often delegates much of this
responsibility to the controller.

4. List the four functions of management. Explain what type of cost management
information is appropriate for each.

ANSWER: The four functions of Management are Strategic Management, Planning and
Decision-making, Management and Operational Control and Reportorial and Compliance to
legal requirements.

 Under Strategic Management, it requires an integrative approach which combines


skills from all business function, namely, marketing, production, finance and
accounting/ controllership, is necessary in a dynamic and competitive environment.
Due to increasing strategic issues, Cost Management has moved form a traditional role
of product costing and operational control to a broader strategic focus.
 Under Planning and Decision-Making, it involves budgeting and profit planning, cash
flow management and other decision related to the firm’s operation such as deciding
whether to lease or buy facility, whether to replace or just repair as equipment, when to
change a marketing plan or when to begin new product development.
 Under Management and Operational Control, cost management information is needed
to provide a fair and effective basis for identifying inefficient operations to reward and
motivate the most effective manages.
 Under Reportorial and Compliance to legal Requirements, it requires management to
comply with the financial reporting requirements to regulatory agencies such as the
Securities and Exchange Commission (SEC) Bureau of Internal revenue (BIR), and
other relevant government authorities and agencies.

5. What is the most important function of management, and why?

ANSWER: Out of the four functions of cost management. Strategic Management is the most
important because it acts as a foundation for all key decisions of the firm. It attempts to
prepare the organization for future challenges and play the role of pioneer in exploring
opportunities and also helps in identifying ways to reach those opportunities.
6. Identify the different types of business firms and other organizations that use cost
management information and explain how the information is used.

Answer: The different types of business firms and other organizations are: (i) Merchandising,
(ii) Manufacturing, and (iii) Services.

(i) Merchandising firms purchase goods for resale. They use managerial accounting to
forecast inventory needs, review profit margins, and make business decisions based on
financial information.
(ii) Manufacturing firms purchase raw materials and converted it to new product.
Managerial cost allocation methods such as job costing, process costing, activity-based
costing or other methods may be used to allocate business costs to produced goods.
Productions costs usually include direct materials, direct labor and manufacturing
overhead. Manufacturing and production companies plan cost allocation methods to
ensure production costs can be recouped through the future sales of finished goods
inventory.
(iii) Service Firms, these companies determine how much labor is used and the amount of
materials used. Managerial accounting helps decide the amount of time spent on each
customer to maximize profit. These companies also use break-even analysis and
forecasting to create plans for generating revenue and planning sales goals.

7. Name a firm or organization you know of that you are reasonably sure uses strategic cost
management and explain why it does so.

Answer: An example of firm that literally uses strategic cost management are those under
Manufacturing Firms like Automotive Companies such as Ford and GM where they utilize
advanced technology, assembly lines, and human skills to create a finished product. An
example of strategy of this firm is to be able to offer rapid turnaround of customer orders by
maintaining tight control over its bottleneck production operation. To do so, the company
incurs extra cost to keep the bottleneck running 24x7. Expending extra funds here directly
contributes to the profitability of the business.

8. The opening paragraph of an accounting textbook says, “Managers need accounting


information and need to know how to use it.” Critically evaluate this statement.

Answer: Managers need accounting information to answer business critical questions such as
how much is the business worth? Is it functioning as it should be or is there enough cash to
keep the lights on. And also, being a manager they also need to know how to evaluate the
accounting information because they will allocate the financial, human and capital resources
towards competing needs of the business through the budgeting process.
9. The owner of a small software company felt his accounting system was useless. He
stated, “Accounting systems only generate historical costs. Historical costs are useless in my
business because everything changes so rapidly.”
a. Are historical costs useless in rapidly changing environments?

Answer: Historical costs are not useless. Although they do not provide market value of an
economic item at that particular time they are still important as it will help the business
allocate the acquisition amount of the item. Also, it provides the management and
investors significant other options in recognizing, reporting and measuring economic
information.

b. Should accounting system be limited to historical costs?

Answer: We did some research about this question and we are able to know and learned
that accounting should NOT be limited to only provide historical information about the
financial position and performances of the company, but also allow the formulation of
predictions about the enterprise itself.

10. A finance professor and a marketing professor were recently comparing notes on their
perceptions of corporations. The finance professor claimed the goal of a corporation should
be to maximize the value to the shareholders. The marketing professor claimed that the goal
of a corporation should be satisfy customers.
 What are the similarities and differences in these two goals?

ANSWER: The similarities of these two goals are to generate and increase the profit of a
corporation and to maintain the business healthy for the survival of the system in the long
run. On the other hand, the difference these two goals, is that they set a different target.
The Finance professor sets the shareholders wealth as the main goal, but the reaching of it
not always will cause the satisfying of the customer need. While the Marketing professor
sets the needs of a customer as the main goal to achieve, and ig needs are still satisfied,
there is a demand.

So basically, both of their goal is beneficial for the survival of the corporation however,
given their difference the goal of marketing professor is better because both customers and
shareholders will be satisfied. If the customer is satisfies with their product then their
business will be successful and it bought advantage to the shareholders as it will increase
their value.

11. How do management accountants support strategic decisions?

ANSWER: Management accountants support strategic decision by providing information


about the sources of competitive advantage.
12. Define the term STRATEGIC COST MANAGEMENT?

ANSWER: Strategic Cost Management is the development of cost management information


to facilitate the principal management function, strategic management.

13. What is meant by a business strategy?

ANSWER: As defined in the book, strategy is a set of policies, procedures and approaches to
business to produce long-term success. Moreover, business strategy also help attract
customer, compete successfully, strengthening performance, and achieve organizational
goals.

14. What information does cost accounting provide?

ANSWER: Cost Accounting provides detailed cost information like costs of products,
services and other cost objects that management needs to control current operations and plan
for the future.

15. How do accountants support strategic decisions?

ANSWER: The accountants can support the decision making process and management
activity. The objective of an accounting system is to provide financial information concerning
the studied company. The information concerns the financial situation and the performance of
a company ad there is intended to the users to taking decisions.
GROUP MEMBERS:
Mitch T. Minglana
Bambie Y. Montilla
Bamboo Y. Montilla

CHAPTER 1: MULTIPLE CHOICES

1. Which of the following statements is false?


a. Cost accounting measures and reports short-term, long-term financial, and nonfinancial
information.
b. Cost management provides information that helps increase value for customers.
c. All strategies should be evaluated regarding the resources and capabilities of the
company.
d. A good cost accounting system is narrowly focused on a continuous reduction of costs.

ANSWER: A

2. Which of the following statement if correct?


a. The best-designed strategies are valuable whether or not they are effectively
implemented.
b. To take advantage of changing market opportunities, the annual budget should be strictly
enforced.
c. Linking rewards to performance is a major deterrent to good management performance.
d. An important strategic decision is making the correct investments in product assets.

ANSWER: D

3. All of the following statements are true except


a. A budget is a tool used to plan and express strategy
b. Financial accounting reports financial and non-financial information that helps managers
implement company strategies.
c. Control includes deciding what feedback to provide that will help with future decision
making.

ANSWER: D
4. All of the following statements are false except.
a. Attention-directing activities should focus on cost-reduction opportunities, and not on
value-adding opportunities.
b. For strategic decisions, scorekeeping is the most prominent role played by management
accounting.
c. A budget may be used as a planning tool, but not as a control tool.
d. Management accountants often are simultaneously doing problem-solving, scorekeeping,
and attention-directing activities.

ANSWER: D

5. Management Accounting
a. Focuses on estimating future revenues, costs, and other measures to forecast activities
and their results.
b. Provides information about the company as a whole.
c. Reports information that has occurred in the past that is verifiable and reliable.
d. Provides information that is generally available only on a quarterly or annual basis.

ANSWER: C

6. The person MOST likely to use management accounting information is a(n)


a. Banker evaluating a credit application.
b. Shareholder evaluating a stock investment.
c. Governmental taxing authority.
d. Assembly department supervisor.

ANSWER: A

7. Which of the following description refers to management accounting information?


a. It is verifiable and reliable.
b. It is driven by rules.
c. It is prepared for shareholders.
d. It provides reasonable and timely estimates.

ANSWER: A

8. Which of the following groups would be LEAST likely to receive detailed management
accounting reports?
a. Stockholders
b. Sales representatives
c. Production supervisors
d. Managers
ANSWER: B
9. Management accounting information includes
a. Tabulated results of customer satisfaction surveys.
b. The cost of producing a product.
c. The percentage of units produced that are defective.
d. All of the above.

ANSWER: B

10. Which of the following types of information are used in management accounting?
a. Financial information
b. Non-financial information
c. Information focused on the long term
d. All of the above

ANSWER: A

11. Management accounting incudes


a. Implementing strategies
b. Developing budgets
c. Preparing special studies and forecasts
d. All of the above

ANSWER: A

12. Financial accounting is concerned PRIMARILY with


a. External reporting to investors, creditors, and government authorities.
b. Cost planning and cost controls.
c. Profitability analysis.
d. Providing information for strategic and tactical decisions

ANSWER: A

13. Financial accounting provides a historical perspective, whereas management accounting


emphasizes
a. The future.
b. Past transactions
c. A current perspective.
d. Reports to shareholders.

ANSWER: D
14. Strategy specifies
a. How an organization matches its own capabilities with the opportunities in the
marketplace.
b. Standard procedures to ensure quality products.
c. Incremental changes for improved performance.
d. The demand created for products and services.

ANSWER: A

15. Control includes


a. Implementing planning decisions.
b. Evaluating performance.
c. Providing feedback to help with future decision making.
d. All of the above.

ANSWER: B

16. Inking rewards to performance\


a. Helps to motivate managers.
b. Allows companies to charge premium prices.
c. Should only be based on financial information.
d. Does all of the above.

ANSWER: A

17. Control Measures should


a. Be set and not changed until the next budget cycle.
b. Be flexible to allow for employees who are slackers.
c. Be kept confidential from employees so that competitors don’t have an opportunity to
gain a competitive advantage.
d. Be linked by feedback to planning.

ANSWER: A

18. For control decisions, emphasis is placed on the _____ role(s) of management
accounting.
a. Problem-solving
b. Scorekeeping
c. Attention-directing
d. Both (b) and (c)
ANSWER: C

19. Which of the following terms does NOT represent a main focus of cost management
information?
a. Usefulness
b. Timeliness
c. Relative accuracy
d. Compliance with external reporting requirements

ANSWER: D

20. Strategic management can be defined as the development of sustainable:


a. Chain of command
b. Competitive position
c. Cash flow
d. Business entity

ANSWER: B

21. The control area of management is primarily concerned with:


a. Standards and variances
b. Monitoring and evaluation
c. Structure and discipline
d. Organization and implementation

ANSWER: D

22. Cost management has moved from a traditional role of product costing and operational
control to a broader strategic focus, which places an emphasis on:
a. Non-competitive pricing
b. Domestic marketing
c. Short-term thinking
d. Integrative thinking

ANSWER: D

23. Dramatic improvements in communication have resulted I increasing global competition,


which has required firms to:
a. Completely replace existing cost information systems.
b. Expand existing cost information systems.
c. Modify existing cost information systems to handle more data.
d. Develop cost management systems to help firms be more competitive.

ANSWER: D

24. All the information the manager need to effectively manage the firm or not-for-profit
organization is termed:
a. Planning information.
b. Cost management information
c. Financial information.
d. Life cycle information.

ANSWER: B

25. Those who developed cost management information are most often referred to as:
a. Cost accountants
b. Operational accountants
c. Management accountants.
d. Industrial

ANSWER: A

26. The main focus of cost management information must be:


a. Reliability and usefulness
b. Timeliness and reliability
c. Objectivity and reliability
d. Usefulness and timeliness

ANSWER: C

27. The development of a sustainable competitive position-understanding what specific


activities are needed for the firm to succeed, and making the appropriate strategic choices-is
termed:
a. Strategic cost management
b. Strategic management
c. Total quality management
d. Activity-based management

ANSWER: B

28. The development of cost information to facilitate the principal management function is
termed:
a. Life cycle costing.
b. Activity-based costing.
c. Total quality management.
d. Strategic cost management.

ANSWER: D

29. The ability to deliver a product or service faster than the competition is termed:
a. Just-in-time
b. Statistical quality control
c. Flexible manufacturing
d. Speed-to-market

ANSWER: D

30. A set of policies, procedures and approaches to business to produce long-term success is
termed a:
a. Critical success factor
b. Competitive position
c. Mission
d. strategy

ANSWER: D