Question: Is an ABC system appropriate for every

> The managers of Bathroom Cabinets established the following standards for Model 535: Last month, 15 342 units of Model 535 were produced at a cost of $26 870 for direct materials and $47 000 for direct labour. A tota

> Plush pet toys are produced in a largely automated factory in standard lots of 100 toys each. A standard cost system is used to control costs and to assign cost to inventory. Variable overhead, estimated at $5 per lot, consists of miscellaneous items s

> Sherry North is the supply manager for West Industries, a manufacturer of garden furniture for the major department store in Australia. As part of her bonus plan, Sherry must meet the materials budget that was established at the beginning of the year. As

> The present value of a given cash flow gets smaller as the number of periods gets larger, regardless of whether cash flow is discounted with a real rate or nominal rate. Explain why this relationship happens and what it means from an economic perspective

> When projects have longer lives, it is more difficult to accurately estimate the cash flows and discount rates over the life of the project. Explain why this statement is true.

> Forecasting the terminal value of equipment 20 years from now is difficult to do accurately, but errors in estimation probably have a small effect on the NPV. Explain.

> At recent management meeting the following statement was made by the Chief Operating Officer – “ this project is strategic for the firm and therefore non-discretionary”. Briefly comment on this statement.

> Due to a newly released safety regulation, Red Rock Chocolates will have to replace the fire safety equipment throughout its production facilities. How should Red Rock management assess this asset replacement?

> Suppose an entity has five different capital budgeting projects from which to choose, but has constrained funds and cannot implement all of the projects. Explain why comparing the projects’ NPVs is better than comparing their IRRs.

> A community health clinic operates as a not-for-profit entity. Typical capital expenditure decisions involve acquiring equipment that will perform medical tests beyond those currently possible at the clinic (hence, adding revenues) and/or perform tests m

> Describe the pros and cons of each of the capital budgeting methods learned in this chapter: (a) net present value, (b) internal rate of return, (c) payback, and (d) accrual accounting rate of return.

> The accountant for Moon Industries has taken unexpected leave and has not completed the end-ofperiod budget analysis. The following incomplete budget analysis was found on her desk. Additional information: Required (a) Complete the variance analysis

> When we covered cost–volume–profit (CPV) analysis in chapter 4, we calculated the amount of pre-tax profit needed to achieve a given level of after-tax profit. We could calculate a pre-tax rate of return given an after-tax rate of return. Why would it be

> An international firm requires a rate of return of 15 per cent domestically and in developed countries, but 25 per cent in less-developed countries. Does this requirement mean that the firm is exploiting the less developed countries?

> If an entity has unlimited funds, what criterion should be used to determine which projects to invest in?

> How might inflation influence a decision to acquire an asset now rather than later?

> Two methods can be used to incorporate the effects of inflation or deflation into an NPV analysis. In your own words, explain how a nominal discount rate is different from a real discount rate. Why are analyses using the nominal approach potentially more

> State the three categories of capital investments and briefly explain the best capital investment evaluation tools suitable for each.

> Explain the meaning of span of control, span of accountability and span of attention.

> Outline the meaning of responsibility accounting.

> Differentiate between belief systems and boundary systems.

> Using examples, explain the meaning of informal controls.

> The photocopying department in the local polytechnic college has budgeted monthly costs at $40 000 per month plus $7 per student. Normally 800 students are enrolled. During March there were 730 students (which is within the relevant range). At the end of

> Distinguish between diagnostic and interactive use of specific control system tools.

> What role does management accounting and control information pay in monitoring the success of the new strategic direction taken by an entity?

> What role does management accounting and control information play in developing new strategic directions?

> Briefly explain the link(s) between strategy and managerial control systems.

> What factors would force an organisation such as an airline to review its strategic direction?

> Define strategy and differentiate between corporate-level strategy and business-unit level strategy.

> Explain how managers decide which products in a sales mix to emphasise.

> List two qualitative factors that often need to be considered when making a decision about whether to outsource a product or service.

> Grover Nursery is a large nursery in Sydney that has always raised the bedding plants it sells. The managers recently decided to buy bedding plants from a wholesale nursery in another state. (a) List several quantitative factors that might encourage the

> In your own words, distinguish between quantitative and qualitative information.

> Helium Industries manufactures glitter balloons used as party accessories. The balloons are bagged in packages of 100 and sold for $20 per pack. The company incurs fixed manufacturing overhead of $25 000 per year and the fixed overhead is applied based o

> Describe several methods that can be used to relax constrained resources.

> Refer to the general decision rule for special orders. (a) Would this same general decision rule apply to a decision to sell afternoon theatre tickets at a discounted price? Explain. (b) Identify two other business pricing situations that are similar t

> An organisation is currently operating at capacity. Should it accept a request for a special order based on variable cost plus 40%? Explain.

> Business publications frequently provide subscriptions to students at a substantial discount. Why do you suppose such offers are made?

> The allocation of a joint cost among joint products is essentially an arbitrary process. If this statement is true, then why allocate?

> A decision about processing a product further should not be influenced by joint cost allocation, but should be based on incremental costs and qualitative factors. Explain.

> Give an example of joint products in a service industry and describe the main products and by-products.

> List two qualitative factors that often need to be considered when making a decision about whether to accept a special order.

> List at least three different types of non-routine operating decisions and give an example of each one for a retail clothing factory outlet.

> What kind of constraints would arise in an accounting entity during tax season? How could any constraints be relaxed?

> Black Industries has a static budget based on production and sales of 24 000 units. Sales revenue is expected to be $96 000, variable costs $36 000 and fixed costs $32 000. Actual production and sales were 30 000 units with a profit of $50 000. Required

> Explain how variable costing income statements can be reconciled to absorption costing income statements.

> When making a non-routine operating decision, are all future costs relevant? Explain.

> What makes organisations such as local governments and universities suitable for ABC use?

> Should ABC be used in service industries? Why?

> Does increasing the number of cost pools always increase the accuracy of allocations under an ABC system? Explain your answer.

> Does it matter if the ABC-generated cost data is somewhat subjective?

> The results from allocations using ABC are usually different from the results using conventional cost systems. Explain why these differences arise.

> Describe the six ABC cost hierarchies.

> Mannon Company’s accountant exclaimed, 'Our cost accounting system allocates overhead based on direct labour hours, but our overhead costs appear to be more related to set-up activities than to the use of direct labour. It seems as though our costing sys

> Using examples distinguish between value-added and non-value-added activities.

> Paper Bright Industries uses flexible budgeting to assess budgeted expectations against actual performance. Last month Paper Bright produced 12 000 units and incurred direct materials cost of $150 000. Its static budget for the year has a direct material

> Outline the benefits of time-driven ABC.

> Explain the difference between activity-based costing and activity-based management.

> Is ABC appropriate for an organisation that sells a wide range of customised products manufactured using flexible manufacturing systems? Why?

> Suppose that you are part of a student consulting team working for your university. You need to analyse accounting department activities and set up cost pools for these activities. Explain how you would identify the activities and pools.

> List several costs and several benefits of implementing an ABC system.

> Does measurement error increase or decrease when ABC systems are implemented? Explain your answer.

> What use might management make of ABC-cost data output in universities, local governments and other such organisations?

> Explain how conventional and ABC cost systems differ.

> Suppose that utilities are considered a fixed cost for a retail clothing outlet. Why might we expect a variance to occur for the cost of utilities?

> Explain why variances for direct material and direct labour are separated into price and efficiency variances.

> Franklin Industries’ CEO was talking with the CFO about the appropriate standard to use for the new product being launched in the coming year. The CEO argued that standards based on ideal performance would enable profits to be maximised through improved

> Discuss the ‘bookkeeping’ role of standard costing and its performance role.

> How might the production volume variance encourage excess production?

> Discuss why the variable overhead spending variance does not just focus on price.

> Explain how accountants and managers decide which cost variances to monitor.

> Why is the efficiency variance more useful for control purposes than the price variance?

> Identify four revenue drivers.

> Recently the Victorian Government introduced a solar rebate of $2500 for eligible home owners. How might such an initiative impact on the budget variances for a business that installs solar panels given the rebate was announced halfway through the financ

> What is the cause of an unfavourable volume variance?

> Briefly explain why actions by the material purchasing manager can cause unfavourable labour efficiency variances for the production manager.

> A favourable variance is always good news and an unfavourable variance is always bad news. Discuss.

> The following price and operating cost information applies to Happy Bikers Motorcycle Company. No beginning balance in finished goods is evident because the beginning inventory account on the balance sheet is zero. Average manufacturing is 10Â&nb

> Why are direct materials price variances usually recorded at the time of purchase?

> Suppose the direct materials price variance is large and favourable, and the direct materials efficiency variance is large and unfavourable. What questions would you be likely to ask when investigating these variances further?

> Discuss factors that affect accountants’ decisions to investigate the reasons for variances.

> Identify the common variances that are needed to reconcile the accounting records at the end of the period for a manufacturing entity. How are these variances treated at the end of the period if the total variance is immaterial? How are they treated if t

> Fly-a-Kite Company manufactures a variety of kite kits. You have been asked by the production manager to prepare a simple but meaningful variance report for product costs so that she can identify areas in need of improved cost control. List all of the va

> Explain why the variance accounts need to be closed at the end of the period.

> Discuss the three variances that help explain the sales volume variance.

> List several ways that variances can be used to improve future operations.

> Explain how accountants and managers decide which cost variances to monitor.

> Discuss the different types of budget variances that can be calculated.

> Wild Bird Feeders produces deluxe bird feeders for distribution to catalogue companies and wild bird stores. The company uses an absorption costing system for internal reporting purposes but is considering using variable costing. Data regarding Wild Bird

> Which item has the same value for both the static budget and the flexible budget?

> Explain the difference between a static budget and a flexible budget.

> Discuss the behavioural issues that need to be considered when establishing a standard cost.

> Discuss the different methods that an organisation can use to determine standard costs.

> Explain the difference between an ideal standard and a currently attainable standard.

> Distinguish between a price variance and an efficiency variance.

> Suppose that utilities are considered a fixed cost for a retail clothing outlet. Why might we expect a variance to occur for the cost of utilities?

> Which type of entities would be suited to the use of a standard cost system?

> Software Galore sells gaming software that is downloaded to the customer’s device on purchase. The owner, Fred, was talking with a friend who sang the praises of flexible budgeting in his manufacturing business. Fred was wondering whether a flexible budg

> Variance analysis is only useful for organisations using a standard costing system. Discuss.

> Asian Iron began last year with no inventories. During the year, 10 500 units were produced, of which 9400 were sold. Data concerning last year’s operations appear here: Variable manufacturing costs reflect the variable co