Cost Accounting

A Managerial Emphasis
thirteenth edition

Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner

2009 Pearson Prentice Hall. All rights reserved.

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This presentation includes:

Exercises 1-18, 1-21
Problem 1-25

2009 Pearson Prentice Hall. All rights reserved.

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Exercise 1-21
Five-step decision-making process, manufacturing
Garnicki Foods makes frozen dinners that it sells through
grocery stores. Typical products include turkey dinners, pot
roast, fried chicken, and meat loaf.
The managers at Garnicki have recently introduced a line
of frozen chicken pies. They take the following actions with
regard to this decision.
Classify each action as a step in the five-step decisionmaking process (identify the problem and uncertainties,
obtain information, make predictions about the future,
choose among alternatives, implement the decision,
evaluate performance, and learn).
2009 Pearson Prentice Hall. All rights reserved.

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Five-step decision-making process

a.Garnicki performs a taste test at the local shopping mall
to see if consumers like the taste of its proposed new
chicken pie product.
Obtain information
b. Garnicki sales managers estimate they will sell more
meat pies in their northern sales territory than in their
southern sales territory.
Make predictions about the future
c. Garnicki managers discuss the possibility of
introducing a new product.
Identify the problem and uncertainties
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Five-step decision-making process

d. Garnicki managers compare actual costs of making
chicken pies with their budgeted costs.
Implement the decision, evaluate performance, and learn
e. Costs for making chicken pies are budgeted.
Make predictions about the future
f. Garnicki decides to make chicken pies.
Make decisions by choosing among alternatives
g. The purchasing manager calls a supplier to check the
prices of chicken.
Obtain information
2009 Pearson Prentice Hall. All rights reserved.

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Problem 1-25
Strategic decisions and management
accounting A series of independent situations in
which a firm is about to make a strategic decision
follow.
1. For each decision, state whether the company is
following a low price or a differentiated product
strategy.
2. For each decision, discuss what information the
management accountant can provide about the
source of competitive advantage for these firms.
2009 Pearson Prentice Hall. All rights reserved.

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a. Roger Phones is about to decide whether to

launch production and sale of a cell phone with
standard
Low pricefeatures.
strategy
Cost to manufacture and sell the cell phone
Productivity, efficiency and cost advantages
relative to competition
Prices of competitive cell phones
Sensitivity of target customers to price and quality
The production capacity of Roger Phones and its
competitors
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b. Computer Magic is trying to decide whether to

produce and sell a new home computer software
package that includes the ability to interface with a
sewing machine and a vacuum cleaner. There is
no
such software
Differentiated
productcurrently
strategy on the market.
Cost to develop, produce and sell new software
Premium price that customers would be willing to pay due
to product uniqueness
Price of basic software
Price of closest competitive software
Cash needed to develop, produce and sell new software
2009 Pearson Prentice Hall. All rights reserved.

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c. Christina Cosmetics has been asked to provide

a store brand lip gloss that will be sold at
discount retail stores.
Low price strategy
Cost of producing the store-brand lip gloss
Productivity, efficiency and cost advantages
relative to competition
Prices of competitive products
Sensitivity of target customers to price and quality
How the market for lip gloss is growing
2009 Pearson Prentice Hall. All rights reserved.

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d. Marcus Meats is entertaining the idea of

developing a special line of gourmet bologna made
with sun dried tomatoes, pine nuts, and artichoke
hearts.
Differentiated
product strategy
Cost to produce and sell new line of gourmet
bologna
Premium price that customers would be willing to
pay due to product uniqueness
Price of basic meat product
Price of closest competitive product
2009 Pearson Prentice Hall. All rights reserved.

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Exercise 1-18
Value chain and classification of costs Classify each of the cost
items (ah) as one of the business functions of the value chain
shown in Exhibit 1-2 (p. 7).
Burger King, a hamburger fast food restaurant, incurs the following
costs:
a. Cost of oil for the deep fryer

a. Production

b. Wages of the counter help who

give customers the food they
order

b. Production

c. Cost of the costume for the

King on the Burger King television
commercials

c. Distribution

d.
d. Cost of childrens toys given
away free with kids meals

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Marketing
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Value chain and classification of costs

e. Cost of the posters indicating
the special two cheeseburgers for
$2
f. Costs of frozen onion rings and
French fries

e. Marketing

f. Production

g. Salaries of the food specialists

who create new sandwiches for the
restaurant chain

g. Design of products, services

or processes

h. Cost of to-go bags requested

by customers who could not finish
their meals in the restaurant

h. Customer service

2009 Pearson Prentice Hall. All rights reserved.

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 2009 Pearson Prentice Hall. All rights reserved.

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