Briefly define total cost and marginal cost.
> Martinez, Inc., is a small firm involved in the production and sale of electronic business products. The company is well known for its attention to quality and innovation. During the past 15 months, a new product has been under development that allows us
> Cincinnati Flow Technology (CFT) has purchased 10,000 pumps annually from Kobec, Inc. Because the price keeps increasing and reached $102.00 per unit last year, CFT’s management has asked for an estimate of the cost of manufacturing the pump in CFT’s fac
> Dentech, Inc., uses 10 units of part RM67 each month in the production of dentistry equipment. The cost of manufacturing one unit of RM67 is the following: Direct material ..................................................................................
> Chef Gourmet, Inc., has assembled the following data pertaining to its two most popular products. Past experience has shown that the fixed manufacturing overhead component included in the cost per machine hour averages $30. Management has a policy of fil
> Golden Gate Fashions, Inc. a high-fashion dress manufacturer, is planning to market a new cocktail dress for the coming season. Golden Gate Fashions supplies retailers primarily on the west coast. Four yards of material are required to lay out the dress
> Refer to the data given in the preceding exercise. Data in preceding exercise: Bay State Community College enrolls students in two departments, Liberal Arts and Sciences. The college also has two service departments, the Library and the Computing Servic
> The board of education for the Blue Ridge School District is considering the acquisition of several minibuses for use in transporting students to school. Five of the school district’s bus routes are under populated, with the result that the full-size bus
> Instant Dinners, Inc. (IDI), is an established manufacturer of microwavable frozen foods. L eland Forrest is a member of the planning and analysis staff. Forrest has been asked by Bill Rolland, chief financial officer of IDI, to prepare a net-present-val
> Discuss the pros and cons of the accounting rate of return as an investment criterion.
> How is an investment project’s accounting rate of return defined? Why do the accounting rate of return and internal rate of return on a capital project generally differ?
> What is meant by the term payback period? How is this criterion sometimes used in capital budgeting?
> Define the term profitability index. How is it used in ranking investment proposals?
> Why may the net-present-value and internal-rate-of return methods yield different rankings for investments with different lives?
> Explain how a gain or loss on disposal is handled in a capital-budgeting analysis.
> Why is accelerated depreciation advantageous to a business?
> Distinguish between the following approaches to discounted-cash-flow analysis: total-cost approach versus incremental-cost approach.
> Bay State Community College enrolls students in two departments, Liberal Arts and Sciences. The college also has two service departments, the Library and the Computing Services Department. The usage of these two service departments’ out
> List and briefly explain four assumptions underlying discounted-cash-flow analysis.
> List and briefly explain two advantages that the net-present-value method has over the internal-rate of-return method.
> Explain the following terms: recovery of investment versus return on investment.
> State the decision rule used to accept or reject an investment proposal under each of these methods of analysis: (1) net-present-value method and (2) internal-rate-of return method.
> Briefly explain the concept of discounted-cash-flow analysis. What are the two common methods of discounted-cash-flow analysis?
> “The greater the discount rate, the greater the present value of a future cash flow.” True or false? Explain your answer.
> Distinguish between the following two types of capital budgeting decisions: acceptance-or-rejection decisions and capital-rationing decisions.
> “Time is money!” is an old saying. Relate this statement to the evaluation of capital-investment projects.
> (Appendix B) Briefly describe two correct methods of net-present-value analysis in an inflationary period. Appendix B: The sales-price variance is the difference between the actual and budgeted sales prices multiplied by the actual sales volume. This va
> Tropics Fruit Company, based on Oahu, grows, processes, cans, and sells three main pineapple products: sliced, crushed, and juice. The outside skin is cut off in the Cutting Department and processed as animal feed. The feed is treated as a by-product. Th
> Refer to the data given in the preceding exercise. Data given in preceding exercise: Aurora National Bank has two service departments, the Human Resources (HR) Department and the Computing Department. The bank has two other departments that directly ser
> Edmonton Chemical Company manufactures two industrial chemical products in a joint process. In May, 10,000 gallons of input costing $180,000 were processed at a cost of $450,000. The joint process resulted in 8,000 pounds of Resoline and 2,000 pounds of
> Define the following terms: joint production process, joint costs, joint products, split-off point, separable costs, and by-product.
> Explain the difference between two-stage allocation with departmental overhead rates and activity-based costing. Which approach generally results in more accurate product costs?
> How does the managerial accountant determine the department sequence in the step-down method? How are ties handled?
> Explain briefly the main differences between the direct, step-down, and reciprocal-services methods of service department cost allocation.
> Distinguish between a service department and a production department. Give an example of the counterpart of a manufacturer’s “production” department in a bank.
> Define the term net realizable value, and explain how this concept can be used to allocate joint costs.
> What are the two main drawbacks of the payback method?
> Give an example of a cash flow that is not on the income statement. How do you determine the after-tax amount of such a cash flow?
> What is a depreciation tax shield? Explain the effect of a depreciation tax shield in a capital-budgeting analysis.
> Aurora National Bank has two service departments, the Human Resources (HR) Department and the Computing Department. The bank has two other departments that directly service customers, the Deposit Department and the Loan Department. The usage of the two s
> Briefly describe the time-and-material pricing approach
> Could tear-down methods be used effectively for target pricing in a service-industry company, such as a hotel or an airline? Explain.
> Explain the role of value engineering in target costing
> Why is a focus on the customer such a key principle of target costing?
> Explain the phrase price-led costing.
> Briefly explain the concept of return-on-investment pricing.
> Explain the behavioral problem that can result when cost-plus prices are based on variable cost.
> What is the primary disadvantage of basing the cost plus pricing formula on absorption cost?
> Explain how to compute the after-tax amount of a cash revenue or expense.
> Determining the best approach to pricing requires a cost-benefit trade-off. Explain.
> Comment on the following remark made by a bank president: “The prices of our banking services are determined by the financial-services market. Costs are irrelevant.”
> Explain what is meant by unlawful price discrimination and predatory pricing.
> Describe the following approaches to pricing new products: skimming pricing, penetration pricing, and target costing.
> The decision to accept or reject a special order and the selection of a price for a special order are very similar decisions. Explain.
> Explain the importance of the excess-capacity issue in setting a competitive bid price.
> List three advantages of pricing based on variable cost.
> List four reasons often cited for the widespread use of absorption cost as the cost base in cost-plus pricing formulas
> List the four common cost bases used in cost-plus pricing. How can they all result in the same price?
> Give an example of a noncash expense. What impact does such an expense have in a capital-budgeting analysis? Explain how to compute the after-tax impact of a noncash expense.
> Write the general formula for cost-plus pricing, and briefly explain its use.
> Describe three limitations of the economic, profit maximizing model of pricing.
> Define the following terms: total revenue, marginal revenue, demand curve, price elasticity, and cross-elasticity.
> Briefly explain the concept of economic, profit maximizing pricing. It may be helpful to use graphs in your explanation.
> Explain the following assertion: “Price setting generally requires a balance between market forces and cost considerations.”
> Explain what is meant by the following statement: “In considering the reactions of competitors, it is crucial to define your product.”
> List and briefly describe four major influences on pricing decisions.
> “All this marginal revenue and marginal cost stuff is just theory. Prices are determined by production costs.” Evaluate this assertion.
> Briefly explain the potential negative consequences in pricing decisions from using a traditional, volume based product-costing system.
> Refer to the data f or Riverside Clinic given in Exhibits 17–2 and 17–5. Exhibit 17-2: Exhibit 17-5: Required: Use the reciprocal-services method in combination with the dual-allocation approach to allocate Rive
> What is meant by a post audit of an investment project?
> Chemco, Inc., manufactures two products out of a joint process: Compod and U ltrasene. The joint costs incurred are $750,000 for a standard production run that generates 120,000 gallons of Compod and 80,000 gallons of Ultrasene. Compod sells for $6.00 pe
> Wyalusing Chemicals uses a joint process to produce MJ-4, a chemical used in the manufacture of paints and varnishes; HD-10, a chemical used in household cleaning products; and FT-5, a by-product that is sold to fertilizer manufacturers. Joint production
> Allegheny River Sawmill manufactures two lumber products from a joint milling process. The two products developed are mine support braces (MSB) and unseasoned commercial building lumber (CBL). A standard production run incurs joint costs of $750,000 and
> Gleed Company manufactures products Alpha, Beta, and Gamma from a joint process. Production, sales, and cost data for July follow. Required: 1. Assuming that joint costs are allocated using the relative-sales-value method, what were the joint costs allo
> Le Monde Company is a manufacturer of chemicals for various purposes. One of the processes used by Le Monde produces HTP–3, a chemical used in hot tubs and swimming pools; PST–4, a chemical used in pesticides; and RJ&a
> Travelcraft, Inc., manufactures a complete line of fiberglass suitcases and attaché cases. The firm has three manufacturing departments: Molding, Component, and Assembly. There are also two service departments: Power and Maintenance. The sid
> Refer to the data given in the preceding problem. When Jacksonville Instrument Company established its service departments, the following long-run needs were anticipated. Data given in preceding problem: Jacksonville Instrument Company manufactures gaug
> Jacksonville Instrument Company manufactures gauges for construction machinery. The company has two production departments: Machining and Finishing. There are three service departments: Human Resources (HR), Maintenance, and Design. The budgeted costs in
> Vallejo Cablevision Company provides television cable service to two counties in Southern California. The firm’s management is considering the construction of a new satellite dish in December of 20x0. The new antenna would improve reception and the servi
> The Golden Triangle Theater is a nonprofit enterprise in downtown Pittsburgh. The board of directors is considering an expansion of the theater’s seating capacity, which will entail significant renovations to the existing facilities. The board has
> For what purpose should the managerial accountant be careful to not use joint cost allocations?
> Refer to the data given in the preceding problem. The owner of Zivanov’s Pancake House will consider capital projects only if they have a payback period of six years or less. The owner also favors projects that exhibit an accounting rat
> The owner of Zivanov’s Pancake House is considering an expansion of the business. He has identified two alternatives, as follows: • Build a new restaurant near the mall. • Buy and renovate an old buil
> Weisinger Corporation’s management is considering the replacement of an old machine. It is fully depreciated but it can be used by the corporation through 20x5. If management decides to replace the old machine, James Company has offered to purchase it fo
> LifeLine Corporation manufactures fire extinguishers. One part used in all types of fire extinguishers is a unique pressure fitting that requires specialized machine tools that need to be replaced. LifeLine’s production manager has concluded that the onl
> MicroTest Technology, Inc., is a high-technology company that manufactures sophisticated testing instruments for evaluating microcircuits. These instruments sell for $3,500 each and cost $2,450 each to manufacture. An essential component of the company’s
> Flotilla Beam, the owner of the Bay City Boatyard, recently had a brilliant idea. There is a shortage of boat slips in the harbor during the summer. Beam’s idea is to develop a system of “dry slips.” A dry slip is a large storage rack in a warehouse on w
> Refer to the data given in Problem 6. The County Board of Representatives believes that if the county conducts a promotional effort costing $20,000 per year, the proposed long runway will result in substantially greater economic development than was proj
> Refer to the data given in the preceding problem. Data given in preceding: Adams County’s Board of Representatives is considering the construction of a longer runway at the county airport. Currently, the airport can handle only private aircraft and smal
> Adams County’s Board of Representatives is considering the construction of a longer runway at the county airport. Currently, the airport can handle only private aircraft and small commuter jets. A new, long runway would enable the airport to handle the m
> Special People Industries (SPI) is a nonprofit organization which employs only people with physical or mental disabilities. One of the organization’s activities is to make cookies for its snack food store. Several years ago, Special Peo
> Are joint cost allocations useful? If they are, for what purpose?
> Refer to the data in the preceding problem regarding Medical Arts Hospital. Data from preceding problem: Medical Arts Hospital’s board of trustees is considering the addition of a comprehensive medical testing laboratory. In the past, the hospital has s
> Medical Arts Hospital’s board of trustees is considering the addition of a comprehensive medical testing laboratory. In the past, the hospital has sent all blood and tissue specimens to Diagnostic Testing Services, an independent testing service. The hos
> Community Challenges, a nonprofit organization for physically and mentally challenged people, manufactures a variety of products in four plants located in California. The company is currently purchasing an electronic igniter from an outside supplier for
> Refer to the data given in the preceding problem for Vallejo Cablevision Company. Data from preceding problem: Vallejo Cablevision Company provides television cable service to two counties in Southern California. The firm’s management is considering the
> Portsmouth Printing Corporation recently purchased a truck for $36,000. Under MACRS, the first year’s depreciation was $7,200. The truck driver’s salary in the first year of operation was $38,400. Required: Show how each of the amounts mentioned above
> For each of the following assets, indicate the MACRS property class and depreciation method. 1. A pharmaceutical company bought a new microscope to use in its Research and Development Division. 2. A mid western farmer constructed a new barn to house bee
> The state’s secretary of education is considering the purchase of a new computer for $150,000. A cost study indicates that the new computer should save the Department of Education $45,000, measured in real dollars, during each of the next eight years. Th
> Yankay Specialty Metals Corporation is reviewing an investment proposal. The initial cost as well as the estimate of the book value of the investment at the end of each year, the net after-tax cash flows for each year, and the net income for each year ar
> The management of Iroquois National Bank is considering an investment in automatic teller machines. The machines would cost $124,200 and have a useful life of seven years. The bank’s controller has estimated that the automatic teller machines will save t
