Maize Company incurs a cost of $35 per unit, of which $20 is variable, to make a product that normally sells for $58. A foreign wholesaler offers to buy 6,000 units at $30 each. Maize will incur additional costs of $3 per unit to imprint a logo and to pay for shipping. Compute the increase or decrease in net income Maize will realize by accepting the special order, assuming Maize has sufficient excess operating capacity. Should Maize Company accept the special order?
> What simplifying assumptions were made in the chapter regarding calculation of net present value?
> What is the decision rule under the net present value method?
> Tom Wells claims the formula for the cash payback technique is the same as the formula for the annual rate of return technique. Is Tom correct? What is the formula for the cash payback technique?
> What are the advantages and disadvantages of the cash payback technique?
> Your classmate, Mike Dawson, is confused about the factors that are included in the annual rate of return technique. What is the formula for this technique?
> What advantages does the profitability index provide over direct comparison of net present value when comparing two projects?
> Hank Jewell is a production manager at a metal fabricating plant. Last night, he read an article about a new piece of equipment that would dramatically reduce his division’s costs. Hank was very excited about the prospect, and the first thing he did this
> How is the predetermined overhead rate determined when standard costs are used?
> “The objective in setting the direct labor quantity standard is to determine the aggregate time required to make one unit of product.” Do you agree? What allowances should be made in setting this standard?
> Distinguish between an ideal standard and a normal standard.
> Contrast the roles of the management accountant and management in setting standard costs.
> Alma Ortiz does not understand why the overhead volume variance indicates that fixed overhead costs are under- or over applied. Clarify this matter for Alma.
> What is the purpose of computing the overhead volume variance? What is the basic formula for this variance?
> If the $9 per hour overhead rate in Question 12 includes $5 variable, and actual overhead costs were $248,000, what is the overhead controllable variance for June? The normal capacity hours were 28,000. Is the variance favorable or unfavorable?
> Kerry James says that the balanced scorecard was created to replace financial measures as the primary mechanism for performance evaluation. He says that it uses only nonfinancial measures. Is this true?
> How often should variances be reported to management? What principle may be used with variance reports?
> Mikan Company’s standard predetermined overhead rate is $9 per direct labor hour. For the month of June, 26,000 actual hours were worked, and 27,000 standard hours were allowed. How much overhead was applied?
> Viera Corporation is considering investing in a new facility. The estimated cost of the facility is $2,045,000. It will be used for 12 years, then sold for $716,000. The facility will generate annual cash inflows of $400,000 and will need new annual cash
> In the direct labor variance matrix, there are three factors: (1) Actual hours x Actual rate, (2) Actual hours x Standard rate, and (3) Standard hours x Standard rate. Using the numbers, indicate the formulas for each of the direct labor variances.
> In each of the following formulas, supply the words that should be inserted for each number in parentheses. (a) (Actual quantity x (1)) - (Standard quantity x (2)) = Total materials variance (b) ((3) x Actual price) - (Actual quantity x (4)) =Materials p
> A static overhead budget based on 40,000 direct labor hours shows Factory Insurance $6,500 as a fixed cost. At the 50,000 direct labor hours worked in March, factory insurance costs were $6,300. Is this a favorable or unfavorable performance? Why?
> The static manufacturing overhead budget based on 40,000 direct labor hours shows budgeted indirect labor costs of $54,000. During March, the department incurs $64,000 of indirect labor while working 45,000 direct labor hours. Is this a favorable or unfa
> “A flexible budget is really a series of static budgets.” Is this true? Why?
> Under what circumstances may a static budget be an appropriate basis for evaluating a manager’s effectiveness in controlling costs?
> Ken Bay questions the usefulness of a master sales budget in evaluating sales performance. Is there justification for Ken’s concern? Explain.
> How may a budget report for the second quarter differ from a budget report for the first quarter?
> What is a major disadvantage of using ROI to evaluate investment and company performance?
> Indicate two behavioral principles that pertain to (a) the manager being evaluated and (b) top management.
> Horowitz Company is evaluating the purchase of a rebuilt spot-welding machine to be used in the manufacture of a new product. The machine will cost $176,000, has an estimated useful life of 7 years, a salvage value of zero, and will increase net annual c
> Explain the ways that ROI can be improved.
> What is the primary basis for evaluating the performance of the manager of an investment center? Indicate the formula for this basis.
> Jane Nott is confused about controllable margin reported in an income statement for a profit center. How is this margin computed, and what is its primary purpose?
> The following purposes are part of a budgetary reporting system: (a) Determine efficient use of materials. (b) Control overhead costs. (c) Determine whether income objectives are being met. For each purpose, indicate the name of the report, the freque
> (a) What costs are included in a performance report for a cost center? (b) In the report, are variable and fixed costs identified?
> What is the relationship, if any, between a responsibility reporting system and a company’s organization chart?
> Using the information in P23-3B, compute the overhead controllable variance and the overhead volume variance. Information in P23-3B: Zimmerman Clothiers manufactures women’s business suits. The company uses a standard cost accounting s
> Using the information in P23-2B, compute the overhead controllable variance and the overhead volume variance. Information in P23-2B: Huang Company uses a standard cost accounting system to account for the manufacture of exhaust fans. In July 2014, it ac
> Using the information in P23-1B, compute the overhead controllable variance and the overhead volume variance. Information in P23-1B: Buil Corporation manufactures a single product. The standard cost per unit of product is as follows. Direct materials—2
> Using the information in P23-5B, compute the overhead controllable variance and the overhead volume variance. Information in P23-5B: Bonita Labs performs steroid testing services to high schools, colleges, and universities. Because the company deals sol
> Quillen Company is performing a post-audit of a project completed one year ago. The initial estimates were that the project would cost $250,000, would have a useful life of 9 years, zero salvage value, and would result in net annual cash flows of $46,000
> Using the information in P23-3A, compute the overhead controllable variance and the overhead volume variance. Information in P23-5A: Hopkins Clothiers is a small company that manufactures tall-men’s suits. The company has used a standa
> Using the information in P23-2A, compute the overhead controllable variance and the overhead volume variance. Information in P23-2A: Ayala Corporation accumulates the following data relative to jobs started and finished during the month of June 2014.
> Using the information in P23-1A, compute the overhead controllable variance and the overhead volume variance. Information in P23-1A: Costello Corporation manufactures a single product. The standard cost per unit of product is shown below. Direct materi
> Using the information in P23-5A, compute the overhead controllable variance and the overhead volume variance. Information in P23-5A: Pace Labs, Inc. provides mad cow disease testing for both state and federal governmental agricultural agencies. Because
> Manufacturing overhead data for the production of Product H by Smart Company are as follows. Overhead incurred for 52,000 actual direct labor hours worked ……………$263,000 Overhead rate (variable $3; fixed $2) at normal capacity of 54,000 direct la
> Wallowa Company is considering a long-term investment project called ZIP. ZIP will require an investment of $120,000. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $80,000, and annual cash outflows woul
> Indicate which of the four perspectives in the balanced scorecard is most likely associated with the objectives that follow. 1. Ethics violations. 2. Credit rating. 3. Customer retention. 4. Stockouts. 5. Reportable accidents. 6. Brand recognition.
> In Pargo Company’s flexible budget graph, the fixed cost line and the total budgeted cost line intersect the vertical axis at $90,000. The total budgeted cost line is $330,000 at an activity level of 50,000 direct labor hours. Compute total budgeted cost
> Use this list of terms to complete the sentences that follow. Long-range plans Participative budgeting Sales forecast Operating budgets Master budget
> Beacon Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $400,000, has an expected useful life of 10 years, a salvage value of zero, and is expected to increase net annual cash flows by $70,000. P
> Numerous articles have been written that identify early warning signs that you might be getting into trouble with your personal debt load. You can find many good articles on this topic on the Web. Instructions: Find an article that identifies early warn
> Mecha Oil Company is considering investing in a new oil well. It is expected that the oil well will increase annual revenues by $130,000 and will increase annual expenses by $70,000 including depreciation. The oil well will cost $470,000 and will have a
> Hsung Company accumulates the following data concerning a proposed capital investment: cash cost $215,000, net annual cash flows $40,000, present value factor of cash inflows for 10 years 5.65 (rounded). Determine the net present value, and indicate whet
> Bella Company is considering purchasing new equipment for $450,000. It is expected that the equipment will produce net annual cash flows of $50,000 over its 10-year useful life. Annual depreciation will be $45,000. Compute the cash payback period.
> Journalize the following transactions for Dewey, Inc. (a) Incurred direct labor costs of $24,000 for 3,000 hours. The standard labor cost was $25,500. (b) Assigned 3,000 direct labor hours costing $24,000 to production. Standard hours were 3,150.
> The four perspectives in the balanced scorecard are (1) financial, (2) customer, (3) internal process, and (4) learning and growth. Match each of the following objectives with the perspective it is most likely associated with: (a) Plant capacity uti
> Hartley Company’s standard labor cost per unit of output is $22 (2 hours 3 $11 per hour). During August, the company incurs 2,100 hours of direct labor at an hourly cost of $10.80 per hour in making 1,000 units of finished product. Compute the total, pri
> Simba Company’s standard materials cost per unit of output is $10 (2 pounds 3 $5). During July, the company purchases and uses 3,200 pounds of materials costing $16,192 in making 1,500 units of finished product. Compute the total, price, and quantity mat
> Labor data for making one gallon of finished product in Tang Company are as follows: (1) Price—hourly wage rate $13.00, payroll taxes $0.80, and fringe benefits $1.20. (2) Quantity—actual production time 1.1 hours, rest periods and cleanup 0.25 hours, an
> Tang Company accumulates the following data concerning raw materials in making one gallon of finished product: (1) Price—net purchase price $2.30, freight-in$0.20, and receiving and handling $0.10. (2) Quantity—required materials 3.6 pounds, allowance
> Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $200,000 and has an estimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine will provide net ann
> 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?
