managerial accounting garrison 14th edition homework solutions

Managerial Accounting Garrison 14th Edition Homework Solutions

1. Introduction

The importance of cost and management accounting has been increasingly felt with the growth of industrial and commercial activities. The management accountants of today, therefore, require the competencies to develop, interpret and master complex management accounting and financial information in order to provide management solutions and decisions. This subject serves as an introduction to the importance of cost and management accounting. In broad terms, cost and management accounting allows a systematic and organized recording and interpretation of financial and cost information which in turn helps management in planning, decision making, improving efficiency and also helps in the control of financial and operational activities within an organisation. Over the years, beginning from the physical, tangible assets such as plant and equipment to the knowledge, information and digital assets of the modern economy has drawn the attention to intellectual capital. These intellectual and knowledge-based resources have become essential for managers to develop the right strategies in order to succeed in the modern business environments. While the businesses are forced every day to optimally and economically utilize their physical assets, knowledge and digital-based assets provide the real leverage to remain competitive in the business world. Such competitiveness will, indeed, be sustained by the next generation of investment and profitability. The key terms and concepts which will be tested can be classified into 3 basic stages. First is the need to fully understand and apply the cost accounting techniques as these will continue to be examined in their various contexts throughout the duration of this course. Second is the analysis and understanding of absorbed overheads, in terms of what these means in the context of the production and the allocation of overheads. Lastly, it is also important for students to understand the difference between budget and actual production and how the variance between the actual/planned return and the expected return can be computed and interpreted. Students must also understand the different scenarios in which either of the marginal and absorption costing technique will be suitable for. I.e. whether it is more designed for a business which operates solely based on the sale of inventories or a service sector which requires maintaining a base level of production throughout.

2. Cost Concepts and Behavior

Costs concepts and behavior are pivotal for a managerial accountant to understand. This previous section reviews certain fundamental cost classifications that have been discussed over the years and it introduces terminology that will be used throughout the remainder of the text. We now talk about fixed and variable costs. A variable cost varies in total directly and proportionately with changes in the level of activity. However, the variable cost per unit is constant. A common misconception of variable cost is that as volume goes up, variable cost goes up. But as you can see, the cost remains at $4 per unit. On the other hand, fixed cost is a cost that remains unchanged in total as volume changes within the relevant range. However, because fixed costs remain constant in total, as activity level rises, the fixed costs per unit drops. For example, let us assume that a company expects to operate releases within a range of volume from 75,000 to 125,000 units per month because of capacity and resource limitations. This range of volume for which the company expects to operate is called the relevant range. The relevant range is the band of normal activity level in which there is a specific relationship between the level of activity and the levels of the revenue and costs. Many costs have this mixed classification and it is important to understand the behavior of these costs in order to predict how changes in cost drive or affect the in a business. For your deeper understanding of the topic impact on the understanding of selling prices and volume, let us look at the following question. First of all, to analyze these changes, we should have a mindset of using the cost-volume profit analysis. The cost-volume-profit analysis starts with the basic profit equation Profit = Revenues – Costs, where costs are an accumulation of variable and fixed cost. If we rewrite the equation, the profit can be shown as a function of the product of the units sold and the difference between the selling price and the variable cost. By using this methodology, the effect of the changes in the volume on the profitability of a product can be looked at easily. However, the first step of the analysis requires us to classify these costs into fixed and variable components. By comparing cost behaviors, we can identify the type of the cost as the changes of the activity cause the changes of the cost. Well, to recap all the things that have been learned, cost is classified as either direct cost or indirect cost and it can be classified as variable or fixed with respect to changes in the level of activity. Also, costs can further be classified as product costs or period costs. And basically, most of the cost accounts all eventually underlying on these basic cost classifications. But remember what has been stressed all the time; these costs are behaving in a particular way according to cost accountant in order to serve the purpose of predicting them with a good degree of accuracy. The concepts and methods learned will assist the company’s management in the planning, controlling, and effective decision-making processes. Well, that is at least an introduction of how a cost accountant is able to help. But that’s it, not everything has been covered in this section. Up to this point, I had given the basic concepts of managerial accounting which include the classification of costs. However, the information learned is just to give a clear idea of how costs can be classified in many different ways. Also, it is important to classify the right types of costs in order for the costs to suit the needs of specific decisions made by the management. The management will depend on these costs in order to make appropriate decisions for running the business. Going further, the next section of the text will provide a detailed explanation of manufacturing costs and will review the financial statement prepared for a manufacturing firm.

3. Cost-Volume-Profit Analysis

Cost-Volume-Profit (CVP) analysis, a managerial accounting tool that expresses the relationships among costs, sales volume, and profitability. CVP analysis is also known as breakeven analysis. Breakeven analysis is a technique for studying the relationships among fixed costs, variable costs, and profits. Garrison Ray H. has written really good tasks that can help students to understand the subject better. “To enhance students’ understanding and build their skills in managerial accounting, Garrison Noreen has provided many high-quality homework tasks,” professors’ review said. “Cost-Volume-Profit (CVP) analysis is used to determine how changes in costs and volume affect a company’s operating income and net income. In performing this analysis, there are several assumptions made, including:” according to my research, ‘No change in the number of units sold,’ that means within the relevant range, unit selling price, total fixed cost, and unit variable cost will not change. But in reality, this always happens and that’s one of the main reasons that professors always talk about “Garbage In Garbage Out.” There can be tasks on sales mix as well, on either finding the overall contribution margin, the weighted average contribution margin or the number of units of each product that must be sold. Furthermore, my homework gave me a chance to practice using CVP in the Revenue dimension. Some tasks from the homework required me to work out the number of units should actually be sold and also the total contribution. These help me a lot really. “This book is a quite comprehensive book that covers all the areas in managerial accounting in a proper way. All the assignments given are really helpful. Especially, the homework tasks for each chapter. Al and Moriarty have provided some good work on cost volume profit analysis. All the tasks have detailed and stepwise answers that help me to understand all the chapters not only the back of the chapter Work.” one of the student said in his review. Hope you could learn a lot from this book too. And if you have any better feedbacks, please don’t hesitate to contact us. So we can share the joy together. Good luck!

4. Budgeting

The budget plays an important role in management control. It is not only a document that management uses to plan for the future, but it is also an expression of managerial goals and an instrument for management and control. There are three aspects of control of the use of budgeting. Firstly, a budget can be used as a means of communicating agreed objectives to all responsibility center managers. As such, it should take into account the company goals and objectives. In addition, the overall company budget should be prepared by the top management in consultation with the members of the board of directors and the senior management team, and imposed on all the managers throughout the organization. In this way, all executives and managers will know what is expected of them and of each other. Secondly, a budget provides a standard for the assessment of actual results. When actual results are compared to the budget, a kind of information called a “variance” emerges. That can be the difference between what should have happened and what has actually taken place. As such, this will assist management in identifying the ways of control and hence the standards of control. For instance, if the top management expected to maximize profit, the budget will be prepared in that line and so each activity will use the budget as a control standard and the variances are reported back to the senior managers for their assessment of performance. Thirdly, a budget can foster an element of management development and organizational change. When new managers take over an existing operation, they usually strive to make changes and perhaps have their own approach to implementing plans and objectives, whether these are long-term, medium-term, or short-term objectives. However, a well-established and successful operation needs to form a good team, and ultimately it is the company’s long-term goal that matters. By imposing budgetary constraints at different levels (top managers, sectional managers, and lower-level managers), it will force the managers to make decisions according to the company as a whole. In addition, the top management has to go through a phase of consultative planning in order to impose the budget. As such, those who resist the change can be identified, and the top management can also have a better understanding of the reasons objectively and critically, so that it will assist in a smooth progress to change. In this way, the new managers will soon realize that objectives can only be achieved by setting themselves competitively and cooperatively in the company’s run race. In times of rapid technological and market change, companies cannot rely on traditional measures of performance to survive. The use of budgeting as a form of control may limit a company’s flexibility to changing circumstances. However, I do agree that a formal budgetary system imposes the kind of controls which may effectively be a barrier to change. Yet, properly designed and operated, a budgetary system helps management to focus on those critical success factors and provides guidance for alternative strategic directions.

5. Performance Evaluation and Responsibility Accounting

The two main types of responsibility center are cost centers and investment centers. Usually, the manager of a cost center is only responsible for the costs in the center; that is, the costs incurred to achieve a particular output. If the manager can achieve this output at a lower cost than anticipated, this will be to his or her credit. However, if the manager spends more than the allowed hours or costs are higher than expected, this will be seen as a ‘negative’ and the manager will have it debited in terms of his or her performance evaluation. ‘Investment center’, on the other hand, allows for managers who are responsible for not only the costs but also for the level of investment employed in achieving the productivity. This means that not only the manager will have to look at the cost utilization, the volume and price of the output, but also how wisely the capital investment in that area has made. The investment given to a center can be defined as the actual amount spent in terms of the non-current asset in that center; such investment will be seen at balance sheet at the closing of the financial year. However, in most cases, the investment will be shown as net book value at the balance sheet because there might be a provision for depreciation or any accumulated depreciation on the asset. Accurate and timely feedback and evaluation of performance data are necessary in order to implement a successful responsibility accounting system. Such performance measurement, in turn, should be translated into financial results in any feedback as well. It’s also important to note that the measurement used should be economic, practical and appropriate; this ultimately will highlight the controllability and performance aspects of the particular responsibility center so that the objectives of effective responsibility accounting can be achieved. Materiality and judgment are also playing important role in the process of analyzing the reports given by the particular center. Materiality concept allows management to disregard adopting any sort of control measures when the cost of implementing is greater than the potential benefit from control. In actual business operation, the management will have to set an acceptable level of materiality to improve the efficiency of the responsibility accounting system. However, materiality may gain different value among different level of management; this will post challenge to the responsibility accounting because the superiors might have different opinion and review from that of the subordinate. Last but not least, judgment and experience can be beneficial both for the individual who is being evaluated and also the individual who is evaluating. Subordinates in a particular responsibility center may have a better knowledge of the day to day operation and hence their ability to judge the materiality of a problem will benefit superior’s understanding. On the other hand, subjective judgment and improper behavior may interfere with the implementation and operation of the responsibility accounting. In other words, it’s the responsible personnel’s duty to scrutinize those subjective comments and maintain the accuracy of the reports.