MANAGEMENT ACCOUNTING (VOLUME I) - Solutions Manual
CHAPTER 1 MANAGEMENT ACCOUNTING: AN OVERVIEW OVERVIEW
I.
Questions 1. Use of the the word word “need” in the the quoted quoted passage is pejorative. pejorative. It implies implies an unlimited level of demand for information. However, However, rational managers apply a cost!enefit criterion to information and will only want accounting informa informatio tion n if its !enefi !enefits ts e"ceed e"ceed its costs. costs. #ccoun #ccountin ting g inform informatio ation n provides provides !enefits !y improving improving decision decision ma$ing and controlling controlling !ehavior in organi%ations. organi%ations. In most organi%ations, organi%ations, accounting accounting information information is very prevalent prevalent which implies implies that its !enefits !enefits e"ceed its costs. Hence, Hence, successful managers will find it in their selfinterest to learn how to use accounting information in these organi%ations. &learly &learly,, this this statemen statementt is incurred incurred in those those firms firms where where account accounting ing info informa rmati tion on has has very very limi limite ted d useful usefulne ness ss 'e.g. 'e.g.,, if the the accou account ntin ing g information information is often wrong wrong or is not produced in in a timely timely fashion(. fashion(. In these organi%ations, managers do not find the accounting information to have !enefits in e"cess of its costs, will not use it, do not need to $now how to use it, and definitely do not need it. ). a.
Histo Historic rical al cost costss are of limi limite ted d use use in ma$i ma$ing ng plan planni ning ng dec decis isio ions ns in in a rapidly changing changing environm environment. ent. *ith *ith changing changing products, processes and prices, the historical costs are inadequate appro"imations of the opportunity costs of using resources. Historical costs may, however, !e useful for control purposes, as they provide provide information information a!out the activities activities of managers managers and can !e used as performance measures to evaluate managers.
!. +he purpose of accounting accounting systems systems is to provide provide information information for planning planning purposes and control. control. #lthough #lthough historical historical costs are not generally appropriate for planning purposes, additional measures are costly to ma$e. #n accounting accounting system should should include include additio additional nal measures if the !enefits of improved decision ma$ing are greater than the costs of the additional information. . -inan -inance ce and econ econom omic icss te"t! te"t!oo oo$s $s traditi tradition onal ally ly state that the the goal goal of a profit organi%ation organi%ation is to ma"imi%e ma"imi%e shareholder shareholder wealth. wealth. anagers are frequently presumed to act in the !est interest of the shareholder, although 1-1
Chapter 1 Management Accounting: An Overview
recent finance literature recogni%es that appropriate incentives are necessary to align manager interests with shareholder interests. +he goal, however, are not very clear as to how this is achieved. ost finance te"t!oo$s focus on financing decisions and not on the use of assets and dealing with customers. ar$eting/s goal of satisfying customers recogni%es that customers are the source of revenues for the organi%ation, and therefore the means through which shareholder value is increased. However, customer satisfaction is only valua!le insofar as it creates shareholder wealth. +he further goal of mar$eting is to ensure that customer satisfaction is ma"imi%ed without compromising the organi%ation/s profita!ility. 0. es. 2lanning is really much more vital than control3 that is, superior control is fruitless if faulty plans are !eing implemented. However, planning and control are so intertwined that it seems artificial to draw rigid lines of separation !etween them. 4. es. +he controller has line authority over the personnel in his own department !ut is a staff e"ecutive with respect to the other departments. 5. 6ine authority is e"erted downward over su!ordinates. 7taff authority is the authority to advise !ut not command others3 it is e"ercised laterally or upward. -unctional authority is the right to command action laterally and downward with regard to a specific function or specialty. 8. &ost accounting is the controller/s primary means of implementing the 8 point concept of modern controllership. &ost accounting is intertwined with all seven duties to some e"tent, !ut its major focus is on the first three.
9. Bettina Company 2resident
1-2
Management Accounting: An Overview Chapter 1 :2, 2roduction
:2, -inance
:2, 7ales
&ontroller
+reasurer
#ssistant &ontroller
#ssistant +reasurer
7pecial 7tudies anager
&ost #ccounting anager
+a" anager
Internal #udit anager
&ost 7ystems #nalyst
?udget < 7tandard &ost #nalyst
2erformance #nalyst
&ost &ler$
2ayroll &ler$
#ccounts @eceiva!le &ler$
#ccounts 2aya!le &ler$
;eneral #ccounting anager
?illing &ler$
7ystem < =>2 anager
;eneral 6edger ?oo$$eeper
A. anagement accountants contri!ute to strategic decisions !y providing information a!out the sources of competitive advantage and !y helping managers identify and !uild a company/s resources and capa!ilities. 1B. In most organi%ations, management accountants perform multiple rolesC pro!lem solving 'comparative analyses for decision ma$ing(, score$eeping 'accumulating data and reporting relia!le results(, and attention directing 'helping managers properly focus their attention(. 11. +hree guidelines that help management accountants increase their value to managers are 'a( employ a cost!enefit approach, '!( recogni%e !ehavioral as well as technical considerations, and 'c( identify different costs for different purposes. 1). anagement accounting is an integral part of the controller/s function in an organi%ation. In most organi%ations, the controller reports to the chief financial officer, who is a $ey mem!er of the top management team. 1. anagement accountants have ethical responsi!ilities that are related to competence, confidentiality, integrity, and o!jectivity.
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Chapter 1 Management Accounting: An Overview
10. ?y reporting and interpreting relevant data, the controller e"erts a force or influence that impels management toward ma$ing !etterinformed decisions. +he controller of one company descri!ed the jo! as “a !usiness advisor toDhelp the team develop strategy and focus the team all the way through recommendations and implementation.” 14. Financial Accounting #udienceC
="ternalC authorities
shareholders,
2urposeC
@eport on past performance to e"ternal parties3 !asis of contracts with owners and lenders
+imelinessC
>elayed3 historical
@estrictionsC
@egulated3 rules driven !y generally accepted accounting principles and government authorities
+ype of InformationC
-inancial measurements only
Eature of InformationC
F!jective, precise
7copeC
Highly aggregate3 report on entire organi%ation
audita!le,
creditors,
relia!le,
ta"
consistent,
Managerial Accounting #udienceC
InternalC *or$ers, managers, e"ecutives
2urposeC
Inform internal decisions made !y employees and managers3 feed!ac$ and control on operating performance
+imelinessC
&urrent, future oriented
@estrictionsC
Eo regulations3 systems and information determined !y management to meet strategic and operational needs
+ype of InformationC
-inancial, plus operational and physical measurements on processes, technologies, suppliers customers, and competitors
Eature of InformationC
ore 1-!
su!jective
and
judgmental3
valid,
Management Accounting: An Overview Chapter 1
relevant, accurate 7copeC
>isaggregate3 inform local decisions and actions
15. +he competitive environment has changed dramatically. &ompanies encountered severe competition from overseas companies that offered highquality products at low prices. #ctivity!ased costing systems are introduced in many manufacturing and service organi%ations to overcome the ina!ility of traditional cost systems to accurately assign overhead costs. #ctivity!ased management is a via!le approach for managers to ma$e decisions !ased on #?& information. +here has !een improvement of operational control systems such that information is more current and provided more frequently. +he nature of wor$ has changed from controlling to informing. -irms are concerned a!out continuous improvement, employee empowerment and total quality. Eonfinancial information has !ecome a critical feed!ac$ measure. -inally, the focus of many firms is on measuring and managing activities. 18. #s measurements are made on operations and, especially, on individuals and groups, the !ehavior of the individuals and groups are affected. 2eople will react to the measurements !eing made !y focusing on the varia!les or !ehavior !eing measured. In addition, if managers attempt to introduce or redesign cost and performance measurement systems, people familiar with the previous system will resist. anagement accountants must understand and anticipate the reactions of individuals to information and measurements. +he design and introduction of new measurements and systems must !e accompanied with an analysis of the li$ely reactions to the innovations. II. Exercises E"er#ise 1
a. !. c. d.
'1( '( '1( ')(
2ro!lem solving #ttentiondirecting 2ro!lem solving 7core$eeping
E"er#ise 2
a. '0( ar$eting !. '( 2roduction c. '5( &ustomer service 1-$
Chapter 1 Management Accounting: An Overview
d. '4( >istri!ution E"er#ise
a. !. c. d. e. f. g. h.
'0( '( '4( '0( '4( '( '1( ')(
ar$eting 2roduction >istri!ution ar$eting >istri!ution 2roduction @esearch and development >esign
III. Problems %ro&le' 1 (%ro&le' Solin* S#ore+eepin* an, Attention ire#tin)
?ecause the accountant/s duties are often not sharply defined, some of these answers might !e challengedC 1. ). . 0. 4. 5. 8. 9.
7core$eeping #ttention directing 7core$eeping 2ro!lem solving #ttention directing #ttention directing 2ro!lem solving 7core$eeping 'depending on the e"tent of the report( or attention getting A. +his question is intentionally vague. +he giveandta$e of the !udgetary process usually encompasses all three functions, !ut it emphasi%es score$eeping the least. +he main function is attention directing, !ut pro!lem solving is also involved. 1B. 2ro!lem solving %ro&le' 2 (Manae'ent A##ountin In.or'ation S/ste')
1. ). . 0.
InputsC !, g, i, m 2rocessesC a, d, f, j FutputsC e, $, n 7ystem o!jectivesC c, h, l
%ro&le' (0ole o. Manae'ent A##ountants) 1-
Management Accounting: An Overview Chapter 1
Planning . +he management accountant gains an understanding of the impact on the organi%ation of planned transactions 'i.e., analy%ing strengths and wea$nesses( and economic events, !oth strategic and tactical, and sets o!taina!le goals for the organi%ation. +he development of !udgets is an e"ample of planning. Controlling . +he management accountant ensures the integrity of financial information, monitors performance against !udgets and goals, and provides information internally for decision ma$ing. &omparing actual performance against !udgeted performance and ta$ing corrective action where necessary is an e"ample of controlling. Internal auditing is another e"ample. Evaluating Performance. +he management accountant judges and analy%es the implication of various past and e"pected events, and then chooses the optimum course of action. +he management accountant also translates data and communicates the conclusions. ;raphical analysis 'such as trend, !ar charts, or regression( and reports comparing actual costs with !udgeted costs are e"amples of evaluating performance. Ensuring Accountability of Resources . +he management accountant implements a reporting system closely aligned to organi%ational goals that contri!ute to the measurement of the effective use of resources and safeguarding of assets. Internal reporting such as comparison of actual to !udget is an e"ample of accounta!ility. External Reporting . +he management accountant prepares reports in accordance with generally accepted accounting principles and then disseminates this information to shareholders, creditors, and regulatory ta" agencies. #n annual report or a credit application are e"amples of e"ternal reporting. %ro&le' ! (Line Versus Sta..)
Gamie @eyes is staff. 7he is in a support role she prepares reports and helps e"plain and interpret them. Her role is to help the line managers more effectively carry out their responsi!ilities. 7tephen 7antos is a line manager. He has direct responsi!ility for producing a garden hose. &learly, one of the !asic o!jectives for the e"istence of a manufacturing firm is to ma$e a product. +hus, 7tephen has direct responsi!ility for a !asic o!jective and therefore holds a line position. 1-
Chapter 1 Management Accounting: An Overview
%ro&le' $ (%ro.essional Ethi#s an, En,-o.-3ear Ga'es)
Requirement 1 +he possi!le motivations for the snac$ foods division wanting to play endof year games includeC 'a( anagement incentives. ummy -oods may have a division !onus scheme !ased on oneyear reported division earnings. =fforts to frontend revenue into the current year or transfer costs into the ne"t year can increase this !onus. '!( 2romotion opportunities and jo! security. +op management of ummy -oods li$ely will view those division managers that deliver high reported earnings growth rates as !eing the !est prospects for promotion. >ivision managers who deliver “unwelcome surprises” may !e viewed as less capa!le. 'c( @etain division autonomy. If top management of ummy -oods adopts a “management !y e"ception” approach, divisions that report sharp reductions in their earnings growth rates may attract a si%a!le increase in top management supervision. Requirement +he “7tandards of =thical &onductD” require management accountants toC
@efrain from either actively or passively su!verting the attainment of the organi%ation/s legitimate and ethical o!jectives, and &ommunicate unfavora!le as well as favora!le information and professional judgment or opinions.
7everal of the “endofyear games” clearly are in conflict with these requirements and should !e viewed as unaccepta!le !y +anC 'a( +he fiscal yearend should !e closed on midnight of >ecem!er 1. “="tending” the close falsely reports ne"t year/s sales as this year/s sales. '!( #ltering shipping dates is falsification of the accounting reports. 'c( #dvertisements run in >ecem!er should !e charged to the current year. +he advertising agency is facilitating falsification of the accounting records. +he other “endofyear games” occur in many organi%ations and may fall into the “gray” to “accepta!le” area. However, much depends on the circumstances surrounding each oneC 'a( If the independent contractor does not do maintenance wor$ in >ecem!er, there is no transaction regarding maintenance to record. +he 1-4
Management Accounting: An Overview Chapter 1
responsi!ility for ensuring that pac$aging equipment is well maintained is that of the plant manager. +he division controller pro!a!ly can do little more than o!serve the a!sence of a >ecem!er maintenance charge. 'd( In many organi%ations, sales are heavily concentrated in the final wee$s of the fiscal yearend. If the dou!le !onus is approved !y the division mar$eting manager, the division controller can do little more than o!serve the e"tra !onus paid in >ecem!er. 'e( If +: spots are reduced in >ecem!er, the advertising cost in >ecem!er will !e reduced. +here is no record falsification here. 'g( uch depends on the means of “persuading” carriers to accept the merchandise. -or e"ample, if an undertheta!le payment is involved, it is clearly unethical. If, however, the carrier receives no e"tra consideration and willingly agrees to accept the assignment, the transaction appears ethical.
=ach of the 'a(, 'd(, 'e( and 'g( “endofyear games” may well disadvantage ummy -oods in the long run. -or e"ample, lac$ of routine maintenance may lead to su!sequent equipment failure. +he divisional controller is well advised to raise such issues in meetings with the division president. However, if ummy -oods has a rigid set of linestaff distinctions, the division president is the one who !ears primary responsi!ility for justifying division actions to senior corporate officers. Requirement ! If +an !elieves that @yan wants her to engage in unethical !ehavior, she should first directly raise her concerns with @yan. If @yan is unwilling to change his request, +an should discuss her concerns with the &orporate &ontroller of ummy -oods. +an also may well as$ for a transfer from the snac$ foods division if she perceives @yan is unwilling to listen to pressure !rought !y the &orporate &ontroller, &-F, or even 2resident of ummy -oods. In the e"treme, she may want to resign if the corporate culture of ummy -oods is to reward division managers who play “endofyear games” that +an views as unethical and possi!ly illegal. %ro&le'
Games +orres has come up with a scheme that involves a com!ination of data falsification and smoothingJ Eot only has he made up the revenue num!ers, !ut also he has had the gall to defer some of them to the ne"t period. a$ing up such num!ers is clearly illegal. 7moothing, in this e"ample is also illegal !ecause the num!ers are fictitious. 1-5
Chapter 1 Management Accounting: An Overview
%ro&le'
&learly the vicepresident will lose his or her jo! if you turn him or her in. ;iven that this is a major violation of the code of ethics and a violation patent law, the vicepresident could go to jail. our !est course of action is to chec$ your information and if the vicepresident is definitely involved, go immediately to the :2/s superior 'who is pro!a!ly a senior :2 or the company president(. +he organi%ation/s attorneys will ta$e over from there.
%ro&le' 4
Fne option is to do nothing and ignore what you saw, however, this may violate your own code of ethics and your ethical responsi!ilities under the organi%ation/s code of ethics. ;iven that you want to do something, it is pro!a!ly !est to start !y tal$ing to employees in your organi%ation whose jo! it is to deal with ethical issues. If no such employees e"ist or are availa!le, you might start !y using a decision model. +his model incorporated the following stepsC 1. ). . 0. 4. 5. 8.
>etermine the -acts *hat, *ho, *here, How >efine the =thical Issue Identify ajor 2rinciples, @ule, :alues 7pecify the #lternatives. &ompare :alues and #lternatives, 7ee if &lear >ecision #ssess the &onsequences. a$e our >ecision.
I:. Cases Case 1 (6inan#ial s7 Manaerial A##ountin)
Requirement "a# Fther forward loo$ing information desired in addition to the income statement information are
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Management Accounting: An Overview Chapter 1
1. >isclosure of the components of financial performance, i.e., nature and source of revenues, various activities, transactions, and other relevant events affecting the company. ). Eature and function of the components of income and e"penses Requirement "b# Eo. ;##2 does not allow capitali%ation of employee training and advertising costs even if management feels that they increase the value of the company/s !rand name. +he reasons are uncertainty of the future !enefits that may !e derived therefrom and difficulty and relia!ility of their measurement.
Requirement "c# >etailed information that managers would li$ely request are analysis of the significant increases in 1. ). . 0. 4.
7ales &ost of sales 2ayroll 7toc$ and option !ased compensation #dvertising and promotion.
Requirement "$# Eonmonetary measuresC 1. ). . 0. 4.
&hange in num!er and profile of customers 7hare in the mar$et *ho, what and how many are the competitors 2roduct lines offered !y the entity vs. 2roduct lines of competitors 7ales promotion and advertising activities
Requirement "e# 1. &ompetitors ). =mployees . 2rospective creditors Case 2 (3ou et 9hat /ou 'easure:)
Requirement "a# Increase in sales to new customers to sales 1-11
Chapter 1 Management Accounting: An Overview
+oo much emphasis on this ratio may lead the sales manager to spend more time developing !usiness with new customers and disregard the needs of e"isting customers. It is therefore possi!le to lose the !usiness of several $ey accounts. Requirement "b# >ecrease in cost of goods sold to sales +his performance measure could create the following pro!lemsC 1. 2urchasing goods with poor quality at lower cost and selling them for the same price. ). Indiscriminately increasing selling price to widen the profit margin without regard to competitor/s current prices. . If the entity is manufacturing its own goods, managers could try to economi%e on costs, i.e., !uying poorer quality of materials, employing uns$illed wor$ers, etc. there!y causing deterioration of the quality of the finished products. In all of the a!ove situations, customer patronage could eventually !e adversely affected. Requirement "c# >ecrease in selling and administrative e"pense to sales &ostcutting is generally advisa!le for as long as the quality of goods and services are not compromised. 6i$ewise, certain costsaving measures could demotivate sales people and other employees and could lead to counter productive activities. Case (The 0oles o. Manaers an, Manae'ent A##ountants)
1. ). . 0. 4. 5. 8. 9. A. 1B. 11.
anagerial accounting, -inancial accounting 2lanning >irecting and motivating -eed!ac$ >ecentrali%ation 6ine 7taff &ontroller ?udgets 2erformance report &hief -inancial Ffficer 1-12
Management Accounting: An Overview Chapter 1
1). 2recision3 Eonmonetary data Case ! (Ethi#s in ;usiness)
If cashiers routinely shortchanged customers whenever the opportunity presented itself, most of us would !e careful to count our change !efore leaving the counter. Imagine what effect this would have on the line at your favorite fastfood restaurant. How would you li$e to wait in line while each and every customer la!oriously counts out his or her changeK #dditionally, if you can/t trust the cashiers to give honest change, can you trust the coo$s to ta$e the time to follow health precautions such as washing their handsK If you can/t trust anyone at the restaurant would you even want to eat outK ;enerally, when we !uy goods and services in the free mar$et, we assume we are !uying from people who have a certain level of ethical standards. If we could not trust people to maintain those standards, we would !e reluctant to !uy. +he net result of widespread dishonesty would !e a shrun$en economy with a lower growth rate and fewer goods and services for sale at a lower overall level of quality. Case $ (Ethi#s an, the Manaer)
Requirement 1 -ailure to report the o!solete nature of the inventory would violate the 7tandards of =thical &onduct as followsC Competence
2erform duties in accordance with relevant technical standards. 2repare complete reports using relia!le information.
?y failing to write down the value of the o!solete inventory, 2ere% would not !e preparing a complete report using relia!le information. In addition, generally accepted accounting principles ';##2( require the writedown of o!solete inventory. Integrity
#void conflicts of interest. @efrain from activities that prejudice the a!ility to perform duties ethically. @efrain from su!verting the legitimate goals of the organi%ation. @efrain from discrediting the profession. 1-1
Chapter 1 Management Accounting: An Overview
em!ers of the management team, of which 2ere% is a part, are responsi!le for !oth operations and recording the results of operations. 7ince the team will !enefit from a !onus, increasing earnings !y ignoring the o!solete inventory is clearly a conflict of interest. 2ere% would also !e concealing unfavora!le information and su!verting the goals of the organi%ation. -urthermore, such !ehavior is a discredit to the profession. Objectivity
&ommunicate information fairly and o!jectively. >isclose all relevant information.
Hiding the o!solete inventory impairs the o!jectivity and relevance of financial statements. Requirement #s discussed a!ove, the ethical course of action would !e for 2ere% to insist on writing down the o!solete inventory. +his would not, however, !e an easy thing to do. #part from adversely affecting her own compensation, the ethical action may anger her colleagues and ma$e her very unpopular. +a$ing the ethical action would require considera!le courage and selfassurance. Case (%reparin an Orani
Requirement 1 7ee the organi%ation chart on page 18. Requirement 6ine positions would include the university president, academic vicepresident, the deans of the four colleges, and the dean of the law school. In addition, the department heads 'as well as the faculty( would !e in line positions. +he reason is that their positions are directly related to the !asic purpose of the university, which is education. '6ine positions are shaded on the organi%ation chart.( #ll other positions on the organi%ation chart are staff positions. +he reason is that these positions are indirectly related to the educational process, and e"ist only to provide service or support to the line positions. Requirement ! #ll positions would have need for accounting information of some type. -or 1-1!
Management Accounting: An Overview Chapter 1
e"ample, the manager of central purchasing would need to $now the level of current inventories and !udgeted allowances in various areas !efore doing any purchasing3 the vice president for admissions and records would need to $now the status of scholarship funds as students are admitted to the university3 the dean of the !usiness college would need to $now hisher !udget allowances in various areas, as well as information on cost per student credit hour3 and so forth. Case (Ethi#s in ;usiness)
Requirement 1 Eo, 7antos did not act in an ethical manner. In complying with the president/s instructions to omit lia!ilities from the company/s financial statements he was in direct violation of the I#/s %tan$ar$s of Et&ical Con$uct for Management Accountants' He violated !oth the “Integrity” and “F!jectivity” guidelines on this code of ethical conduct. +he fact that the president ordered the omission of the lia!ilities is immaterial. Requirement Eo, 7antos/ actions can/t !e justified. In dealing with similar situations, the 7ecurities and ="change &ommission '7=&( has consistently ruled that “D corporate officersDcannot escape culpa!ility !y asserting that they acted as Lgood soldiers/ and cannot rely upon the fact that the violative conduct may have !een condoned or ordered !y their corporate superiors.” 'Muoted fromC ;erald H. 6ander, ichael +. &ronin, and #lan @einstein, “In >efense of the anagement #ccountant,” Management Accounting( ay, 1AAB, p. 44( +hus, 7antos not only acted unethically, !ut he could !e held legally lia!le if insolvency occurs and litigation is !rought against the company !y creditors or others. It is important that students understand this point early in the course, since it is widely assumed that “good soldiers” are justified !y the fact that they are just following orders. In the case at hand, 7antos should have resigned rather than !ecome a party to the fraudulent misrepresentation of the company/s financial statements.
1-1$
Case
Requirement 1 2resident
Vice President, Auxiliary Services
anager, &entral 2urchasing
Vice
Vice President, Admissions & Records
anager, University ?oo$store
anager, University 2ress
>ean, ?usiness
#cademic :ice 2resident
>ean, Humanities
'>epartments(
'>epartments(
President, Financial Services (Controller)
anager, &omputer 7ervices
anager, #ccounting < -inance
>ean, =ngineering < Muantitative
>ean, -ine #rts
'>epartments(
:ice 2resident, 2hysical 2lant
anager, ;rounds < &ustodial 7ervices
>ean, 6aw 7chool
'>epartments(
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Chapter 1 Management Accounting: An Overview
Case 4 (Ethi#s in ;usiness)
Requirement 1 #ndres @omero has an ethical responsi!ility to ta$e some action in the matter of 2hil&hem, Inc. and the dumping of to"ic wastes. +he %tan$ar$s of Et&ical Con$uct for Management Accountants specifies that management accountants should not condone the commission of acts !y their organi%ation that violate the standards of ethical conduct. +he specific standards that apply are as follows. N
N
Co'peten#e7 anagement accountants have a responsi!ility to perform their professional duties in accordance with relevant laws and regulations. Con.i,entialit/7 anagement accountants must refrain from
anager, 2lant < aintenance
Chapter 1 Management Accounting: An Overview
Case 4 (Ethi#s in ;usiness)
Requirement 1 #ndres @omero has an ethical responsi!ility to ta$e some action in the matter of 2hil&hem, Inc. and the dumping of to"ic wastes. +he %tan$ar$s of Et&ical Con$uct for Management Accountants specifies that management accountants should not condone the commission of acts !y their organi%ation that violate the standards of ethical conduct. +he specific standards that apply are as follows. N
N
N
N
Co'peten#e7 anagement accountants have a responsi!ility to perform their professional duties in accordance with relevant laws and regulations. Con.i,entialit/7 anagement accountants must refrain from disclosing confidential information unless legally o!ligated to do so. However, #ndres @omero may have a legal responsi!ility to ta$e some action. Interit/7 anagement accountants have a responsi!ility toC refrain from either actively or passively su!verting the attainment of the organi%ation/s legitimate and ethical o!jectives. communicate favora!le as well as unfavora!le information and professional judgments or opinions. O&=e#tiit/7 anagement accountants must fully disclose all relevant information that could reasona!ly !e e"pected to influence an intended user/s understanding of the reports, comments, and recommendations.
Requirement +he %tan$ar$s of Et&ical Con$uct for Management Accountants indicates that the first alternative !eing considered !y #ndres @omero, see$ing the advice of his !oss, is appropriate. +o resolve an ethical conflict, the first step is to discuss the pro!lem with the immediate superior, unless it appears that this individual is involved in the conflict. In this case, it does not appear that @omero/s !oss is involved. &ommunication of confidential information to anyone outside the company is inappropriate unless there is a legal o!ligation to do so, in which case @omero should contact the proper authorities. &ontacting a mem!er of the ?oard of >irectors would !e an inappropriate action at this time. @omero should report the conflict to successively higher levels within the organi%ation and turn only to the ?oard of >irectors if the 1-1
Chapter 1 Management Accounting: An Overview
pro!lem is not resolved at lower levels. Requirement ! #ndres @omero should follow the esta!lished policies of the organi%ation !earing on the resolution of such conflict. If these policies do not resolve the ethical conflict, @omero should report the pro!lem to successively higher levels of management up to the ?oard of >irectors until it is satisfactorily resolved. +here is no requirement for @omero to inform his immediate superior of this action !ecause the superior is involved in the conflict. If the conflict is not resolved after e"hausting all courses of internal review, @omero may have no other recourse than to resign from the organi%ation and su!mit an informative memorandum to an appropriate mem!er of the organi%ation. '&# Unofficial 7olution, adapted( :. Multiple Choice Questions 1. ). . 0. 4. 5. 8. 9. A. 1B.
> > > ? > # ? > > #
11. 1). 1. 10. 14. 15. 18. 19. 1A. )B.
> > > # # # > # > >
)1. )). ). )0. )4. )5. )8. )9. )A. B.
? ? # # ? & ? > ? &
1. ). . 0. 4. 5. 8. 9. A. 0B.
1-14
> & > ? > ? & ? # #
01. 0). 0. 00. 04. 05. 08. 09. 0A. 4B.
# & > ? & ? # ? & >
41. 4). 4. 40. 44. 45. 48. 49. 4A. 5B.
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