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CHAPTER 8
FINANCIAL REPORTING AND MANAGEMENT
REPORTING SYSTEMS
REVIEW QUESTIONS
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1. A journal voucher is used to make entries into the general ledger accounts. The
information ma !e a summar of man transactions or a single" uni#ue transaction.
2. $ournal vouchers must !e approved ! an authori%ed person" and thus provide an
effective control against errors and unauthori%ed general ledger entries.
3. The general ledger master file is ordered ! the chart of accounts. The account
num!er" the account description" the asset class" the normal !alance" !eginning
!alance" total de!its and total credits for the period" and the current !alance are the
tpical pieces of information found in each record of a general ledger master file.
&. The purpose is to present comparative financial reports on a historic !asis.
'. The responsi!ilit center file is used to collect data regarding the revenues"
e(penditures and relevant resources of each responsi!ilit center. )anagers of
responsi!ilit centers are held accounta!le for the operations of their centers and the
information found in these files helps to assess performance.
6. The primar users of financial statement information are e(ternal users such as
stockholders" creditors" and government agencies such as the *+, and the ,-C.
These users need information that allo them to assess performance over time and
to compare performance ith other organi%ations. The *+, needs financial
information to determine hether the corporation is paing the appropriate amount
of ta(es" hile the ,-C re#uires the information of pu!licl traded organi%ations to
ensure that the market place is fair to the average investor.
/. 1. capture the transaction
2 record in special journal
3. post to su!sidiar ledger
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&. post to the general ledger
'. prepare the unadjusted trial !alance
6. make adjusting entries
/. journali%e and post adjusting entries
8. prepare the adjusted trial !alance
0. prepare the financial statements
1. journali%e and post the closing entries
11.prepare the postclosing trial !alance
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8. The financial statements are prepared !ased upon the assumption that the users of
financial reports understand the conventions and accounting principles that are
applied" and that the financial statements have information content that is useful.
0. Adjusting entries are made after the regular accounting entries have !een made and
posted to the general ledger and an corresponding su!sidiar ledgers. After an
unadjusted trial !alance of the general ledger has !een prepared" the adjusting
entries are made to correct an errors and to record an unrecorded transactions
i.e. accruals4 during the period. The vouchers are prepared after the adjusting
entries have !een identified and made to the orksheet.
1. The general ledger clerks should not: 1. have record keeping responsi!ilit for
special journals or su!sidiar ledgers" 2. prepare journal vouchers" or have custod
of phsical assets.
11. $ournal voucher listing and general ledger change report.
12. A close e(amination of the journal voucher listing should help to uncover an journal
voucher in error" either incorrect or unauthori%ed.
13. 5) is a metalanguage for descri!ing markup languages. The term e(tensi!le
means that an markup language can !e created using 5). This includes the
creation of markup languages capa!le of storing data in relational form" here tags
formatting commands4 are mapped to data values.
1&. 57+ e5tensi!le 7usiness +eporting anguage4 is an 5)!ased language that
as designed to provide the financial communit ith a standardi%ed method for
preparing" pu!lishing" and automaticall e(changing financial information" including
financial statements of pu!licl held companies.
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1'. Ta(onomies are classification schemesthat are compliant ith 57+ specifications to accomplish a specific informatione(change or reporting o!jective such as filing ith the ,-C
16. An 57+ instance document is created ! a computer ! interpreting the
em!edded tags in the data!ase.
1/. An 57+ tag a formatting command that is mapped to data values to facilitatethe generation of reports using 57+
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18. A formali%ation of tasks clearl specifies the responsi!ilities of a certain jo! position.
ith emploee responsi!ilities clearl specified" management can construct an
organi%ation that avoids assigning incompati!le tasks to an individual.
10. +esponsi!ilit refers to an individuals obligtion to achieve desired results.
Authorit refers to the empoerment of an individual to make decisions regarding
the o!ligations that he9she ma !e assigned. Thus" if a person is held accounta!le
for certain tasks" he9she must !e given the authorit and poer to affect the
outcomes.
2. ,pan of control refers to the num!er of su!ordinates directl under the managers
control. A firm ith a ide span of control tends to have man su!ordinates reporting
to each manager. A firm ith a narro span of control tends to have feer
su!ordinates reporting to each manager. :irms ith a narro span of control tend to
have more levels of managers. Tasks hich are routine and structured tend to have
managers ith a ide span of control" such as the supervisor of an assem!l line"
here each emploee is performing !asicall the same tasks. Tasks hich are less
structured tpicall re#uire more levels of management" such as the managers of
audit teams here each audit is different in some a from an other audit !eing
conducted.
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21. The principle of management ! e(ception is that managers should limit their
attention to potential pro!lem areas rather than !eing involved ith ever activit or
decision. Thus" onl situations hich are not proceeding as scheduled are
highlighted ! the reports and anal%ed ! the manager. Thus" the manager does
not have to eed through multiple reports to find the situations hich need attention.
22. :eed!ack !ecomes useless if it is hidden in other data or if it is not received in time
to make a difference.
23. ,trategic planning decisions are 1. tpicall longterm in nature" 2. have a high
impact on the firm" 3. re#uire highlsummari%ed information" &. tpicall non
recurring pro!lems9opportunities" and '. are uncertain in nature. Tactical planning
decisions are 1. tpicall mediumterm in nature" 2. have a limited impact on the
firm" 3. re#uire detailed information" &. are tpicall periodicall recurring
pro!lems9opportunities" and '. are highl certain in nature. )anagement control
decisions are 1. tpicall mediumterm in nature" 2. have a narroer impact on the
firm" 3. re#uire moderatel summari%ed information" &. are tpicall periodicall
recurring pro!lems9opportunities" and '. are uncertain in nature. ;perational control
decisions are 1. tpicall shortterm in nature" 2. have the narroest impact on the
firm" 3. re#uire highl detailed information" &. are tpicall periodicall recurring
pro!lems9opportunities" and '. are highl certain in nature.
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2&. The three elements are data" procedures" and o!jectives. hen all three elements
are knon ith certaint" the pro!lem is considered to !e structured. Cash
dis!ursements to each vendor is an e(ample of a structured pro!lem. The open
accounts paa!le is searched for due dates" the supporting documentation is
checked" and if appropriate" the check is ritten or the funds transferred.
Transaction processing sstems are e(amples of structured pro!lems. An e(ample
of an unstructured pro!lem ould !e hether to e(pand sales to a foreign market.
The three elements !ecome uncertain" and the anser is not clear.
2'. The pro!lems faced ! loer management levels are more likel to !e structured
pro!lems. As the management level increases" the pro!lems tend to !ecome more
unstructured. Top management deal ith strategic planning issues that are tpicall
unstructured in nature.
26. a. to reduce the level of uncertaint associated ith a pro!lem facing the
decision maker
!. to influence the !ehavior of the decision maker in a positive a
2/. 1. +elevanceinformation in the report supports the management
decision.
2. ,ummari%ationreports should !e summari%ed to meet the users< needs.
3. -(ception orientationreports identif activities at risk of going out of control.
&. Accuracinformation in reports should !e free from material error.
'. Completenessno important information should !e missing from the report.
6. Timelinessinformation needs to !e availa!le in time to support the decision.
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/. Concisenessunnecessar details should !e removed from the information.
28. +esponsi!ilit accounting traces ever economic event to an individual manager and
holds him or her accounta!le. A manager should !e held accounta!le onl for
revenues" e(penses" and other resources that he or she can influence.
20. a. setting financial goals
!. measuring and reporting performance
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3. cost centers" profit centers" and investment centers
31. =oal congruence means that hen loer level managers pursue their on
o!jectives" the also make a contri!ution to the o!jectives of their superiors.
32. >ata mining is the process of selecting" e(ploring" and modeling large amounts of
data to uncover relationships and glo!al patterns that e(ist in large data!ases !ut
arehiddenamong the vast amount of facts.
33. A data arehouse is a relational data!ase management sstem that has !een
designed specificall to meet the needs of data mining. The arehouse is a central
location that contains operational data a!out current events ithin the past 2&
hours4 as ell as events that have transpired over man ears.
3&. *nformation overload occurs hen a manager is inundated ith more information
than he or she can assimilate" resulting in dsfunctional decisions.
3'. +eports hich contain either irrelevant information or information presented in too
much detail ma cause managers to e(perience information overload. *nformation
overload can result in avoidance of reading reports ! managers. :urther"
performance measures presented on reports ma cause managers to focus solel
on !oosting their on performance measures !ut not acting in the !est interests of
the firm. The ma not reali%e the tradeoffs sometimes necessar !eteen
performance standards" such as price and #ualit. A purchasing agent ma purchase
the loest priced goods ith the #uickest deliver times so the price per unit
purchased standard and the average deliver time standard look good. ?oever" if
the are purchasing loer #ualit materials" more scrap or reork ma !e
necessar.
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36. Ad hoc reports allo managers to retrieve information for situations that ere not
anticipated. These reports allo the managers to retrieve the information ver
#uickl" thus alloing the managers to respond to the situation much #uicker and
more effectivel. An e(ample ould !e a situation in hich an accounting manager
reali%es that an incorrect ta( rate has !een applied to all customer invoices for
goods shipped to the state of @e ork. The manager can then retrieve a report
hich lists all invoices for shipments to @e ork. This information can !e used to
either send an invoice correction" or at least to update the state ta(es paa!le
account.
3/. -(ception reports ill !e useful to help flag customers ho have unpaid !ills. This
information is important for future credit decisions. Also" hen another report
indicates a customer is purchasing far more than normal" the credit manager ma
ish to determine if this a!normal purchasing is suspicious.
38. direct la!or" ra materials" overhead and" production level variances. The variances
#uantif efficienc and9or spending deviations and facilitate management !
e(ception.
30. )anagers of profit centers have responsi!ilit for !oth cost control and revenue
generation hile managers of cost centers onl have responsi!ilit for costs.
)anagers of investment centers have responsi!ilit for cost control" revenue
generation" and capital deploment. The range of controlla!le costs ! investment
managers is also greater than the costs controlla!le ! profit center and cost center
managers. ,ee draing on folloing page.
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DISCUSSION QUESTIONS
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1. ,ince general ledger clerks have access to the general ledger" the should not have
access to the journal vouchers in the source departments. *f these journal vouchers
are ac#uired ! the general ledger clerks" or anone else ith authori%ation to enter
the general ledger" these vouchers ma !e used to make unauthori%ed entries.
Prenum!ering and logging these documents at their source provides a means of
accounta!ilit.
2. The data comes from the various transaction processing departments. ,pecificall"
the cash receipts journal" sales journal" purchases journal" and an another
miscellaneous transactions are the various sources of data hich are input into the
sstem. ;nce this data is input into the sstem" the general ledger" as ell as
su!sidiar ledgers" are updated. After inspection of a trial !alance of the general
ledger accounts" an necessar adjustments and error corrections are made. :inall"
the financial statements are prepared and distri!uted to the appropriate user groups.
3. *f journal vouchers are missing" or are fa!ricated" or are erroneous" and information
is misrepresented in the financial statements" then an decisions made ! investors
and governmental agencies is !ased upon !ad data. *f an investor provides capital
to a firm !ased upon its financial statements and these financial statements are
incorrect" if the investor loses mone once the corrections are made" the e(ternal
user hich suffered a loss ma claim the firm as either fraudulent or negligent and
sue for the lost amount. =overnmental agencies" such as the *+," ma impose
severe penalties for inaccurate reporting of data.
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&. Bltimatel" the purpose is to !e a!le to take an account on the financial statement
and trace !ack to the source documents hich comprise the num!er. ?oever" the
audit trail must also !e e(amined from the other direction to ensure that all
transactions end up !eing reflected in the financial statements. *n other ords" if the
financial statement !alance for an account is traced !ack to the originating
documents" then accurac and verifia!ilit is present" !ut completeness is not
necessaril present. Tracing a sample of source documents through to their effect on
the financial statements allos the propert of completeness to !e verified.
'. *n !atch = sstems" transaction processing applications summari%e and capture
transactions in journal vouchers here the are held" revieed" and later posted to
the =. *n such sstems" journal vouchers are the authorit and the source of all =
postings. *n contrast" a realtime = sstem posts each transaction directl to the
general ledger and concurrentl creates a journal voucher. The journal voucher in
this sstem does not authori%e a = entr in the traditional sense. +ather" it provides
a posting reference and audit trail" hich links = summar account !alances to
specific transactions.
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6. *f the standards are unrealistic or outdated" then variances ill !e reported
constantl and pro!a!l ignored. :or e(ample" if ' ounces of a ra material is set as
the standard !ased upon past data" !ut the most realistic amount to !e used for
each unit is actuall '.2' ounces the unit specifications have changed slightl4" then
the e(ception reports ill constantl sho a variance since the standard is not
realistic given the design change. The manager ill get used to seeing an
unfavora!le variance. *f a machine !egins to have pro!lems and starts to re#uire '.'
ounces" then the unfavora!le variance ill increase" !ut the manager ma not see
the difference as readil since he9she is used to seeing an unfavora!le variance in
ever report.
/. Audit implications include
Taxonomy Creation. Ta(onom ma !e generated incorrectl" resulting in an
incorrect mapping !eteen data and ta(onom elementsthat could result in material
misrepresentation of financial data. Controls must !e designed and in place to
ensure the correct generation of 57+ ta(onomies.
Validation of Instance Documents. As noted" once the mapping is complete and tags
have !een stored in the internal data!ase" 57+ instance documents reports4 can
!e generated. *ndependent verification procedures need to !e esta!lished to
validate the instance documents to ensure that appropriate ta(onom and tags have
!een applied !efore posting to e! server.
Audit Scope and Timeframe. Currentl" auditors are responsi!le for printed financial
statements and other materials associated ith the statements. hat ill !e the
impact on the scope of auditor responsi!ilit as a conse#uence of realtime
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distri!ution of financial statements across the *nternetD ,hould auditors also !e
responsi!le for the accurac of other related data that accompan 57+ financial
statements" such as te(tual reportsD
8. Although !oth use tags ords that are !racketed ! the sm!ols E and F4 and
attri!utes such as >oe" $ohn" the a in hich these tags and attri!utes are used
differs. *n the ?T) the tags have predefined meaning that descri!es ho the
attri!utes ill !e presented in a document. *n the case of the 5) the tags are
customi%ed to the user" and the user
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0. )uch of the data used for middle and higher level decision making must come from
data sources outside of the traditional information sstems. -(amples of such data
ould !e marketing data collected ! the marketing department" ne product design
specifications generated ! research and development" demographic information
from government sources" competitor information from ne sources" e(change rates
from the financial press" union re#uirements from union representatives" etc.
1. 7oth tpes of reports are ver important. The scheduled reports are important for
controlling the datoda operations. The ondemand reports are ver important and
helpful in sudden situations that arise and demand immediate attention. The a!ilit
to retrieve information in a crisis situation is crucial.
11. ,cheduled reports are prepared according to an esta!lished time frame. The reports
contain information in a preformatted manner. The multiple users !ecome
accustomed to the reports and are a!le to focus on the information hich is
necessar to make a specific tpe of decision. These reports are designed this a
for processing and printing efficienc. *f the reports contain too much information"
hoever" the tradeoff is inefficient processing ! the user due to information
overload.
12. An e(ample here timeliness is more important in accounting information sstems
occurs for earend accruals. An e(act num!er regarding the cost of utilities ma not
!e availa!le for three or four eeks" et the accrued lia!ilit account must reflect this
lia!ilit on the earend financial statements. Thus" an estimate is more important to
have during the financial statement preparation period than having no amount hile
aiting for the e(act num!er.
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13. >onard flos represent goals for managers such as !udget goals. The goals are
used to direct and motivate managers. Bpard flos report performance
measurements" and these are used to evaluate management performance. The
upard and donard goals are related. The performance measurements upard
flos4 are compared to the goals donard flos4.
1&. The verification model uses a drilldon techni#ue to either verif or reject a users
hpothesis. The discover model uses data mining to discover previousl unknon
!ut important information that is hidden ithin the data. This tpe of sstem emplos
inductive learning to infer information from detailed data ! searching for recurring
patterns" trends" and generali%ations. This approach is fundamentall different from
the verification model in that the data are searched ith no specific hpothesis
driving the process.
1'. A data arehouse is a relational data!ase management sstem that has !een
designed specificall to meet the needs of data mining. The arehouse is a central
location that contains operational data a!out current events ithin the past 2&
hours4 as ell as archived operational data relating to events that have transpired
over man ears. >ata are coded and stored in the arehouse in detail and at
various degrees of aggregation to facilitate identification of recurring patterns and
trends. A transaction processing data!ase contains current data and that facilitates
the processing of economic events. *t is not designed to support historical analsis of
past events.
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16. The production department is held accounta!le for controlla!le costs hich relate to
the production demand. Profit centers are not appropriate since the include non
controlla!le items and measure the performance ! the profit centers contri!ution
including revenue4 after noncontrolla!le costs. The production department has no
control over the activities of the sales and marketing department" thus" a cost center
is more appropriate since it holds the production department responsi!le for
measures the can control.
1/. A performance measure !ased solel upon #uantit of production output can
adversel affect the #ualit of the product. The foreman ma push for production of
more units" hile disregarding the #ualit. :urther" in an attempt to produce more
units" the foreman ma push orkers to ork in an inefficient manner ith respect to
ra materials usage. The orkers ma !ecome slopp and use more ra materials.
:urther" the orkers ma get frustrated ith !eing pushed to produce more than is
realistic.
18. )anagers ma choose not to replace e#uipment hen it needs to !e replaced" in
order to reduce the asset !ase" thus decreasing the denominator in the +;* figure.
@ot replacing old e#uipment ma cause a firm to produce less efficientl" and
actuall in the longrun drive up ra materials scrap cost and la!or costs due to
reorks. These manipulations are not good for the firm in the longrun !ecause the
firm ma find that it is operating a manufacturing process ith tattered and o!solete
e#uipment. Bnfortunatel" ! the time the information !ecomes availa!le" the
manager ma either !e promoted or have o!tained a higher position in another
compan !ased on his seemingl great +;*s from the past.
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10. Too much information can cause the user to spend unproductive and unnecessar
time eeding through reports to get to the relevant components. Also" information
overload can result and ma cause the user to !pass or misinterpret the relevant
information hen it is hidden in a deluge of other data.
MULTIPLE CHOICE
1. 7
2. >
3. C
&. C
'. C
6. A
/. 7
8. >
0. A
1. -
11. 7
12. A
13. 7
1&. A
1'. 7
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PRO!LEMS
"#
2.
2 +ecord transaction in special journal TP,
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6 )ake adjusting entries :+,
1 Capture the transaction TP,
11 Prepare the postclosing trial !alance :+,
8 Prepare the adjusted trial !alance :+,
0 Prepare the financial statements :+,
/ $ournal and post adjusting entries =,
3 Post to the su!sidiar ledger TP,
& Post to the general ledger =,
1 $ournali%e and post the closing entries =,
' Prepare the unadjusted trial !alance :+,
3. a. es it is appropriate. 57+ is tpicall used for reporting aggregated financial
data !ut can also !e applied to communicating information pertaining to individual
transactions and internal !usiness units. To make the data useful to others the
need to !e organi%ed" la!eled" and reported in a manner that is generall accepted.
This involves mapping the organi%ations internal data to 57+ ta(onom elements
to produce an 57+ instance document. Companies that use native57+ data!ase
technolog internall as their primar information storage platform can speed the
process of reporting. Bsers can import 57+ documents into internal data!ases and
analsis tools to greatl facilitate decision making.
!. 1. Can provide the financial communit ith a standardi%ed method for
preparing" pu!lishing" and automaticall e(changing financial information"
including financial statements of pu!licl held companies.
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2. 57+ documents can !e placed on an intranet server for
internal use.
3. The can !e placed on an e(tranet for dissemination to
customers or trading partners.
&. *f eslie is preparing the journal vouchers and9or posting to the su!sidiar ledgers"
she should not !e entering the information into the general ledger. Performing these
to functions is not in conformance ith segregation of functions. A separate general
ledger clerk should post the entries to the general ledger and reconcile the control
accounts in the general ledger to the corresponding su!sidiar ledger.
?aving source documents" such as journal vouchers" ithout preassigned num!ers
is ver risk. *f a separate general ledger clerk did e(ist as mentioned a!ove" this
person could visit eslies office and inconspicuousl take a couple of journal
vouchers ithout anone knoing since the forms are not num!ered4. The general
ledger clerk could then enter unauthori%ed entries into the general ledger. :urther"
the possi!ilit that eslie makes an error in recording journal voucher num!ers
incorrectl is highl possi!le.
'. ,ee draing on the folloing page. The onl change made is that the
dail sales transactions are used to immediatel update the sales file.
The dail applications create cumulative totals of each da
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6.
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/. The journal voucher listing and general ledger change reports allo the transactions
to !e anal%ed for accurac and completeness. An errors noted can !e changed
and input into the sstem prior to preparing the financial statements. :or :igure 8
1" the update general ledger procedure ould include a listing of the journal
voucher listing and general ledger change report. Again" an noted errors can !e
corrected prior to the generation of financial statements.
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8.
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0. Determining the mix of products to manufacture this yeartactical
Examining whether the number of defectie goods manufactured is within a certain
rangeoperational
Expanding a product line oerseasstrategic
Determining the best distribution routetactical
Examining whether the cost of raw materials is within a certain rangemanagerial
Examining whether personnel deelopment cost is risingmanagerial
Employing more automated manufacturing this year)anagerial
Examining whether the amount of scrap material is acceptableoperational
!uilding a new plant facilitystrategic
Examining whether employees" attitudes are improingmanagerial
Examining whether production leels are with a predicted rangemanagerial and
operational
Ac#uiring a suppliertactical
Increasing production capabilities this year by purchasing a more efficient piece of
machinerytactical
Closing down a plantstrategic
1. Cash Disbursements $istingscheduled
%ertime &eportscheduled if routine" ondemand if nonroutine
Customer Account 'istoryondemand
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Inentory Stoc()out &eportondemand
Accounts &eceiable Aging $istondemand
Duplicate *aychec( &eportscheduled
Cash &eceipts $istingscheduled
+achine +aintenance &eportscheduled
Vendor Deliery &ecord &eportondemand
,ournal Voucher $istingscheduled
Inestment Center &eportscheduled
+aintenance Cost %erruns &eportondemand
11. a. 1. :or the original organi%ational structure proposed ! +oland :ord" the
advantages include
a hierarch and unit of command.
a limited span of control providing greater centrali%ed decision making.
more availa!le opportunities for promotions to supervision or
management.
The disadvantages include
lack of fle(i!ilit and emploee creativit.
lack of glo!al knoledge of the organi%ational o!jectives.
increased la!or costs.
2. )anagement ill tightl control a fe emploees and closel supervise
the emploees< ork tasks" there! increasing timeliness.
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3. The emploee ill tend to !e more structured" evasive of risk" and
kno hat is e(pected from his9her performance.
!. 1. :or the flat organi%ational structure proposed ! )artha
,anderson" the advantages include
feer levels of management providing for #uicker decision making.
decreased la!or costs.
The disadvantages include
misunderstood" unclear performance o!jectives and an increased
risk of inaccurac in performing tasks due to reduced supervision.
feer availa!le management opportunities" possi!l leading to
emploee turnover.
too much of managers< time !eing spent on supervision.
2. This fle(i!le organi%ational structure ill demand greater emploee
participation causing increased creativit.
3. The emploee ill !e motivated ! the increase in responsi!ilit in
organi%ational o!jectives. ?oever" s4he ma lack access to supervisor
time and9or sufficient training.
c. The factors that +oland :ord and )artha ,anderson should consider
hen determining the appropriate span of control include the
competence and #ualifications of the emploees.
corporate culture and preferred stle of management of the
organi%ation.
nonsupervisor" task performance demands on the manager as
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ell as the tasks to !e supervised.
the risk level and fre#uenc of ne pro!lems.
12. a. 1. Advantages of the original organi%ational structure proposed ! >onald
$enkins include
centrali%ed decision making.
close supervision of su!ordinates.
increased opportunities for promotion.
>isadvantages of the original organi%ational structure include
lack of fle(i!ilit9creativit.
more difficult vertical communication.
increased costs for additional management personnel.
2. The resulting span of control ill
allo for tighter control over emploees.
afford timelier task completion and pro!lem resolution as the
supervisors are closer to everda operations.
3. As a result of the organi%ational structure proposed ! >onald $enkins"
the emploees are likel to have a clear understanding of hat is e(pected
of them. ?oever" !ecause of the tighter span of control the emploees
ma avoid making decisions and taking risks.
!. 1. The advantages of the flat organi%ational structure proposed !
7everl Giner include
#uicker decision making.
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loer costs resulting from feer management personnel.
The disadvantages of the flat organi%ational structure include
increased risk of inaccurac in performing tasks due to reduced
supervision.
feer availa!le promotional opportunities hich ma lead to
increased emploee turnover.
2. The span of control ill
afford emploees greater autonom.
result in increased creativit.
3. As a result of the organi%ational structure proposed ! 7everl Giner"
emploees are likel to !e motivated ! greater participation as their input
has greater value. ?oever" emploees ma not !e ade#uatel trained for
additional responsi!ilities.
c. The factors that >onald $enkins and 7everl Giner should consider hen
determining the appropriate span of control include the
competence and #ualifications of the emploees.
corporate culture and preferred stle of management of the
organi%ation.
13. a.
)echanistic )CC
1. -mphasis on rules and procedures. @arro jo! definitions. Centrali%ed
decision making.
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2. 7ased on position and poer. Adhere to chain of command.
3. ;!jective measures i.e." standard cost4. :ocused on results.
&. evel and importance of position. Performance against standards.
;rganic Alden
1. :e formal rules or guidelines. =reater individual autonom.
>ecentrali%ed decision making.
2. 7ased on skill and e(pertise. Adapta!le to situations.
3. ,u!jective measures. :ocus on e(pertise9activities.
&. -(perience in area of e(pertise. +ecognition ! profession.
!. 1. The !enefits )orlot Container Corporation might derive from an
organic structure include
reduced !oredom on the jo! through enlarged and enriched
position definitions.
a more creative ork environment that ould encourage emploee
suggestions and innovations.
2. The pro!lems that Alden Computers might encounter from using an
organic structure include
emploee uncertaint or confusion arising from undefined lines of
authorit and9or informal jo! descriptions.
inconsistent decision making !ecause of decentrali%ed decision
making.
3. The !enefits that could accrue to Alden Computers from the
introduction of a mechanistic structure include
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reduced jo! stress !ecause of !etter defined lines of authorit and
more formal jo! descriptions.
improved goal congruence due to more structured planning
procedures.
1&. a. =eneral criteria that should !e used in selecting performance measures to
evaluate operating managers include the folloing. The measures should
!e controlla!le ! the manager and reflect the actions and decisions
made ! the manager in the current period.
!e mutuall agreed upon" clearl understood" and accepted ! all the
parties involved.
address the efficienc and effectiveness of operations.
!. A major e(pansion of ,tar Papers plant as completed in April 100. This
e(pansion included additions to the productionline machiner and the
replacement of o!solete and full depreciated e#uipment. As a result" the value
of the divisions asset !ase increased considera!l. hile productivit
undou!tedl increased during the first ear in the e(panded plant" the increase
as not immediate nor sufficient to offset the increase in the asset !ase as there
is likel to !e a catchupperiod.
c. Apparent eaknesses in the performance evaluation process at +oal
*ndustries include the folloing
There as no mutual agreement on the use of return on assets +;A4
as the onl measurement of performance.
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The feed!ack from :ortner as insufficient. :ortner indicated that she
ould get !ack to ?arris a!out his #uestions concerning +;A !ut she
did not do so.
There is onl one single measure of performance" hich ma give a
distorted picture of actual performance as is the case ith ,tar Paper.
*n addition" a single measure could encourage division management to
make poor decisions" i.e." delaing the purchase of e#uipment so that
+;A ill remain high.
d. )ultiple performance evaluation criteria ould !e appropriate for the evaluation
for the ,tar Paper >ivision. The criteria suggested ! =eorge ?arris ould take
into account more of the results of the ke decisions !eing made ! the manger"
are not conflicting" and emphasi%e the !alance of profits ith the control of
current assets. These three measures are controlla!le ! the manager and" in
conjunction ith +;A" ould !e more representative of the success of the
!usiness.
1'. a. 1. +esponsi!ilit accounting is a sstem of accounting that recogni%es
various responsi!ilit or decision centers throughout an organi%ation" and
reflects the plans and actions of each of these centers ! assigning
particular revenues and costs to the one having the pertinent responsi!ilit
for making decisions a!out these revenues and costs.
2. The !enefits that accrue to a compan using responsi!ilit accounting
include the folloing
The development of responsi!ilit !udgets and plans encourages
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managers to plan ahead and promotes goal congruence.
7ecause of participation in the planning process" the compan
guidelines esta!lished are more readil accepted as achieva!le.
The responsi!ilit accounting plans provide managers ith clear
guidelines for datoda decisions and free management from
dail operations.
+esponsi!ilit accounting affords management performance
evaluation criteria.
3. The advantages of responsi!ilit accounting to the managers of a firm
include the folloing
Bnder the guidelines of responsi!ilit accounting" managers are
responsi!le onl for those items over hich the have control.
7ecause responsi!ilit accounting facilitates the delegation of
decision making" managers are afforded greater freedom of action
ithout dail supervision.
)anagers kno hat is e(pected of them and on hat !asis their
performance ill !e evaluated.
The a!ilit to participate in decision making and e(ercise control
helps managers develop leadership skills.
!. 1. The features of the !udget presentation that ould make it
attractive to the managers include the folloing
The managers are onl responsi!le for costs that are directl under
their controlH ar!itrar allocations have !een avoided.
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The !udget presentation shos the managers e(actl ho their
segment fits into the entire compan and ho their units contri!ute
to the overall ell !eing of the firm.
The presentation clearl depicts those areas each manager is
responsi!le for and esta!lishes the criteria on hich his9her
performance ill !e evaluated.
2. +ecommendations to improve the !udget process might include the
folloing
The !udget could !e presented using the contri!ution approach
and segregating varia!le and fi(ed costs.
There could !e a comparison to prior ear actuals so that
managers kno if their contri!utions have increased or decreased.
The e(pense items could !e presented as a percentage of sales.
16. a. 1. The characteristics that should !e present in a standard cost sstem in
order to encourage positive emploee motivation include
participation in setting standards from all levels of the organi%ation
including purchasing" engineering" manufacturing" and accounting.
the integration of organi%ational communication ! translating the
organi%ational goals and o!jectives into monetar terms for the
emploees.
support of the standard cost sstem ! management.
incorporation of standards that are perceived as achieva!le and
accurate and appl to controlla!le costs.
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2. A standard cost sstem should !e implemented to positivel motivate
emploees !
communicating the corporate o!jectives of a standard cost sstem.
soliciting from emploees standards for hich the ill !e held
accounta!le.
ting the individuals performance in the standard cost sstem to
the individuals performance revie and reard sstem.
!. 1. I)anagement ! e(ceptionJ is the situation here management
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c. -mploee !ehavior could !e adversel affected hen Iactual to !udgetJ
comparisons are used as the !asis for performance evaluation. -mploees ma
su!vert the sstem and su!mit !udgets that are lo so the can meet or e(ceed
the !udget favora!l" there! averting negative reinforcement for varing
unfavora!l to !udget. There can !e a minimal level of motivation since
e(ceptional performance is not rearded. -mploees ma strive for mediocrit
and not ork up to their full potential.
1/. a. 1. >epartmental income statements are considered a form of
communication !ecause the
are ritten documents that provide information.
measure performance against previousl esta!lished o!jectives.
provide feed!ack to involved emploees.
2. The format of the departmental income statements is effective !ecause
it provides
a comparison of actual performance to !udgeted amounts.
detailed information ! line item.
total managea!le contri!ution for each department.
*n order to improve the effectiveness of the departmental income
statements" the format could !e changed to include
eartodate !udgeted amounts and actual performance.
volume indicators that provided the !asis for the !udget such as
projected mem!ership.
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additional statistical data such as num!er of emploees in the
department" the num!er of current mem!erships" etc.
!. Positive as ell as negative variances can !e unfavora!le as the a!sence of
e(penditures ma indicate that important activities have not !een accomplished.
:or e(ample" the statement shos a &6.6K positive variance for promotion and
advertising e(pense. This reduced level of e(penditures could !e directl linked
to declining mem!ership and loer su!scription revenues. The variance ma
also !e caused ! good planning and efficiencies ithin the department" !ut this
is not clear until the variance has !een anal%ed.
c. *n order to encourage >aniel +ile to have all significant variances revieed"
)arie Paige and $on :ranklin could prepare an analsis of all variances"
shoing ! e(ample ho e(tensive analsis of all variances is !eneficial" and
su!mit these analses ith a cover memo directl to +ile.