Why are separate price and quantity variances computed?
> What happens to capital losses that are not deductible in the current year?
> The U.S. Constitution is the highest tax authority but provides very little in the way of tax laws. What are the next highest tax authorities beneath the U.S. Constitution?
> Jessica’s friend Zachary once stated that he couldn’t understand why someone would take a tax course. Why is this a rather naïve view?
> Following are a number of cost terms introduced in the chapter: Required: Choose the term or terms above that most appropriately describe the cost identified in each of the following situations. A cost term can be used more than once. Variable cost
> What is the difference between net cash provided by operating activities and free cashflow?
> If the Accounts Receivable balance increases during a period, how will this increase be recognized using the indirect method of computing the net cash provided by operating activities?
> How do the direct and the indirect methods differ in their approach to computing the netcash provided by operating activities?
> Assume that a company repays a $300,000 loan from its bank and then later in the sameyear borrows $500,000. What amount(s) would appear on the statement of cash flows?
> Why aren’t transactions involving accounts payable considered to be financing activities?
> If an asset is sold at a gain, why is the gain deducted from net income when computing the net cash provided by operating activities under the indirect method?
> Watkins Trophies, Inc., produces thousands of medallions made of bronze, silver, and gold. The medallions are identical except for the materials used in their manufacture. What costing system would you advise the company to use?
> Why is interest paid on amounts borrowed from banks and other lenders considered to bean operating activity while the amounts borrowed are financing activities?
> What are the three major sections on a statement of cash flows, and what are the general rules that determine the transactions that should be included in each section?
> What are cash equivalents, and why are they included with cash on a statement of cashflows?
> What is the purpose of a statement of cash flows?
> What is meant by an investment project’s internal rate of return? How is the internal rate of return computed?
> If a company has to pay interest of 14% on long-term debt, then its cost of capital is 14%.Do you agree? Explain.
> Identify two simplifying assumptions associated with discounted cash flow methods of making capital budgeting decisions.
> What is net present value? Can it ever be negative? Explain.
> Why are discounted cash flow methods of making capital budgeting decisions superior to other methods?
> Why isn’t accounting net income used in the net present value and internal rate of return methods of making capital budgeting decisions?
> What is meant by the term equivalent units of production when the weighted-average method is used?
> What is meant by the term discounting?
> What is meant by the term time value of money?
> What is the difference between capital budgeting screening decisions and capital budgeting preference decisions?
> What guideline should be used in determining whether a joint product should be sold at the split-off point or processed further?
> Define the following terms: joint products, joint costs, and split-off point.
> How will relating product contribution margins to the amount of the constrained resourcethey consume help a company maximize its profits?
> What is the danger in allocating common fixed costs among product lines or other segmentsof an organization?
> Prentice Company is considering dropping one of its product lines. What costs of the productline would be relevant to this decision? Irrelevant?
> All future costs are relevant in decision making. Do you agree? Why?
> “Sunk costs are easy to spot—they’re simply the fixed costs associated with a decision.”Do you agree? Explain.
> Assume that a company has two processing departments—Mixing followed by Firing. Explain what costs might be added to the Firing Department’s Work in Process account during a period.
> Are variable costs always relevant costs? Explain.
> What is a relevant cost?
> Why do the measures used in a balanced scorecard differ from company to company?
> What is meant by residual income?
> What is meant by the terms margin and turnover in ROI calculations?
> What costs are assigned to a segment under the contribution approach?
> What is a segment of an organization? Give several examples of segments.
> Distinguish between a cost center, a profit center, and an investment center.
> What is meant by the term decentralization?
> Alyeska Services Company, a division of a major oil company, provides various services tothe operators of the North Slope oil field in Alaska. Data concerning the most recent year appearbelow: Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> What are the four steps in the planning and control cycle?
> If a company has a manufacturing cycle efficiency (MCE) of less than 1, what does it mean? How would you interpret an MCE of 0.40?
> What effect, if any, would you expect poor-quality materials to have on direct labor variances?
> Should standards be used to identify who to blame for problems?
> If the materials price variance is favorable but the materials quantity variance is unfavorable, what might this indicate?
> Who is generally responsible for the materials price variance? The materials quantity variance? The labor efficiency variance?
> What is meant by the term management by exception?
> Distinguish between ideal and practical standards.
> What is a quantity standard? What is a price standard?
> What are some of the possible reasons that actual results may differ from what had been budgeted at the beginning of a period?
> What are the three major elements of product costs in a manufacturing company?
> What is a flexible budget and how does it differ from a static planning budget?
> What is a static planning budget?
> Why are there two stages of allocation in activity-based costing?
> What types of costs should not be assigned to products in an activity-based costing system?
> If fixed manufacturing overhead costs are released from inventory under absorption costing, what does this tell you about the level of production in relation to the level of sales?
> If the units produced and unit sales are equal, which method would you expect to show the higher net operating income, variable costing or absorption costing? Why?
> Are selling and administrative expenses treated as product costs or as period costs under variable costing?
> In all respects, Company A and Company B are identical except that Company A’s costs are mostly variable, whereas Company B’s costs are mostly fixed. When sales increase, which company will tend to realize the greatest increase in profits? Explain.
> Often the most direct route to a business decision is an incremental analysis. What is meant by an incremental analysis?
> What is meant by the term sales mix? What assumption is usually made concerning sales mix in CVP analysis?
> A number of terms that relate to organizations, the work of management, and the role of managerial accounting are listed below: Required: Choose the term or terms above that most appropriately complete the following statements. A term may be used more t
> What is meant by the margin of safety?
> What is meant by the term break-even point?
> What is meant by the term operating leverage?
> What is the contribution margin?
> What is the difference between ordinary least-squares regression analysis and multiple regression analysis?
> What is meant by the term least-squares regression?
> Give the general formula for a mixed cost. Which term represents the variable cost? The fixed cost?
> What is the major disadvantage of the high-low method?
> Does the concept of the relevant range apply to fixed costs? Explain.
> Classify the following fixed costs as normally being either committed or discretionary: a. Depreciation on buildings. b. Advertising. c. Research. d. Long-term equipment leases. e. Pension payments to the company’s retirees. f. Management development and
> John Olsen operates a stamping machine on the assembly line of Drake Manufacturing Company. Last week Mr. Olsen worked 45 hours. His basic wage rate is $14 per hour, with time and a half for overtime (time worked in excess of 40 hours per week). Required
> Managers often assume a strictly linear relationship between cost and volume. How can this practice be defended in light of the fact that many costs are curvilinear?
> What is meant by an activity base when dealing with variable costs? Give several examples of activity bases.
> What effect does an increase in volume have on— a. Unit fixed costs? b. Unit variable costs? c. Total fixed costs? d. Total variable costs?
> Assume that a company has two processing departments—Mixing and Firing. Prepare a journal entry to show a transfer of work in process from the Mixing Department to the Firing Department
> How many Work in Process accounts are maintained in a company that uses process costing?
> Only variable costs can be differential costs. Do you agree? Explain.
> Why is cost accumulation simpler in a process costing system than it is in a job-order costing system?
> The variable cost per unit varies with output, whereas the fixed cost per unit is constant. Do you agree? Explain.
> Under what conditions would it be appropriate to use a process costing system?
> Describe how the inventory accounts of a manufacturing company differ from the inventory account of a merchandising company.
> Mary Adams is employed by Acme Company. Last week she worked 34 hours assembling one of the company’s products and was idle 6 hours due to material shortages. Acme’s employees are engaged at their workstations for a normal 40-hour week. Ms. Adams is paid
> Do U.S. GAAP and IFRS differ in the ability of a company to recognize in net income the recovery of impairment losses of accounts and notes receivable?
> What are the key variables that influence a company’s investment in receivables? Describe the two ratios used by financial analysts to monitor a company’s investment in receivables.
> What is a deferred annuity?
> Prepare a time diagram for the present value of a four-year annuity due of $200. Assume an interest rate of 10% per year.
> Explain the relationship between Table 2, Present Value of $1, and Table 4, Present Value of an Ordinary Annuity of $1. TABLE 2 Present Value of $1 PV = nN 1.0% 15% 2.0% 2.5% 10% 4.0% 4.5% 6.0% 7.0% 9.0% 10.0% 11.0% 12.0% 20.0% 1 0.99010 O.98522 0.9
> Shackelford Corporation acquired a patent from its founder, Jim Shackelford, in exchange for 50,000 shares of the company’s nopar common stock. On the date of the exchange, the common stock had a fair value of $22 per share. Determine the cost of the pat
> What is the basic principle for valuing property, plant, and equipment and intangible assets acquired in exchange for other nonmonetary assets?
> What account is credited when a company receives donated assets? What is the rationale for this choice?
> Explain how property, plant, and equipment and intangible assets acquired through donation are valued.
> Explain the difference between an ordinary annuity and an annuity due.
> Explain how assets acquired in exchange for equity securities are valued.
> When an asset is acquired and a note payable is assumed, explain how acquisition cost of the asset is determined when the interest rate for the note is less than the current market rate for similar notes.
> Explain the method generally used to allocate the cost of a lump-sum purchase to the individual assets acquired.
