Ben Paul is an accounting major at a western university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan area and visit their homes regularly on the weekends. Ben, an entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. He believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Ben has gathered the following investment information. 1. Five used vans would cost a total of $90,000 to purchase and would have a 3-year useful life with negligible salvage value. Ben plans to use straight-line depreciation. 2. Ten drivers would have to be employed at a total payroll expense of $43,000. 3. Other annual out-of-pocket expenses associated with running the commuter service would include Gasoline $26,000, Maintenance $4,000, Repairs $5,300, Insurance $4,500, Advertising $2,200. 4. Ben desires to earn a return of 15% on his investment. 5. Ben expects each van to make ten round trips weekly and carry an average of six students each trip. The service is expected to operate 32 weeks each year, and each student will be charged $15 for a round-trip ticket. Instructions: (a) Determine the annual (1) net income and (2) net annual cash flows for the commuter service. (b) Compute (1) the cash payback period and (2) the annual rate of return. (c) Compute the net present value of the commuter service. (d) What should Ben conclude from these computations?
> Using the data in BE23-6 and BE23-10, compute the overhead volume variance. Normal capacity was 25,000 direct labor hours Data in BE23-6 and BE23-10: In October, Roby Company reports 21,000 actual direct labor hours, and it incurs $118,000 of manufactur
> Some overhead data for Roby Company are given in BE23-6. In addition, the flexible manufacturing overhead budget shows that budgeted costs are $4 variable per direct labor hour and $50,000 fixed. Compute the overhead controllable variance. Data given in
> For its three investment centers, Kaspar Company accumulates the following data Compute the return on investment (ROI) for each center. I II III $ 4,000,000 3,600,000 Sales $2,000,000 $4,000,000 2,000,000 Controllable margin Average operating asset
> Journalize the following transactions for Combs Company. (a) Purchased 6,000 units of raw materials on account for $11,500. The standard cost was $12,000. (b) Issued 5,600 units of raw materials for production. The standard units were 5,800.
> Kobe Company has a factory machine with a book value of $90,000 and a remaining useful life of 5 years. It can be sold for $30,000. A new machine is available at a cost of $300,000. This machine will have a 5-year useful life with no salvage value. The n
> In October, Roby Company reports 21,000 actual direct labor hours, and it incurs $118,000 of manufacturing overhead costs. Standard hours allowed for the work done is 20,400 hours. The predetermined overhead rate is $6 per direct labor hour. Compute the
> Data for Maris Company are given in BE22-1. In the second quarter, budgeted sales were $380,000, and actual sales were $384,000. Prepare a static budget report for the second quarter and for the year to date. Data given in BE22-1: For the quarter ended
> Manson Industries incurs unit costs of $8 ($5 variable and $3 fixed) in making a subassembly part for its finished product. A supplier offers to make 10,000 of the assembly part at $6 per unit. If the offer is accepted, Manson will save all variable cost
> For the quarter ended March 31, 2014, Maris Company accumulates the following sales data for its product, Garden-Tools: $310,000 budget; $305,000 actual. Prepare a static budget report for the quarter.
> Bogart Company is considering two alternatives. Alternative A will have revenues of $160,000 and costs of $100,000. Alternative B will have revenues of $180,000 and costs of $125,000. Compare Alternative A to Alternative B showing incremental revenues, c
> Magic Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $136,000 and have an estimated useful life of 5 years. It will be sold for $65,000 at that time. (Amusement parks need to rotate exhibits t
> The steps in management’s decision-making process are listed in random order below. Indicate the order in which the steps should be executed. ________ Make a decision. ________ Review results of the decision. ________ Identify the problem and assign _
> What steps can be taken to incorporate intangible benefits into the capital budget evaluation process?
> What are some examples of potential intangible benefits of investment proposals? Why do these intangible benefits complicate the capital budgeting evaluation process? What might happen if intangible benefits are ignored in a capital budgeting decision?
> Discuss the factors that determine the appropriate discount rate to use when calculating the net present value.
> Two types of present value tables may be used with the discounted cash flow techniques. Identify the tables and the circumstance(s) when each table should be used
> Sveta Pace is trying to understand the term “cost of capital.” Define the term and indicate its relevance to the decision rule under the internal rate of return technique.
> What is residual income, and what is one of its major weaknesses?
> What are the strengths of the annual rate of return approach? What are its weaknesses?
> El Cajon Company uses the internal rate of return method. What is the decision rule for this method?
> John Hsu is attempting to outline the important points about overhead variances on a class examination. List four points that John should include in his outline.
> For the year ending December 31, 2014, Cobb Company accumulates the following data for the Plastics Division which it operates as an investment center: contribution margin—$700,000 budget, $710,000 actual; controllable fixed costs—$300,000 budget, $302,0
> Describe the process a company may use in screening and approving the capital expenditure budget
> (a) How are variances reported in income statements prepared for management? (b) May standard costs be used in preparing financial statements for stockholders? Explain.
> How do direct fixed costs differ from indirect fixed costs? Are both types of fixed costs controllable?
> (a) Explain the basic features of a standard cost accounting system. (b) What type of balance will exist in the variance account when (1) the materials price variance is unfavorable and (2) the labor quantity variance is favorable?
> Distinguish among the three types of responsibility centers.
> What are some examples of nonfinancial measures used by companies to evaluate performance?
> What circumstances may cause the purchasing department to be responsible for both an unfavorable materials price variance and an unfavorable materials quantity variance?
> What are the four perspectives used in the balanced scorecard? Discuss the nature of each, and how the perspectives are linked.
> Eve Rooney is studying for an accounting examination. Describe for Eve what conditions are necessary for responsibility accounting to be used effectively.
> What is responsibility accounting? Explain the purpose of responsibility accounting.
> Elbert Company accumulates the following summary data for the year ending December 31, 2014, for its Water Division, which it operates as a profit center: sales— $2,000,000 budget, $2,080,000 actual; variable costs—$1,000,000 budget, $1,060,000 actual; a
> Identify the steps required in using the internal rate of return method when the net annual cash flows are equal.
> What is a post-audit? What are the potential benefits of a post-audit?
> What is the difference between a favorable cost variance and an unfavorable cost variance?
> Megan Pedigo is confused about how a flexible budget is prepared. Identify the steps for Megan.
> What is budgetary slack? What incentive do managers have to create budgetary slack?
> What is participative budgeting? What are its potential benefits? What are its potential disadvantages?
> What factors should be considered in setting (a) the direct materials price standard and (b) the direct materials quantity standard?
> (a) Explain the similarities and differences between standards and budgets. (b) Contrast the accounting for standards and budgets.
> (a) “Accounting plays a relatively unimportant role in budgeting.” Do you agree? Explain. (b) What responsibilities does management have in budgeting?
> Standard costs facilitate management planning. What are the other advantages of standard costs?
> In the Assembly Department of Hannon Company, budgeted and actual manufacturing overhead costs for the month of April 2014 were as follows All costs are controllable by the department manager. Prepare a responsibility report for April for the cost cent
> Perez Company uses both standards and budgets. For the year, estimated production of Product X is 500,000 units. Total estimated cost for materials and labor are $1,300,000 and $1,700,000. Compute the estimates for (a) a standard cost and (b) a budgete
> Kate Cey and Joe Coulter are discussing the benefits of budgeting. They ask you to identify the primary advantages of budgeting. Comply with their request.
> (a) What is a budget? (b) How does a budget contribute to good management?
> Lewis Corp. is thinking about opening a basketball camp in Texas. In order to start the camp, the company would need to purchase land and build eight basketball courts and a dormitory-type sleeping and dining facility to house 110 basketball players. Eac
> Platteville Eye Clinic is considering investing in new optical-scanning equipment. It has two options: Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 3 years. Option B would require no rebuildin
> Bonita Labs performs steroid testing services to high schools, colleges, and universities. Because the company deals solely with educational institutions, the price of each test is strictly regulated. Therefore, the costs incurred must be carefully monit
> Beta Company uses a standard cost accounting system. In 2014, 45,000 units were produced. Each unit took several pounds of direct materials and 2 standard hours of direct labor at a standard hourly rate of $12.00. Normal capacity was 86,000 direct labor
> Zimmerman Clothiers manufactures women’s business suits. The company uses a standard cost accounting system. In March 2014, 15,700 suits were made. The following standard and actual cost data applied to the month of March when normal ca
> Buil Corporation manufactures a single product. The standard cost per unit of product is as follows. Direct materials—2 pounds of plastic at ………………………$6 per pound $12 Direct labor—2 hours at ………………………………………………..$13 per hour 26 Variable manufacturing ove
> Preparing a personal budget is a great first step toward control over your personal finances. It is especially useful to prepare a budget when you face a big decision. For most people, the biggest decision they will ever make is whether to purchase a hou
> Data for Gundy Company are given in BE22-4. In March 2014, the company incurs the following costs in producing 100,000 units: direct materials $525,000, direct labor $596,000, and variable overhead $805,000. Actual fixed costs were equal to budgeted fixe
> It is one thing to prepare a personal budget; it is another thing to stick to it. Financial planners have suggested various mechanisms to provide support for enforcing personal budgets. One approach is called “envelope budgeting.” Instructions: Read the
> American Products Corporation participates in a highly competitive industry. In order to meet this competition and achieve profit goals, the company has chosen the decentralized form of organization. Each manager of a decentralized investment center is m
> The manufacturing overhead budget for Fleming Company contains the following items. The budget was based on an estimated 2,000 units being produced. During the past month, 1,500 units were produced, and the following costs incurred. Instructions: (a)
> The budget committee of Widner Company collects the following data for its Westwood Store in preparing budgeted income statements for July and August 2014. 1. Expected sales: July $400,000, August $450,000, September $500,000. 2. Cost of goods sold is ex
> Derby Company prepares monthly cash budgets. Relevant data from operating budgets for 2014 are: All sales are on account. Collections are expected to be 60% in the month of sale, 25% in the first month following the sale, and 15% in the second month fo
> Ogleby Industries has sales in 2013 of $5,600,000 (800,000 units) and gross profit of $1,344,000. Management is considering two alternative budget plans to increase its gross profit in 2014. Plan A would increase the selling price per unit from $7.00 to
> Urbina Inc. is preparing its annual budgets for the year ending December 31, 2014. Accounting assistants furnish the following data. An accounting assistant has prepared the detailed manufacturing overhead budget and the selling and administrative expe
> Panda Corporation has four operating divisions. During the first quarter of 2014, the company reported aggregate income from operations of $129,000 and the divisional results shown below. Analysis reveals the following percentages of variable costs in
> Last year (2013), Simmons Company installed new factory equipment. The owner of the company, Gene Simmons, recently returned from an industry equipment exhibition where he watched computerized equipment demonstrated. He was impressed with the equipment&a
> Ohio Household Products Co. (OHPC) is a diversified household-cleaner processing company. The company’s Mishawaka plant produces two products: an appliance cleaner and a general-purpose cleaner from a common set of chemical inputs (NPR)
> Gundy Company expects to produce 1,200,000 units of Product XX in 2014. Monthly production is expected to range from 80,000 to 120,000 units. Budgeted variable manufacturing costs per unit are direct materials $5, direct labor $6, and overhead $8. Budget
> The management of Gill Corporation is trying to decide whether to continue\ manufacturing a part or to buy it from an outside supplier. The part, called FIZBE, is a component of the company’s finished product. The following information
> Morello Inc. manufactures basketballs for the National Basketball Association (NBA). For the first 6 months of 2014, the company reported the following operating results while operating at 90% of plant capacity and producing 90,000 units. Fixed costs f
> Goldbloom Corp. is thinking about opening a soccer camp in southern California. To start the camp, Goldbloom would need to purchase land and build four soccer fields and a sleeping and dining facility to house 150 soccer players. Each year, the camp woul
> Goltra Clinic is considering investing in new heart-monitoring equipment. It has two options: Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expendi
> Lon Timur is an accounting major at a midwestern state university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan area and visit their homes regularly on the weekends. Lon, an entr
> Pace Labs, Inc. provides mad cow disease testing for both state and federal governmental agricultural agencies. Because the company’s customers are governmental agencies, prices are strictly regulated. Therefore, Pace Labs must constantly monitor and con
> Kansas Company uses a standard cost accounting system. In 2014, the company produced 28,000 units. Each unit took several pounds of direct materials and 1.6 standard hours of direct labor at a standard hourly rate of $12.00. Normal capacity was 50,000 di
> Hopkins Clothiers is a small company that manufactures tall-men’s suits. The company has used a standard cost accounting system. In May 2014, 11,200 suits were produced. The following standard and actual cost data applied to the month o
> Costello Corporation manufactures a single product. The standard cost per unit of product is shown below. Direct materials—1 pound plastic at $7.00 per pound …………………..$ 7.00 Direct labor—1.6 hours at $12.00 per hour ……………………………………19.20 Variable manufact
> Delby Industries has manufactured prefabricated houses for over 20 years. The houses are constructed in sections to be assembled on customers’ lots. Delby expanded into the precut housing market when it acquired Jensen Company, one of its suppliers. In t
> In Paige Company, direct labor is $20 per hour. The company expects to operate at 10,000 direct labor hours each month. In January 2014, direct labor totaling $204,000 is incurred in working 10,400 hours. Prepare (a) a static budget report and (b) a flex
> Durham Company uses a responsibility reporting system. It has divisions in Denver, Seattle, and San Diego. Each division has three production departments: Cutting, Shaping, and Finishing. The responsibility for each department rests with a manager who re
> Suppan Company manufactures a variety of tools and industrial equipment. The company operates through three divisions. Each division is an investment center. Operating data for the Home Division for the year ended December 31, 2014, and relevant budget d
> Clarke Inc. operates the Patio Furniture Division as a profit center. Operating data for this division for the year ended December 31, 2014, are as shown below. In addition, Clarke incurs $180,000 of indirect fixed costs that were budgeted at $175,000.
> Zelmer Company manufactures tablecloths. Sales have grown rapidly over the past 2 years. As a result, the president has installed a budgetary control system for 2014. The following data were used in developing the master manufacturing overhead budget for
> Colter Company prepares monthly cash budgets. Relevant data from operating budgets for 2014 are: All sales are on account. Collections are expected to be 50% in the month of sale, 30% in the first month following the sale, and 20% in the second month f
> Deleon Inc. is preparing its annual budgets for the year ending December 31, 2014. Accounting assistants furnish the data shown below. An accounting assistant has prepared the detailed manufacturing overhead budget and the selling and administrative ex
> Glendo Farm Supply Company manufactures and sells a pesticide called Snare. The following data are available for preparing budgets for Snare for the first 2 quarters of 2014. 1. Sales: quarter 1, 30,000 bags; quarter 2, 42,000 bags. Selling price is $60
> Krause Industries’ balance sheet at December 31, 2013, is presented below. Additional information accumulated for the budgeting process is as follows. Budgeted data for the year 2014 include the following. To meet sales requirements
> The budget committee of Litwin Company collects the following data for its San Miguel Store in preparing budgeted income statements for May and June 2014. 1. Sales for May are expected to be $800,000. Sales in June and July are expected to be 5% higher t
> Last year (2013), Richter Condos installed a mechanized elevator for its tenants. The owner of the company, Ron Richter, recently returned from an industry equipment exhibition where he watched a computerized elevator demonstrated. He was impressed with
> Presented below is information related to the Southern Division of Lumber, Inc. Contribution margin …………………………………………. $1,200,000 Controllable margin ……………………………………………$ 800,000 Average operating assets …………………………………. $4,000,000 Minimum rate of return ………
> Marsh Industries had sales in 2013 of $6,400,000 and gross profit of $1,100,000. Management is considering two alternative budget plans to increase its gross profit in 2014. Plan A would increase the selling price per unit from $8.00 to $8.40. Sales volu
> The management of Shatner Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called CISCO, is a component of the company’s finished product. The following
> ShurShot Sports Inc. manufactures basketballs for the National Basketball Association (NBA). For the first 6 months of 2014, the company reported the following operating results while operating at 80% of plant capacity and producing 120,000 units. Amoun
> Campbell Soup Company is an international provider of soup products. Management is very interested in continuing to grow the company in its core business, while “spinning off” those businesses that are not part of its core operation. Address: www.campbel
> Tecumseh Products Company has its headquarters in Tecumseh, Michigan. It describes itself as “a global multinational corporation producing mechanical and electrical components essential to industries creating end-products for health, comfort, and conveni
> Hawke Skateboards is considering building a new plant. Bob Skerritt, the company’s marketing manager, is an enthusiastic supporter of the new plant. Lucy Liu, the company’s chief financial officer, is not so sure that
> Luang Company is considering the purchase of a new machine. Its invoice price is $122,000, freight charges are estimated to be $3,000, and installation costs are expected to be $5,000. Salvage value of the new machine is expected to be zero after a usefu
> A company that manufactures recreational pedal boats has approached Mike Cichanowski to ask if he would be interested in using Current Designs’ rotomold expertise and equipment to produce some of the pedal boat components. Mike is intri
> The December 22, 2009, edition of the Wall Street Journal has an article by Kevin Kelliker entitled “In Risky Move, GM to Run Plants Around Clock.” Instructions: Read the article and answer the following questions. (a) According to the article, what is
> The Balanced Scorecard Institute (www.balancedscorecard.org) is a great resource for information about implementing the balanced scorecard. One item of interest provided at its website is an example of a balanced scorecard for a regional airline. Address
> Data for the investment centers for Kaspar Company are given in BE22-9. The centers expect the following changes in the next year: (I) increase sales 15%; (II) decrease costs $400,000; (III) decrease average operating assets $500,000. Compute the expe
> Glassmaster Company is organized as two divisions and one subsidiary. One division focuses on the manufacture of filaments such as fishing line and sewing thread; the other division manufactures antennas and specialty fiberglass products. Its subsidiary
