Chapter 18 – Exercises & Cases

Multiple Choice Questions

1. Managerial accounting is primarily used by:
   a) External investors
   b) Tax authorities
   c) Internal managers
   d) Creditors
   Answer: c) Managerial accounting serves internal managers and decision-makers.

2. The three primary responsibilities of management are:
   a) Planning, Reporting, Auditing
   b) Planning, Controlling, Decision-Making
   c) Recording, Reporting, Analyzing
   d) Budgeting, Forecasting, Reporting
   Answer: b) Planning, Controlling, and Decision-Making are the three primary responsibilities.

3. Financial accounting differs from managerial accounting in that financial accounting:
   a) Is future-oriented
   b) Is not regulated
   c) Focuses on external users
   d) Provides detailed product information
   Answer: c) Financial accounting focuses on external users like investors and creditors.

4. Which is a characteristic of managerial accounting?
   a) Must follow PCN standards
   b) Prepared periodically
   c) Flexible and tailored to needs
   d) Subject to external audit
   Answer: c) Managerial accounting is flexible and can be tailored to specific management needs.

5. Planning involves:
   a) Monitoring actual performance
   b) Choosing among alternatives
   c) Setting goals and strategies
   d) Taking corrective action
   Answer: c) Planning involves setting goals and developing strategies to achieve them.

6. Controlling involves:
   a) Setting goals
   b) Monitoring performance and taking corrective action
   c) Choosing alternatives
   d) Preparing budgets
   Answer: b) Controlling involves monitoring performance and taking corrective action when needed.

7. Managerial accounting information is typically:
   a) Historical only
   b) Future-oriented
   c) Summary level
   d) Regulated
   Answer: b) Managerial accounting emphasizes future-oriented information like budgets and forecasts.

8. The IMA Statement of Ethical Professional Practice includes which principle?
   a) Profitability
   b) Honesty
   c) Efficiency
   d) Growth
   Answer: b) Honesty is one of the four principles in the IMA Statement.

9. A key trend affecting managerial accounting is:
   a) Decreasing technology use
   b) Less globalization
   c) Technology and automation
   d) Reduced data availability
   Answer: c) Technology and automation is a major trend affecting managerial accounting.

10. For Luxembourg SMEs, management accounting needs include:
    a) Only financial reporting
    b) Cost management, pricing, budgeting, performance measurement
    c) Only tax compliance
    d) Only external reporting
    Answer: b) Luxembourg SMEs need cost management, pricing decisions, budgeting, performance measurement, and decision support.

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Questions

1. Define managerial accounting and explain its primary purpose.

2. What are the three primary responsibilities of management? How do they work together?

3. How does managerial accounting differ from financial accounting? Provide examples.

4. What skills are required for managerial accountants? Which are most important for SMEs?

5. Why are ethical standards important in managerial accounting? What are the key ethical principles?

6. How do current business trends affect managerial accounting practices?

7. What are the key management accounting needs for Luxembourg SMEs?

8. How does managerial accounting support decision-making in a business?

9. Explain the role of planning in managerial accounting. What types of planning are there?

10. How does controlling help managers achieve organizational goals?

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Problems Set A

Problem A-1: Planning, Controlling, and Decision-Making

Identify whether each scenario involves planning, controlling, or decision-making: a) Marie sets a goal to increase revenue by 20% next year
b) Marie compares actual food costs to budget and finds they are 5% over budget
c) Marie decides whether to add delivery service
d) Marie creates a monthly budget for November
e) Marie analyzes why labor costs increased last month

Problem A-2: Financial vs. Managerial Accounting

Classify each as financial accounting or managerial accounting: a) Income statement for RCS filing
b) Product profitability analysis for menu pricing
c) Budget for next quarter
d) VAT return for tax authorities
e) Break-even analysis for new menu item f) Balance sheet for annual report

Problem A-3: Management Responsibilities

For each situation, identify the primary management responsibility: a) Setting a target profit margin of 15%
b) Comparing actual sales to budgeted sales
c) Choosing between two suppliers
d) Developing a strategy to reduce costs
e) Investigating why expenses exceeded budget

Problem A-4: Ethical Dilemma

A manager asks you to adjust a budget to show better results, even though you know the numbers are unrealistic. Using the IMA ethical standards, explain how you would handle this situation.

Problem A-5: Management Accounting Needs

List five types of management accounting information that would be useful for a Luxembourg restaurant. Explain how each would support decision-making.

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Problems Set B

Problem B-1: Complete Management Cycle

Describe how planning, controlling, and decision-making work together in the following scenario:

• Marie plans to expand her restaurant
• She creates a budget for the expansion
• After three months, she compares actual results to budget
• She finds revenue is below budget
• She analyzes the causes
• She makes decisions to address the issues
• She updates her plan

Problem B-2: Financial vs. Managerial Accounting Comparison

Prepare two reports for the same business: a) A financial accounting report (income statement) showing overall performance
b) A managerial accounting report showing product profitability

Explain how each report serves different purposes and users.

Problem B-3: Skills Assessment

For a small Luxembourg restaurant, rank the following skills in order of importance for a managerial accountant:

• PCN knowledge
• Cost analysis skills
• Technology proficiency
• Communication skills
• Multilingual ability
• Budgeting skills

Justify your ranking.

Problem B-4: Trend Analysis

Choose one business trend (technology, globalization, sustainability, etc.) and explain: a) How it affects managerial accounting
b) What changes are needed in practices
c) What skills are required
d) How Luxembourg SMEs can adapt

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Comprehensive Problem

Comprehensive Problem 18: Complete Managerial Accounting Introduction

Le Petit Bistro has been operating for one year. Marie wants to improve her business using managerial accounting.

Current Situation:

• Annual revenue: €400,000
• Annual costs: €360,000
• Net income: €40,000
• Marie wants to increase profit to €60,000 next year

Marie's Goals:

1. Increase revenue by 15%
2. Reduce costs by 5%
3. Improve profitability
4. Better understand product costs
5. Make informed decisions about expansion

Required:

1. Planning:
   a) Set specific financial targets for next year
   b) Create a revenue budget
   c) Create an expense budget
   d) Calculate target profit

2. Management Accounting Information Needs:
   a) What cost information does Marie need?
   b) What revenue information does Marie need?
   c) What performance measures should she track?
   d) What decision support information is needed?

3. Financial vs. Managerial Accounting:
   a) What financial accounting reports does Marie need (for compliance)?
   b) What managerial accounting reports would help her manage the business?
   c) How do these reports differ?
   d) How do they work together?

4. Cost Management:
   a) Identify major cost categories
   b) Suggest ways to analyze costs
   c) Recommend cost reduction strategies
   d) Explain how to track cost performance

5. Performance Measurement:
   a) Identify key performance indicators (KPIs)
   b) Explain how to measure performance
   c) Suggest benchmarks
   d) Describe how to use performance information

6. Decision Support:
   a) Marie is considering adding breakfast service. What information does she need?
   b) Marie wants to hire another cook. What analysis should she do?
   c) Marie is thinking about raising prices. What should she consider?

7. Luxembourg-Specific Considerations:
   a) How does VAT affect cost analysis?
   b) What PCN accounts are relevant?
   c) What compliance considerations are there?
   d) What resources are available?

8. Implementation Plan:
   a) What management accounting practices should Marie implement?
   b) What tools or software would help?
   c) What skills does she need to develop?
   d) What professional help might she need?

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Cases

Case 18-1: Starting Management Accounting

Marie has been running her restaurant for a year using only financial accounting (for compliance). She realizes she needs better information to manage the business but doesn't know where to start.

Questions for Analysis:

1. What are Marie's most urgent management accounting needs?

2. What information would help her make better decisions?

3. How should she prioritize implementing management accounting practices?

4. What tools or resources would be most helpful?

5. What skills does she need to develop?

6. How can she get started without overwhelming herself?

Case 18-2: Ethical Decision-Making

A manager at a Luxembourg SME asks the accounting staff to "adjust" some numbers in a budget to make a project look more profitable, so it will be approved by the owner. The accountant knows the numbers are unrealistic.

Questions for Analysis:

1. What ethical principles are involved in this situation?

2. What are the potential consequences of adjusting the numbers?

3. How should the accountant respond using IMA ethical standards?

4. What are the alternatives?

5. How can the accountant maintain integrity while being helpful?

6. What should the accountant do to prevent similar situations?

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Solutions are published in supplementary/instructor/solutions/chapter_18_solutions.md.