Question

Managerial Accounting Chapter 1 EXERCISE 1-2 Differentiating Between Planning, Implementation, and Control Classify the following activities as primarily planning implementation, or control a Doing a cost-benefit analysis of adding a new branch versus installing three new automated b. Estimating the cost of raw materials to be cAnalyzing market demand to assist in the d. Compiling the labour report for the past week. teller machines (ATMs) purchased during the next quarter preparation of the sales budget. e Outlining the changes to a process based on a process reengineering team report. r Documenting the savings from reductions in raw materials inventory resulting from the adoption of a JIT inventory system. Chapter 2 Cost Classification Questions 1. Why is cost classification important to managers? 2. Briefly describe the four cost classifications.

Answer 1

• 1 a: Doing a cost benefit analysis of adding a new branch versus installing three new automated teller machines (ATMs). This Activity is classified as "Planning". It is so because, planning is defined as a process, which decides the course of action to reach a desired outcome and Cost benefit analysis estimates all costs involved & possible profits to be derived from a business opportunity (in this case adding Branch vs adding ATMs). Since cost benefit analysis helps in structuring the company policy and it can safely be classified as planning.
• 1 b: Estimating the cost of raw materials to be purchased during the next quarter. This Activity is classified as "Planning", the reason being estimating the cost of raw materials helps in achieving the desired financial target and thus it falls under the category of financial plan of the concerned company.
• 1 c: Analysing market demand to assist in the preparation of the sales budget helps in identifying the sources or inflows of economic resources. They ultimately create benchmarks of profits, cash flows, and the financial position that the company expects to achieve.Thus this activity can be classified as "Planning".
• 1 d: The control function is the process of evaluating whether the organisation’s plans were implemented effectively and compiling the labour report for last week is definitely a process of evaluating the company's payroll policies. Hence this activity can be classified as "Control".