CHAPTER 1

FUNDAMENTAL CONCEPTS

Questions, Exercises, Problems, and Cases: Answers and Solutions

1.1 The first question at the end of each chapter requires the student to review the important concepts or terms discussed in the chapter. In addition to the definitions or descriptions in the chapter, the end of the book has a glossary.

1.2 Titles could be Controller, Vice-President of Finance, or Chief Financial Officer.

1.3 The two major uses of managerial accounting information are (1) information for managerial decision making (for example, make-or-buy decisions, store closure decisions, capital investment decisions), and (2) information for managerial control and performance evaluation (for example, budgeting, comparing actual performance with norms or standards). The first use, which is the focus of Part II of this book, usually requires special purpose reports that estimate how revenues, costs, and investments will differ among the alternatives being considered. The second use, which is the focus of Part III of this book, usually involves routine monthly, quarterly, and annual performance reports. Information for planning requires estimates of future costs, revenues, and other data, while information for performance evaluation is generally based on data about the past.

1.4 Total Quality Management (TQM) means the organization is managed to excel on all dimensions and quality is ultimately defined by the customer. Under total quality management, performance measures are likely to include things such as product reliability and service delivery, as well as traditional measures like product profitability.

1.5 The purchasing employee subjected himself or herself to real, or perceived, conflicts of interest by taking gifts from people with whom the employee conducts business. It is very important for buyers to maintain an objective