Steve Murningham, manager of an electronics division, was considering an offer by Pat Sellers, manager of a sister division. Pat’s division was operating below capacity and had just been given an opportunity to produce 8,000 units of one of its products for a customer in a market not normally served. The opportunity involves a product that uses an electrical component produced by Steve’s division. Each unit that Pat’s division produces requires two of the components. However, the price that the customer is willing to pay is well below the price that is usually charged. To make a reasonable profit on the order, Pat needs a price concession from Steve’s division. Pat had offered to pay full manufacturing cost for the parts. So Steve would know that everything was above board, Pat supplied the following unit cost and price information concerning the special order, excluding the cost of the electrical component: Selling price …………………………………………… $32 Less costs: Direct materials ………………………………………. 17 Direct labor ……………………………………………… 7 Variable overhead …………………………………… 2 Fixed overhead ………………………………………. 3 Operating profit ……………………………………… $ 3 The normal selling price of the electrical component is $2.30 per unit. Its full manufacturing cost is $1.85 ($1.05 variable and $0.80 fixed). Pat argued that paying $2.30 per component would wipe out the operating profit and result in her division showing a loss. Steve was interested in the offer because his division was also operating below capacity (the order would not use all the excess capacity). Required: 1. CONCEPTUAL CONNECTION Should Steve accept the order at a selling price of $1.85 per unit? By how much will his division’s profits be changed if the order is accepted? By how much will the profits of Pat’s division change if Steve agrees to supply the part at full cost? 2. CONCEPTUAL CONNECTION Suppose that Steve offers to supply the component at $2. In offering this price, Steve says that it is a firm offer, not subject to negotiation. Should Pat accept this price and produce the special order? If Pat accepts the price, what is the change in profits for Steve’s division? 3. CONCEPTUAL CONNECTION Assume that Steve’s division is operating at full capacity and that Steve refuses to supply the part for less than the full price. Should Pat still accept the special order? Explain.
> Randel Company produces a variety of gardening tools and aids. The company is examining the possibility of investing in a new production system that will reduce the costs of the current system. The new system will require a cash investment of $3,455,400
> Eyring Company invested $7,500,000 in a new product line. The life cycle of the product is projected to be 7 years with the following net income stream: $300,000, $300,000, $500,000, $900,000, $1,000,000, $2,100,000, and $1,200,000. Required: Calculate
> Washington Company has two divisions: the Adams Division and the Jefferson Division. The following information pertains to last year’s results: Washington’s actual cost of capital was 12%. In addition, Washington Co
> Ventura Manufacturing is considering an investment in a new automated manufacturing system. The new system requires an investment of $3,000,000 and either has (a) even cash flows of $750,000 per year or (b) the following expected annual cash flows: $375,
> Falconer Company had net (after-tax) income last year of $12,375,400 and total capital employed of $111,754,000. Falconer’s actual cost of capital was 9%. Required: 1. Calculate the EVA for Falconer Company. 2. CONCEPTUAL CONNECTION Is Falconer creating
> The Tuxedo Division of Shamus O’Toole Company had operating income last year of $152,250,000 and average operating assets of $2,175,000,000. O’Toole’s minimum acceptable rate of return is 8%. (Round all answers to two decimal places.) Required: 1. Calcu
> Data follow for the Construction Division of D. Jack Inc.: (Note: Round all answers to two decimal places.) Required: 1. Compute the margin and turnover ratios for each year. 2. Compute the ROI for the Construction Division for each year.
> Discuss the differences between centralized and decentralized decision making.
> Tidwell Company experienced the following during 2013: a. Sold preferred stock for $480,000. b. Declared dividends of $150,000 payable on March 1, 2014. c. Borrowed $575,000 from bank on a 2-year note. d. Purchased $80,000 of its own common stock to hold
> During 2013, Shorts Company had the following transactions: a. Purchased $200,000 of 10-year bonds issued by Makenzie Inc. b. Acquired land valued at $70,000 in exchange for machinery. c. Sold equipment with original cost of $540,000 for $330,000; accumu
> During the year, Hepworth Company earned a net income of $61,725. Beginning and ending balances for the year for selected accounts are as follows: There were no financing or investing activities for the year. The above balances reflect all of the adjus
> Jarem Company showed $189,000 in prepaid rent on December 31, 2013. On December 31, 2014, the balance in the prepaid rent account was $226,800. Rent expense for 2014 was $472,500. Required: 1. What amount of cash was paid for rent in 2014? 2. CONCEPTUAL
> Stillwater Designs is a private company and outsources production of its Kicker speaker lines. Suppose that Stillwater Designs provided you the following transactions. a. Sold a warehouse for $750,000. b. Reported a profit of $100,000. c. Retired long-te
> The income statement for Piura Merchandising Corporation is as follows: Other information is as follows: a. Accounts payable decreased by $20,000 during the year. b. Accounts receivable increased by $20,000. c. All wages were paid at the beginning of t
> What are the advantages in using worksheets when preparing a statement of cash flows?
> Explain how the statement of cash flows can be prepared using the worksheet approach.
> Roberts Company has provided the following partial comparative balance sheets and the income statement for 2014. Required: Compute operating cash flows using the direct method.
> What is the Balanced Scorecard?
> During the year, Blaylock Company sold equipment with a book value of $280,000 for $380,000 (original purchase cost of $480,000). New equipment was purchased. Blaylock provided the following comparative balance sheets: Required: Calculate the investing
> Fred Jackson, president and owner of Bailey Company, is concerned about the company’s ability to obtain a loan from a major bank. The loan is a key factor in the firm’s plan to expand its operations. Demand for the firm’s product is high—too high for the
> Fabre Company, Patterson Company’s competitor, is considering the same investments as Patterson. Refer to the data in Problem 14-47 above. Assume that Fabre’s cost of capital is 14%. data in Problem 14-47: Patterson
> Patterson Company is considering two competing investments. The first is for a standard piece of production equipment. The second is for computer-aided manufacturing (CAM) equipment. The investment and after-tax operating cash flows follow: Patterson u
> New marge Products Inc. is evaluating a new design for one of its manufacturing processes. The new design will eliminate the production of a toxic solid residue. The initial cost of the system is estimated at $860,000 and includes computerized equipment,
> ‘‘I know that it’s the thing to do,’’ insisted Pamela Kincaid, vice president of finance for Colgate Manufacturing. ‘‘If we are going to be competitive, we need to build this completely automated plant.’’ ‘‘I’m not so sure,’’ replied Bill Thomas, CEO of
> Leak am Company’s product engineering department has developed a new product that has a 3 year life cycle. Production of the product requires development of a new process that requires a current $100,000 capital outlay. The $100,000 will be raised by iss
> Kildare Medical Center, a for-profit hospital, has three investment opportunities: (1) adding a wing for in-patient treatment of substance abuse, (2) adding a pathology laboratory, and (3) expanding the outpatient surgery wing. The initial investments an
> Briefly explain three common transfer pricing policies used by organizations.
> Stillwater Designs has been rebuilding Model 100, Model 120, and Model 150 Kicker subwoofers that were returned for warranty action. Customers returning the subwoofers receive a new replacement. The warranty returns are then rebuilt and resold (as second
> Julianna Cardenas, owner of Baker Company, was approached by a local dealer of air conditioning units. The dealer proposed replacing Baker’s old cooling system with a modern, more efficient system. The cost of the new system was quoted at $339,000, but i
> Emery Communications Company is considering the production and marketing of a communications system that will increase the efficiency of messaging for small businesses or branch offices of large companies. Each unit hooked into the system is assigned a m
> Jonathan Butler, process engineer, knows that the acceptance of a new process design will depend on its economic feasibility. The new process is designed to improve environmental performance. On the negative side, the process design requires new equipmen
> Skiba Company is thinking about two different modifications to its current manufacturing process. The after-tax cash flows associated with the two investments follow: Skiba’s cost of capital is 10%. Required: 1. Compute the NPV and th
> Each of the following scenarios are independent. Assume that all cash flows are after-tax cash flows. a. Thomas Company is investing $120,000 in a project that will yield a uniform series of cash inflows over the next 4 years. b. Video Repair has decided
> Wise Company is considering an investment that requires an outlay of $600,000 and promises an after-tax cash inflow 1 year from now of $693,000. The company’s cost of capital is 10%. Required: 1. Break the $693,000 future cash inflow into three componen
> All scenarios are independent of all other scenarios. Assume that all cash flows are after-tax cash flows. a. Kambry Day is considering investing in one of the following two projects. Either project will require an investment of $20,000. The expected cas
> Booth Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of tractors. The outlay required is $960,000. The NC equipment will last 5 years with no expected salvage value. The expec
> Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. a. Cuenca Company is considering the purchase of new equipment that will speed up the process for producing flash drives. The equipment will cost $7,200,
> What are the five steps for preparing the statement of cash flows? What is the purpose of each step?
> Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows. a. Southward Manufacturing is considering the purchase of a new welding system. The cash benefits will be $400,000 per year. The system costs $2,250,000
> Explain what a post audit is and how it can provide useful input for future capital investment decisions, especially those involving advanced technology.
> Weeden Inc. intends to invest in one of two competing types of computer-aided manufacturing equipment: CAM X and CAM Y. Both CAM X and CAM Y models have a project life of 10 years. The purchase price of the CAM X model is $2,400,000, and it has a net ann
> Manny Carson, certified management accountant and controller of Wake man Enterprises, has been given permission to acquire a new computer and software for the company’s accounting system. The capital investment analysis showed an NPV of $100,000. However
> Eunice Company produces two products from a joint process. Joint costs are $70,000 for one batch, which yields 1,000 liters of germain and 4,000 liters of hastain. Germain can be sold at the split-off point for $24 or be processed further, into geraiten,
> Norton Company produces two products (Juno and Hera) that use the same material input. Juno uses two pounds of the material for every unit produced, and Hera uses five pounds. Currently, Norton has 16,000 pounds of the material in inventory. All of the m
> Shenista Inc. produces four products (Alpha, Beta, Gamma, and Delta) from a common input. The joint costs for a typical quarter follow: Direct materials …………………………. $95,000 Direct labor …………………………………. 43,000 Overhead ……………………………………. 85,000 The revenues
> Randy Stone, manager of Specialty Paper Products Company, was agonizing over an offer for an order requesting 5,000 boxes of calendars. Specialty Paper Products was operating at 70% of its capacity and could use the extra business. Unfortunately, the ord
> Can direct materials ever be irrelevant in a make-or-buy decision? Explain.
> Sealing Company manufactures three types of DVD storage units. Each of the three types requires the use of a special machine that has a total operating capacity of 15,000 hours per year. Information on the three types of storage units is as follows: Se
> Audio Mart is a retailer of radios, stereos, and televisions. The store carries two portable sound systems that have radios, tape players, and speakers. System A, of slightly higher quality than System B, costs $20 more. With rare exceptions, the store a
> Hetrick Dentistry Services operates in a large metropolitan area. Currently, Hetrick has its own dental laboratory to produce porcelain and gold crowns. The unit costs to produce the crowns are as follows: Fixed overhead is detailed as follows: Salary
> Rianne Company produces a light fixture with the following unit cost: Direct materials ………………………………………. $2 Direct labor ……………………………………………….. 1 Variable overhead ……………………………………... 3 Fixed overhead …………………………………………. 2 Unit cost …………………………………………………. $8 Th
> As pointed out earlier in ‘‘Here’s the Real Kicker,’’ Kicker changed banks a couple of years ago because the loan officer at its bank moved out of state. Kicker saw that as an opportunity to take bids for its banking business and to fine-tune the banking
> Heather Alburty purchased a previously owned, 2004 Grand Am for $8,900. Since purchasing the car, she has spent the following amounts on parts and labor: New stereo system $1,200 Trick paint 400 New wide racing tires 800 Total $2,400 Unfortunately, the
> Bozo Inc. manufactures two products from a joint production process. The joint process costs $110,000 and yields 6,000 pounds of LTE compound and 14,000 pounds of HS compound. LTE can be sold at split-off for $55 per pound. HS can be sold at split-off fo
> Jan Shumard, president and general manager of Danbury Company, was concerned about the future of one of the company’s largest divisions. The division’s most recent quarterly income statement follows: Sales ………………………………………………………………………. $3,751,500 Less: C
> Pamela McDonald, chief management accountant and controller for Murray Manufacturing Inc., was having lunch with Roger Branch, manager of the company’s power department. Over the past six months, Pamela and Roger had developed a romantic relationship and
> What is residual income? What is EVA? How does EVA differ from the general definition of residual income?
> Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement, with amounts given in thousands, follows: Direct fixed expenses consist of depreciation and plant supervisory salaries. All depreciation on the equipmen
> Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement, with amounts given in thousands, follows: Direct fixed expenses consist of depreciation and plant supervisory salaries. All depreciation on the equipmen
> Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement, with amounts given in thousands, follows: Direct fixed expenses consist of depreciation and plant supervisory salaries. All depreciation on the equipmen
> Zion Manufacturing had always made its components in-house. However, Bryce Component Works had recently offered to supply one component, K2, at a price of $25 each. Zion uses 10,000 units of Component K2 each year. The cost per unit of this component is
> Zion Manufacturing had always made its components in-house. However, Bryce Component Works had recently offered to supply one component, K2, at a price of $25 each. Zion uses 10,000 units of Component K2 each year. The cost per unit of this component is
> Blasingham Company is currently manufacturing Part Q108, producing 35,000 units annually. The part is used in the production of several products made by Blasingham. The cost per unit for Q108 is as follows: Direct materials ………………………………… $ 6.00 Direct l
> Jason Kemp was torn between conflicting emotions. On the one hand, things were going so well. He had just completed six months as the assistant financial manager in the Electronics Division of Med-Products Inc. The pay was good, he enjoyed his coworkers,
> A company like Kicker performs warranty repair work on speakers in a manufacturing cell. The typical warranty repair involves taking the defective speaker apart, testing the components, and replacing the defective components. The maximum capacity of the
> The following list gives a number of measures associated with the Balanced Scorecard: a. number of new customers b. percentage of customer complaints resolved with one contact c. unit product cost d. cost per distribution channel e. suggestions per emplo
> The theoretical cycle time for a product is 30 minutes per unit. The budgeted conversion costs for the manufacturing cell are $2,700,000 per year. The total labor minutes available are 600,000. During the year, the cell was able to produce 1.5 units of t
> Name and discuss three possible reasons that the payback period is used to help make capital investment decisions.
> Techno via Inc. has two divisions: Auxiliary Components and Audio Systems. Divisional managers are encouraged to maximize ROI and EVA. Managers are essentially free to determine whether goods will be transferred internally and what will be the internal t
> Lansing Electronics Inc. manufactures a variety of printers, scanners, and fax machines in its two divisions: the PSF Division and the Components Division. The Components Division produces electronic components that can be used by the PSF Division. All t
> Green World Inc. is a nursery products firm. It has three divisions that grow and sell plants: The Western Division, the Southern Division, and the Canadian Division. Recently, the Southern Division of Green World acquired a plastics factory that manufac
> Blasingham Company is currently manufacturing Part Q108, producing 35,000 units annually. The part is used in the production of several products made by Blasingham. The cost per unit for Q108 is as follows: Direct materials ………………………………… $ 6.00 Direct l
> The manager of a division that produces add-on products for the automobile industry has just been presented the opportunity to invest in two independent projects. The first is an air conditioner for the back seats of vans and minivans. The second is a tu
> Ready Electronics is facing stiff competition from imported goods. Its operating income margin has been declining steadily for the past several years. The company has been forced to lower prices so that it can maintain its market share. The operating res
> Grinnell Lake Gift Shop has decided to price the candles that it sells at cost plus 80%. One type of carved bear-shaped candle costs $12, and huckleberry-scented votive candles cost $1.10 each. Required: 1. What price will Grinnell Lake Gift Shop charge
> Billings Company produces two products, Product Reno and Product Tahoe. Each product goes through its own assembly and finishing departments. However, both of them must go through the painting department. The painting department has capacity of 2,460 hou
> Billings Company produces two products, Product Reno and Product Tahoe. Each product goes through its own assembly and finishing departments. However, both of them must go through the painting department. The painting department has capacity of 2,460 hou
> Lasker Company divided its tool production factory into manufacturing cells. Each cell produces one product. The cordless drill cell had the following data for last quarter: Maximum units produced in a quarter: ………….. 90,000 units Actual units produced
> What are margin and turnover? Explain how these concepts can improve the evaluation of an investment center.
> Prakesh Company has the following data for one of its manufacturing cells: Maximum units produced in a month: ……………. 50,000 units Actual units produced in a month: ………………….. 40,000 units Hours of production labor in one month: ………… 10,000 hours Require
> Aulman Inc. has a number of divisions, including a Furniture Division and a Motel Division. The Motel Division owns and operates a line of budget motels located along major highways. Each year, the Motel Division purchases furniture for the motel rooms.
> Aulman Inc. has a number of divisions, including a Furniture Division and a Motel Division. The Motel Division owns and operates a line of budget motels located along major highways. Each year, the Motel Division purchases furniture for the motel rooms.
> The following information has been gathered for Malette Manufacturing: Required: 1. Compute the return on assets. 2. Compute the return on common stockholders’ equity. 3. Compute the earnings per share. 4. Compute the price-earnings r
> Suppose that you are considering investing in one of two companies, each in the same industry. The most recent income statements for each company and other relevant information are as follows: Required: Note: Round answers to two decimal places. 1. Com
> Based on customer feedback, Ted Pendleton, manager of Gray Company, which produces photo supplies, decided to grant more liberal credit terms. Ted chose to allow customers to have 60 days before full payment of the account was required. From 2010 through
> Albion Inc. provided the following information for its most recent year of operation. The tax rate is 40%. Required: 1. Compute the following: (a) return on sales, (b) return on assets, (c) return on stockholders’ equity, (d) earnings
> Aulman Inc. has a number of divisions, including a Furniture Division and a Motel Division. The Motel Division owns and operates a line of budget motels located along major highways. Each year, the Motel Division purchases furniture for the motel rooms.
> Mike Sanders is considering the purchase of Kepler Company, a firm specializing in the manufacture of office supplies. To be able to assess the financial capabilities of the company, Mike has been given the company’s financial statement
> Mike Sanders is considering the purchase of Kepler Company, a firm specializing in the manufacture of office supplies. To be able to assess the financial capabilities of the company, Mike has been given the company’s financial statement
> Mike Sanders is considering the purchase of Kepler Company, a firm specializing in the manufacture of office supplies. To be able to assess the financial capabilities of the company, Mike has been given the company’s financial statement
> The after-tax cost of interest expense is used in calculating which of the following? a. Times-interest-earned b. Return on assets c. Debt ratio d. Inventory turnover ratio e. All of these.
> A small pizza restaurant, founded and owned by the Martinelli sisters, would be expected to have which of the following? a. Low inventory turnover and high gross margin b. Low accounts receivable turnover and low gross margin c. High price-earnings rati
> Fred and Torrie Jones are a retired couple looking for income. They are currently rebalancing their portfolio of stocks to include more with high dividends. Fred and Torrie will be most interested in which of the following? a. Current ratio b. Dividend
> Profitability ratios are used by which of the following groups? a. Company managers b. Creditors c. Lenders d. Investors e. All of these.
> Etchey Company shows that 46% of its assets are financed by creditors. Which of the following shows this result? a. Current ratio b. Times-interest-earned ratio c. Debt ratio d. Inventory turnover in days e. Return on sales
> Pedee Company’s inventory turnover in days is 80 days. Which of the following actions could help to improve that ratio? a. Increase sales price. b. Increase manufacturing costs. c. Reduce cost of goods sold. d. Reduce average inventory. e. All of these.
> Austin Porter is a sophomore at a small Midwestern university (SMWU). He is considering whether to continue at this university or to transfer to one with a nationally recognized engineering program. Austin’s decision-making process included the following
> The measures of the ability of a company to meet its current obligations are called a. ratios. b. liquidity ratios. c. leverage ratios. d. profitability ratios. e. percentage changes.
> Fractions or percentages computed by dividing one account or line-item amount by another are called a. returns. b. industry averages. c. common-size statements. d. dividend yields. e. ratios.
> An advantage of common-size analysis is that a. the size of dollar amounts impacts the analysis. b. larger companies will have higher common-size percentages. c. it focuses only on vertical analysis. d. the effects of size are eliminated. e. it focuses
