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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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Chapter 8 Page 8'

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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Chapter 8 Page 02

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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Chapter 8 Page 06

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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Chapter 8 Page 1

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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Chapter 8 Page 11

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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Chapter 8 Page 12

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.