In each of the following situations, identify whether the setting is primarily financial accounting or managerial accounting.
a. Volkswagen has experienced a decline in U.S. sales, which dropped 18% in 2005 and 24% between 2002 and 2004. Then chief executive, Bernd Pischetsrieder, believed the biggest problem at Volkswagen was the cost incurred to produce a car, which was not competitive with other automakers. The company tried to get German workers to agree to pay cuts to reduce the cost. (Source: Stephen Power,
"Once Hot Volkswagen Attempts to Reverse U.S. Sales Decline," The Wall Street Journal, September 8, 2005.)
b. In reporting a 2.1% drop in quarterly income from the previous year's second quarter, Oracle Corp. noted that a weaker dollar affected revenue in its database segment.
A weaker dollar makes Oracle's products more expensive overseas and lowers the company's revenue after currency conversion. (Source: David P. Hamilton, "Oracle Profi t Slips 2.1% on Costs Tied to PeopleSoft Acquisition," The Wall Street Journal, December 16, 2005.)
c. Cerner is a developer of information technology for the health care industry. As the company incurs expenses to develop a software package, it capitalizes those costs as an asset. Beginning in the year after the software is released; it then amortizes those costs over a five-year period. Normal practice in the software industry is to amortize these costs over a three-year period. (Source: Jesse Eisinger, "Cerner's Growth Has Been Healthy, But Its Accounting Could Be Ailing," The Wall Street Journal, December 14, 2005.)
d. BNSF Railway was experiencing an increase in demand for information technology resources even though, overall, the company's business wasn't growing. In an effort to understand the technology group's operations, Chief Information Officer Jeff Campbell developed a balanced scorecard for the IT group. Among the measures he tracked were monthly performance against operating budget, percentage of projects delivered on time, employee absenteeism, and internal rate of return on IT projects. Now everyone in the company understands how much it costs to provide the technology support for a particular business application.

  • CreatedFebruary 21, 2014
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