What simplifying assumptions were made in the chapter regarding calculation of net present value?
> At Symond Company, production workers in the Painting Department are paid on the basis of productivity. The labor time standard for a unit of production is established through periodic time studies conducted by Douglas Management Consultants. In a time s
> The setting of standards is critical to the effective use of standards in evaluating performance. Instructions: Explain the following in a memo to your instructor. (a) The comparative advantages and disadvantages of ideal versus normal standards. (b) Th
> Chicksaw Company uses the following budgets: Balance Sheet, Capital Expenditure, Cash, Direct Labor, Direct Materials, Income Statement, Manufacturing Overhead, Production, Sales, and Selling and Administrative. Prepare a diagram of the interrelationship
> You might hear people say that they “need to learn to live within a budget.” The funny thing is that most people who say this haven’t actually prepared a personal budget, nor do they intend to. Instead, what they are referring to is a vaguely defined, po
> In order to get your personal finances under control, you need to prepare a personal budget. Assume that you have compiled the following information regarding your expected cash flows for a typical month. Instructions: Using the information above, prep
> You are an accountant in the budgetary, projections, and special projects department of Fernetti Conductor, Inc., a large manufacturing company. The president, Richard Brown, asks you on very short notice to prepare some sales and income projections cove
> In order to better serve their rural patients, Drs. Joe and Rick Parcells (brothers) began giving safety seminars. Especially popular were their “emergency-preparedness” talks given to farmers. Many people asked whether the “kit&rdquo
> You might hear people say that they “need to learn to live within a budget.” The funny thing is that most people who say this haven’t actually prepared a personal budget, nor do they intend to. Instead, what they are referring to is a vaguely defined, po
> In order to get your personal finances under control, you need to prepare a personal budget. Assume that you have compiled the following information regarding your expected cash flows for a typical month. Instructions: Using the information above, prep
> What are joint products? What accounting issue results from the production process that creates joint products?
> You are an accountant in the budgetary, projections, and special projects department of Fernetti Conductor, Inc., a large manufacturing company. The president, Richard Brown, asks you on very short notice to prepare some sales and income projections cove
> What is the decision rule in deciding whether to sell a product or process it further?
> Define the term “opportunity cost.” How may this cost be relevant in a make-or-buy decision?
> Emil Corporation has an opportunity to buy parts at $9 each that currently cost $12 to make. What manufacturing costs are relevant to this make-or-buy decision?
> What data are relevant in deciding whether to accept an order at a special price?
> Sydney Greene asks for your help concerning the relevance of variable and fixed costs in incremental analysis. Help Sydney with her problem.
> How do responsibility reports differ from budget reports?
> Distinguish between controllable and non-controllable costs.
> What is management by exception? What criteria may be used in identifying exceptions?
> The flexible budget formula is fixed costs $50,000 plus variable costs of $4 per direct labor hour. What is the total budgeted cost at (a) 9,000 hours and (b) 12,345 hours?
> Cali Company has prepared a graph of flexible budget data. At zero direct labor hours, the total budgeted cost line intersects the vertical axis at $20,000. At 10,000 direct labor hours, the line drawn from the total budgeted cost line intersects the ver
> In order to better serve their rural patients, Drs. Joe and Rick Parcells (brothers) began giving safety seminars. Especially popular were their “emergency-preparedness” talks given to farmers. Many people asked whether the “kit&rdquo
> (a) What is budgetary control? (b) Fred Barone is describing budgetary control. What steps should be included in Fred’s description?
> “Incremental analysis involves the accumulation of information concerning a single course of action.” Do you agree? Why?
> Distinguish between a master budget and a sales forecast.
> Lori Wilkins maintains that the only difference between budgeting and long-range planning is time. Do you agree? Why or why not?
> What criteria are helpful in determining the length of the budget period? What is the most common budget period?
> Jane Gilligan asks your help in understanding the essentials of effective budgeting. Identify the essentials for Jane.
> Alou Company has 20,000 beginning finished goods units. Budgeted sales units are 160,000. If management desires 15,000 ending finished goods units, what are the required units of production?
> “The production budget shows both unit production data and unit cost data.” Is this true? Explain.
> What budget is the starting point in preparing the master budget? What may result if this budget is inaccurate?
> How may expected revenues in a service company be computed?
> School costs money. Is this an expenditure that you should have avoided? A year of tuition at a public four-year college costs about $8,655, and a year of tuition at a public two-year college costs about $1,359. If you did not go to college, you might av
> What is the formula for determining required merchandise purchases for a merchandiser?
> Noterman Company has credit sales of $600,000 in January. Past experience suggests that 40% is collected in the month of sale, 50% in the month following the sale, and 10% in the second month following the sale. Compute the cash collections from January
> Your roommate, Anna Polis, contends that accounting contributes to most of the steps in management’s decision-making process. Is your roommate correct? Explain.
> Identify the three sections of a cash budget. What balances are also shown in this budget?
> Indicate the supporting schedules used in preparing a budgeted income statement through gross profit for a manufacturer.
> For Goody Company, the budgeted cost for one unit of product is direct materials $10, direct labor $20, and manufacturing overhead 80% of direct labor cost. If 25,000 units are expected to be sold at $65 each, what is the budgeted gross profit?
> Everly Company’s variable selling and administrative expenses are 12% of net sales. Fixed expenses are $50,000 per quarter. The sales budget shows expected sales of $200,000 and $240,000 in the first and second quarters, respectively. What are the total
> Ortiz Company’s manufacturing overhead budget shows total variable costs of $198,000 and total fixed costs of $162,000. Total production in units is expected to be 150,000. It takes 20 minutes to make one unit, and the direct labor rate is $15 per hour.
> The production budget of Justus Company calls for 80,000 units to be produced. If it takes 45 minutes to make one unit and the direct labor rate is $16 per hour, what is the total budgeted direct labor cost?
> In preparing the direct materials budget for Quan Company, management concludes that required purchases are 64,000 units. If 52,000 direct materials units are required in production and there are 9,000 units of beginning direct materials, what is the des
> Managerial accounting techniques can be used in a wide variety of settings. As we have frequently pointed out, you can use them in many personal situations. They also can be useful in trying to find solutions for societal issues that appear to be hard to
> The executive team at Current Designs has gathered to evaluate the company’s operations for the last month. One of the topics on the agenda is the special order from Huegel Hollow, which was presented in BYP2-1. Recall that Current Designs had a special
> Huang Inc. has one product line that is unprofitable. What circumstances may cause overall company net income to be lower if the unprofitable product line is eliminated?
> Your roommate, Gale Dunham, is confused about sunk costs. Explain to your roommate the meaning of sunk costs and their relevance to a decision to retain or replace equipment.
> How are allocated joint costs treated when making a sell-or-process-further decision?
> What steps are frequently involved in management’s decision-making process?
> 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
> 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 pa
> 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
