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CHAPTER 1
INTRODUCTION TO COST ACCOUNTING

QUESTIONS

1.Management accounting stresses the informational needs of internal users over those of external users (the focus of financial accounting). Because of this perspective, management accounting provides information in a format that is flexible and relevant to a particular manager’s usage. Financial accounting, on the other hand, must provide some uniformity in the manner in which information is presented for it to be comparable among companies and in compliance with generally accepted accounting principles.

2.It is more important to have legally binding cost accounting standards for defense contractors than for other manufacturers because government contracts are often awarded on a low-bid basis. Without legally binding cost accounting standards, different bidders could include costs in different categories, making the bids noncomparable. With specified cost accounting standards, there is a higher probability (although not absolute certainty) that comparison among bids is consistent. Although contracts for non-government manufacturers may be awarded on a bid basis, it is more common in this arena to consider a wide variety of factors in addition to cost.

3.Operating in a global environment means that more decision and control variables must be tracked. For example, a firm operating in many countries must track variables such as national rules of income taxation, national corporate governance laws, sets of local laws of commerce, production and sourcing sites, and currencies. In addition, the multinational firm must monitor markets in many countries, deal with a multitude of local cultures and customs, and communicate in several languages.

Some other valuable information for the global firm would be: currency exchange rates; national inflation rates; details of import/export laws; prices for commodities in likely sourcing sites; distribution costs for various modes of moving goods, components, equipment, and materials; political issues in all relevant markets; and competitors’ prices in all markets. These types of information are important to generate an optimal return on capital.

4.A mission statement is important to an organization because it provides a clearly worded view of what the organization wants to accomplish and how the organization uniquely meets its targeted customers’ needs with products and services. Without a mission statement an organization may veer away from its “view of itself” and find that it is engaging in activities that are not, and can never be, part of what it wants to do.

5.Organizational strategy is the link between a firm’s goals and objectives and its operational plans. Strategy is therefore a specification of how a firm intends to compete and survive. Each organization will have a unique strategy because it has unique goals, objectives, opportunities, and constraints.

6.Core competencies are the special proficiencies possessed and valued by an organization. If a particular strategy requires core competencies that are not possessed by a firm, executing such a strategy would be very difficult. For example, a strategy of diversification would be impossible to execute in a firm that does not possess core competencies in mergers, acquisitions, and constraints.

7.There are many self-serving reasons to be a nonpolluter. For example, a proactive strategy to reduce pollution may attract environmentally conscious consumers. Further, such an approach may avoid subsequent regulation of operations by government and may avoid legal entanglements caused by retroactive application of new laws. Current research is indicating that being “green” can be profitable to a business. 8.Authority is the right, generally because of position or rank, to use resources to accomplish a task or achieve an objective. Responsibility is the obligation to accomplish...
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