Describe the assumptions underlying CVP analysis.
> Define cost object and give three examples.
> List three causes of a favorable direct materials price variance.
> How might a manager gain insight into the causes of a flexible-budget variance for direct materials?
> Describe the steps in developing a flexible budget.
> What is the key difference between a static budget and a flexible budget?
> Benchmarking against other companies enables a company to identify the lowest-cost producer. This amount should become the performance measure for next year.” Do you agree?
> When inputs are substitutable, how can the direct materials efficiency variance be decomposed further to obtain useful information?
> Comment on the following statement made by a plant manager: “Meetings with my plant accountant are frustrating. All he wants to do is pin the blame on someone for the many variances he reports.”
> Why might an analyst examining variances in the production area look beyond that business function for explanations of those variances?
> Which of the following is not a primary function of the management accountant? a. Communicates financial results and position to external parties. b. Uses information to develop and implement business strategy. c. Aids in the decision making to help an o
> How does variance analysis help in continuous improvement?
> Describe three reasons for an unfavorable direct manufacturing labor efficiency variance.
> Outline the steps in preparing an operating budget.
> Define rolling budget. Give an example.
> Production managers and marketing managers are like oil and water. They just don’t mix.” How can a budget assist in reducing conflicts between these two areas?
> Strategy, plans, and budgets are unrelated to one another.” Do you agree? Explain.
> Cash budgets must be prepared before the operating income budget.” Do you agree? Explain.
> What are some additional considerations that arise when budgeting in multinational companies?
> Explain how the choice of the type of responsibility center (cost, revenue, profit, or investment) affects behavior.
> Describe how nonoutput-based cost drivers can be incorporated into budgeting.
> What steps should a management accountant take if established written policies provide insufficient guidance on how to handle an ethical conflict?
> How can sensitivity analysis be used to increase the benefits of budgeting?
> What are the four elements of the budgeting cycle?
> Department indirect-cost rates are never activity-cost rates.” Do you agree? Explain.
> What are the key reasons for product cost differences between simple costing systems and ABC systems?
> Why is it important to classify costs into a cost hierarchy?
> Describe four levels of a cost hierarchy.
> What is costing system refinement? Describe three guidelines for refinement.
> The controller of a retail company has just had a $50,000 request to implement an ABC system quickly turned down. A senior vice president, in rejecting the request, noted, “Given a choice, I will always prefer a $50,000 investment in improving things a c
> Increasing the number of indirect-cost pools is guaranteed to sizably increase the accuracy of product or service costs.” Do you agree? Why?
> What are the main costs and limitations of implementing ABC systems?
> Name the four areas in which standards of ethical conduct exist for management accountants in the United States. What organization sets forth these standards?
> Describe four signs that help indicate when ABC systems are likely to provide the most benefits.
> What is broad averaging, and what consequences can it have on costs?
> Distinguish between actual costing and normal costing.
> Give two reasons why most organizations use an annual period rather than a weekly or monthly period to compute budgeted indirect-cost rates.
> Describe three major source documents used in job-costing systems.
> Describe the seven steps in job costing.
> Why might an advertising agency use job costing for an advertising campaign by PepsiCo, whereas a bank might use process costing to determine the cost of checking account deposits?
> Describe three alternative ways to dispose of under- or overallocated overhead costs.
> Describe three different debit entries to the Work-in-Process Control T-account under normal costing.
> Comment on the following statement: “In a normal-costing system, the amounts in the Manufacturing Overhead Control account will always equal the amounts in the Manufacturing Overhead Allocated account.”
> Describe the overtime-premium and idle-time categories of indirect labor.
> Define cost pool, cost tracing, cost allocation, and cost-allocation base.
> Describe sensitivity analysis. How has the advent of the electronic spreadsheet affected the use of sensitivity analysis?
> “CVP analysis is both simple and simplistic. If you want realistic analysis to underpin your decisions, look beyond CVP analysis.” Do you agree? Explain.
> Why is it more accurate to describe the subject matter of this chapter as CVP analysis rather than as breakeven analysis?
> Describe three methods that managers can use to express CVP relationships.
> Distinguish between operating income and net income.
> There is no such thing as a fixed cost. All costs can be ‘unfixed’ given sufficient time.” Do you agree? What is the implication of your answer for CVP analysis?
> Give an example of how a manager can increase variable costs while decreasing fixed costs.
> Give an example of how a manager can decrease variable costs while increasing fixed costs.
> As a new controller, reply to this comment by a plant manager: “As I see it, our accountants may be needed to keep records for shareholders and Uncle Sam, but I don’t want them sticking their noses in my day-to-day operations. I do the best I know how. N
> Describe how manufacturing-, merchandising-, and service-sector companies differ from one another.
> What is a cost driver? Give one example.
> Define variable cost and fixed cost. Give an example of each.
> Why do managers consider direct costs to be more accurate than indirect costs?
> Define direct costs and indirect costs.
> Define the following: direct material costs, direct manufacturing-labor costs, manufacturing overhead costs, prime costs, and conversion costs.
> Crystal Clear Products produces two types of water filters. One attaches to the faucet and cleans all water that passes through the faucet. The other is a pitcher-cum-filter that only purifies water meant for drinking. The unit that attaches to the fauce
> The Ronowski Company has three product lines of belts—A, B, and C— with contribution margins of $3, $2, and $1, respectively. The president foresees sales of 200,000 units in the coming period, consisting of 20,000 units of A, 100,000 units of B, and 80,
> Zahner Corporation manufactures housewares products that are sold through a network of external sales agents. The agents are paid a commission of 20% of revenues. Zahner is considering replacing the sales agents with its own salespeople, who would be pai
> Thompson Engine Company manufactures and sells diesel engines for use in small farming equipment. For its 2017 budget, Thompson Engine Company estimates the following: Selling price…………………………..$ 7,000 Variable cost per engine………….$ 2,000 Annual fixed cos
> Distinguish between inventoriable costs and period costs.
> Classical Glasses operates a kiosk at the local mall, selling sunglasses for $30 each. Classical Glasses currently pays $1,000 a month to rent the space and pays two full-time employees to each work 160 hours a month at $10 per hour. The store shares a m
> Corporate Printing Company currently leases its only copy machine for $1,500 a month. The company is considering replacing this leasing agreement with a new contract that is entirely commission based. Under the new agreement, Corporate would pay a commis
> Refer to requirement 3 of Problem 3-43. In this problem, assume the role of the owner of HighStep. Required: 1. As owner, which sales compensation plan would you choose if forecasted annual sales of the new store were at least 10,000 units? What do
> The HighStep Shoe Company operates a chain of shoe stores that sell 10 different styles of inexpensive men’s shoes with identical unit costs and selling prices. A unit is defined as a pair of shoes. Each store has a store manager who is paid a fi
> The Derby Shoe Company produces its famous shoe, the Divine Loafer, that sells for $70 per pair. Operating income for 2017 is as follows: Sales revenue ($70 per pair)…………..$350,000 Variable cost ($30 per pair)…&hell
> J.T. Brooks and Company, a manufacturer of quality handmade walnut bowls, has had a steady growth in sales for the past 5 years. However, increased competition has led Mr. Brooks, the president, to believe that an aggressive marketing campaign will be
> Marketing Docs prepares marketing plans for growing businesses. For 2017, budgeted revenues are $1,500,000 based on 500 marketing plans at an average rate per plan of $3,000. The company would like to achieve a margin of safety percentage of at least 4
> The Museum of America is preparing for its annual appreciation dinner for contributing members. Last year, 525 members attended the dinner. Tickets for the dinner were $24 per attendee. The profit report for last year’s dinner follows. Ticket sa
> The Stackpole Company retails two products: a standard and a deluxe version of a luggage carrier. The budgeted income statement for next period is as follows: Required: 1. Compute the breakeven point in units, assuming that the company achieves
> Portal Corporation produces the same power generator in two Illinois plants, a new plant in Peoria and an older plant in Moline. The following data are available for the two plants: All fixed costs per unit are calculated based on a normal capac
> What are three different types of inventory that manufacturing companies hold?
> How does management accounting differ from financial accounting?
> Delta Products has determined the following costs: Order processing (per order)……………………………………………………$ 6 Additio
> The Sunny Valley Wheat Cooperative is considering the construction of a new silo. It will cost $126,000 to construct the silo. Determine the payback period if the expected cash inflows are $21,000 per year.
> Mississippi Retailers expects to make inventory purchases in the next quarter as follows: April…………$60,000 May……………70,000 June…………..95,000 Prior experience h
> Drake Limousine Service is considering acquisition of an additional vehicle. The model under consideration will cost $160,000 and have a five-year life and a $45,000 residual value. The company anticipates that the effect on annual net income will be a
> Strauss Corporation is making a $90,000 investment in equipment with a five-year life. The company uses the straight-line method of depreciation and has a tax rate of 40 percent. The company’s required rate of return is 15 percent. Required:
> Tanya Sinclair, owner of Sinclair Fine Wine, is considering investing $195,000 in a temperature-controlled wine storage room. She plans to rent space to customers and expects to generate $55,000 annually (rental charges less miscellaneous expenses othe
> An investment that costs $200,000 will reduce operating costs by $35,000 per year for 12 years. Determine the internal rate of return of the investment (ignore taxes). Should the investment be undertaken if the required rate of return is 18 percent? &
> Mary Martinez is ready to retire and has a choice of three pension plans. Plan A provides for an immediate cash payment of $350,000. Plan B provides for the payment of $40,000 per year for 8 years and the payment of $200,000 at the end of year 8. Plan
> The Warrenburg Antique Mall expects to make purchases in the first quarter of 2018 as follows: January……..$95,000 February……120,000 March…………85,000 Purchases in December 2017 are expected to be
> The Warrenburg Antique Mall budgeted credit sales in the first quarter of 2018 to be as follows: January……. $160,000 February……..170,000 March………..182,000 Credit sales in December 2017 are expected t
> Power Electronics manufactures portable power supply units. Power has recently decided to use an activity-based approach to cost its products. Production line setups is a major activity at Power. Next year Power expects to perform 2,000 setups at a tot
> Classic Attire is the designer and manufacturer of prom dresses. The president of Classic wants to switch to an activity-based approach in the upcoming year to assign prices to the gowns. Production line setups are a major activity at Classic. Next yea
> Budget Tax Service prepares tax returns for small businesses. The cost of preparing 800 tax returns in the prior year was: Direct labor……………. $360,000 Variable overhead……. 320,000 Fixed overhead&helli
> Division managers at Creighton Aerospace are evaluated and rewarded based on ROI (return on investment) targets. In the current year, Delmar Richards, the president of the commercial products division, has an ROI target of 12 percent. If the division has
> Based on the information in Problem 9-14, what is the internal rate of return of the investment, assuming an inflation rate of 4 percent applicable to labor and costs other than depreciation? Should the company make the investment if its cost of capital
> Edward Laren, an accountant with Tenergy Industries, prepared the following analysis of an investment in manufacturing equipment: Edward’s boss, Megan Mangione, reviewed the calculation and made the following observation: â€
> True Fresh Grocery operates a chain of 40 grocery stores. Currently the company is considering starting a new division, TrueFresh.com, to provide home delivery services. Customers will be able to order groceries by phone or using the Internet, and TrueFr
> Van Doren Corporation is considering producing a new temperature regulator called Digidial. Marketing data indicate that the company will be able to sell 45,000 units per year at $30. The product will be produced in a section of an existing factory that
> Pritchard Manufactured Products is considering investing in a flexible manufacturing system that will enable the company to respond rapidly to customer requests. Ben Jarvis, the controller of Pritchard, has estimated that the system will have a nine-year
> Island Ferry plans to expand operations by acquiring another boat. It has a bid of $950,000 from a boat manufacturer to provide a boat that can carry 40 passengers. The boat has an expected life of 7 years with an expected residual value for financial re
> Pronto Cleaners, a chain of dry cleaning stores, has the opportunity to invest in one of two dry cleaning machines. Machine A has a four-year expected life and a cost of $30,000. It will cost an additional $6,500 to have the machine delivered and install
> Adrian Sonnetson, the owner of Adrian Motors, is considering the addition of a paint and body shop to his automobile dealership. Construction of a building and the purchase of necessary equipment is estimated to cost $800,000, and both the building and e
> Penguin Productions is evaluating a film project. The president of Penguin estimates that the film will cost $20,000,000 to produce. In its first year, the film is expected to generate $16,500,000 in net revenue, after which the film will be released to
> Albert Shoe Company is considering investing in one of two machines that attach heels to shoes. Machine A costs $70,000 and is expected to save the company $20,000 per year for 6 years. Machine B costs $95,000 and is expected to save the company $25,000
