Lesson 1 Solutions
Chapters 15 and 16
Problem 15.1
The report
• includes nonmonetary information (on jobs and number of employees),
• has future (“planned”) information as well as past (“actual”) information,
• is optional (not required as a basis for financial statements),
• focuses on a segment (service department),
• has less emphasis on precision (planned numbers are rounded), and
• is not an end in itself (useful only as management uses it).
Problem 15.2
The Patriot Steel company should be provided with:
(1) Differential accounting information when deciding whether the company should own and operate its own iron ore mines or buy the ore from another firm;
(2) Full-cost accounting information when determining the profit margin on a ton of steel at current prices for a new labor contract with the United Steel Workers Union;
(3) Responsibility accounting when determining if the supervisor of the maintenance shop is doing a good job;
(4) Full-cost accounting when determining how much the company has invested in finished goods inventory;
(5) Differential accounting when determining if the company should replace its old furnaces with new ones; and,
(6) Responsibility accounting when determining which district manager is doing the best job.
In addition to the accounting information noted above, in might be useful to have the following types of information when making the decisions noted above:
• nonquantitative (e.g., for (3) it might be useful to know if there have been specific maintenance problems that consumed the resources of the maintenance department),
• nonaccounting (e.g., in (1) it might be useful to know the number of employees who would be em ...