A processing department of Carmine Corporation experienced a high unfavorable materials quantity variance. The plant manager initially commented, “The best way to solve this problem is to fire the supervisor of the processing department.” Do you agree? Explain.
> What are the advantages and disadvantages associated with the unadjusted rate of return method for evaluating capital investments?
> The payback method cannot be used if the cash inflows occur in unequal patterns.” Do you agree or disagree? Explain.
> What are three reasons that cash is worth more today than cash to be received in the future?
> I always go for the investment with the shortest payback period.” Is this a sound strategy? Why or why not?
> What typical cash inflow and outflow items are associated with capital investments?
> What is the relationship between desired rate of return and internal rate of return?
> Paul Henderson is a manager for Spark Company. He tells you that his company always maximizes profitability by accepting the investment opportunity with the highest internal rate of return. Explain to Mr. Henderson how his company may improve profitabili
> Which is the best capital investment evaluation technique for ranking investment opportunities?
> Does the net present value method provide a measure of the rate of return on capital investments?
> What criteria determine whether a project is acceptable under the net present value method?
> In 2019, Uber Technologies, Inc., reported a net loss, although it had a net profit in 2018. It reported negative cash flows from operating activities in both 2019 and 2018. Using the company’s Form 10-K for the fiscal year ended December 31, 2019, compl
> Two investment opportunities have positive net present values. Investment A’s net present value amounts to $40,000 while B’s is only $30,000. Does this mean that A is the better investment opportunity? Explain.
> Maria Espinosa borrowed $15,000 from the bank and agreed to repay the loan at 8 percent annual interest over four years, making payments of $4,529 per year. Because part of the bank’s payment from Ms. Espinosa is a recovery of the original investment, wh
> Receiving $100,000 per year for five years is equivalent to investing what amount today at 14 percent? Provide a mathematical formula to solve this problem, assuming use of a present value annuity table to convert the future cash flows to their present v
> What is a capital investment? How does it differ from an investment in stocks or bonds?
> Carmen Douglas claims that her company’s performance evaluation system is unfair. Her company uses return on investment (ROI) to evaluate performance. Ms. Douglas says that even though her ROI is lower than another manager’s, her performance is far super
> What are the three types of responsibility centers? Explain how each differs from the others.
> What is a responsibility center?
> How do responsibility reports promote the management by exception doctrine?
> How does the concept of predominant control as opposed to that of absolute control apply to responsibility accounting?
> Who receives responsibility reports? What do the reports include?
> Andy and Jean Crocket are involved in divorce proceedings. When discussing a property settlement, Andy told Jean that he should take over their investment in an apartment complex because she would be unable to absorb the loss that the apartments are gene
> What are five potential advantages of decentralization?
> All travel expenses incurred by Pure Water Pump Corporation are reported only to John Daniels, the company president. Pure Water is a multinational company with five divisions. Are travel expenses reported following the responsibility accounting concept?
> If cost is the basis for transfer pricing, should actual or standard cost be used? Why?
> What are three approaches to establishing transfer prices? List the most desirable approach first and the least desirable last.
> Why are transfer prices important to managers who are evaluated based on profitability criteria?
> Is it true that the manager with the highest residual income is always the best performer?
> How can a residual income approach to performance evaluation reduce the likelihood of suboptimization?
> What three ways can a manager increase the return on investment?
> What two factors affect the computation of return on investment?
> Pam Kelly says she has no faith in budgets. Her company, Kelly Manufacturing Corporation, spent thousands of dollars to install a sophisticated budget system. One year later the company’s expenses are still out of control. She believes budgets simply do
> The following selected information was drawn from the records of Fleming Company. Fleming is experiencing cash flow problems. Despite the fact that it reported significant increases in operating income, operating activities produced a net cash outflow. R
> Minnie Divers, the manager of the marketing department for one of the industry’s leading retail businesses, has been notified by the accounting department that her department experienced an unfavorable sales volume variance in the preceding period but a
> How are flexible budget variances determined? What causes these variances?
> With respect to fixed costs, what are the consequences of the actual volume of activity exceeding the planned volume?
> What factors could lead to an increase in sales revenues that would not merit congratulations to the marketing manager?
> When would variable cost volume variances be expected to be unfavorable? How should unfavorable variable cost volume variances be interpreted?
> Joan Mason, the marketing manager for a large manufacturing company, believes her unfavorable sales volume variance is the responsibility of the production department. What production circumstances that she does not control could have been responsible fo
> When are sales and cost variances favorable and unfavorable?
> What is the primary cause of a favorable fixed cost spending variance?
> What is the primary cause of an unfavorable fixed cost volume variance?
> When the operating costs for Bill Smith’s production department were released, he was sure that he would be getting a raise. His costs were $20,000 less than the planned cost in the master budget. His supervisor informed him that the results look good bu
> The following financial statements and information are available for Blythe Industries Inc. Table Summary: The Balance Sheets as of December 31 show 3 columns. Column 1 has entries. Column 2 has year 3. Column 3 has year 2. Balance Sheets As of December
> Which individuals are normally held responsible for labor usage variances?
> John Jamail says that he doesn’t understand why companies have labor price variances because most union contracts or other binding agreements set wage rates that do not normally change in the short term. How could rate variances occur even when binding c
> Who is normally responsible for a materials price variance? Identify two factors that may be beyond this individual’s control that could cause an unfavorable price variance.
> What two factors affect the total materials and labor variance?
> Sara Anderson says that she is a busy woman with no time to look at favorable variances. Instead, she concentrates solely on the unfavorable ones. She says that favorable variances imply that employees are doing better than expected and need only quick c
> What is the primary benefit associated with using a standard cost system?
> So many variances,” exclaimed Carl, a production manager with Bonnyville Manufacturing. “How do I determine the variances that need investigation? I can’t possibly investigate all of them.” Which variances will lead to useful information?
> What is the difference between a static budget and a flexible budget? When is each used?
> What are the three ranges of difficulty in standard setting? What level of difficulty normally results in superior employee motivation?
> What three attributes are necessary for establishing the best standards? What information and considerations should be taken into account when establishing standards?
> Tesla Inc. began operations in 2003 but did not begin selling its stock to the public until June 28, 2010. It has lost money every year it has been in existence, and by December 31, 2019, it had total lifetime losses of approximately $6.1 billion. In add
> What is a master budget?
> Ken Shilov, manager of the marketing department, tells you that “budgeting simply does not work.” He says that he made budgets for his employees and when he reprimanded them for failing to accomplish budget goals, he got unfounded excuses. Suggest how Mr
> How may budgets be used as a measure of performance?
> What are the advantages of budgeting?
> What is the advantage of using a perpetual budget instead of the traditional annual budget?
> What is the primary factor that distinguishes the three different levels of planning from each other?
> What are the three levels of planning? Explain each briefly.
> Why does preparing the master budget require a committee?
> How does the pro forma statement of cash flows differ from the cash budget?
> Refer to the data in ATC 13-6. Required Construct a spreadsheet to conduct vertical analysis for both years, Year 4 and Year 3. Data from ATC 13-6: Tomkung Corporation’s income statements are presented in the following spreadsheet.
> What information does the pro forma income statement provide? How does its preparation depend on the operating budgets?
> The primary reason for preparing a cash budget is to determine the amount of cash to include on the budgeted balance sheet. Do you agree or disagree with this statement? Explain.
> What are the components of the cash budget? Describe each.
> How does the level of inventory affect the production budget? Why is it important to manage the level of inventory?
> What is the normal starting point in developing the master budget?
> Budgets are useful only for small companies that can estimate sales with accuracy. Do you agree with this statement?
> A manager is faced with deciding whether to replace Machine A or Machine B. The original cost of machine A was $20,000 and that of Machine B was $30,000. Because the two cost figures differ, they are relevant to the manager’s decision. Do you agree? Expl
> A local bank advertises that it offers a free noninterest-bearing checking account if the depositor maintains a $500 minimum balance in the account. Is the checking account truly free?
> What is an opportunity cost? How does it differ from a sunk cost?
> Carmon Company invested $300,000 in the equity securities of Mann Corporation. The current market value of Carmon’s investment in Mann is $250,000. Carmon currently needs funds for operating purposes. Although interest rates are high, Carmon’s president
> Tomkung Corporation’s income statements are presented in the following spreadsheet. Required Construct a spreadsheet to conduct horizontal analysis of the income statements for Year 4 and Year 3.
> The Parent Teacher Association (PTA) of Meadow High School is planning a fund-raising campaign. The PTA is considering the possibility of hiring Eric Logan, a world-renowned investment counselor, to address the public. Tickets would sell for $28 each. Th
> It all comes down to the bottom line. The numbers never lie.” Do you agree with this conclusion? Explain your position.
> Describe the relationship between relevance and accuracy.
> Identify the four hierarchical levels used to classify costs. When can each of these levels of costs be avoided?
> Identify some of the constraints that limit a business’s ability to satisfy the demand for its products or services.
> Are variable costs always relevant? Explain.
> Why would a supervisor choose to continue using a more costly old machine instead of replacing it with a less costly new machine?
> The managers of Wilcox Inc. are suggesting that the company president eliminate one of the company’s segments that is operating at a loss. Why may this be a hasty decision?
> Identify some qualitative factors that should be considered in addition to quantitative costs in deciding whether to outsource.
> Chris Sutter, the production manager of Satellite Computers, insists that the drives used in the company’s upper-end computers be outsourced since they can be purchased from a supplier at a lower cost per unit than the company is presently incurring to p
> Why would a company consider outsourcing products or services?
> J. Talbot is the accounting manager for Kolla Waste Disposal Corporation. Kolla is having its worst financial year since its inception. The company is expected to report a net loss. In the midst of such bad news, Ms. Talbot surprised the company presiden
> What level(s) of costs is (are) relevant in special order decisions?
> What two factors should be considered in deciding how to allocate shelf space in a retail establishment?
> Which of the following would not be relevant to a make-or-buy decision? (a) Allocated portion of depreciation expense on existing facilities. (b) Variable cost of labor used to produce products currently purchased from suppliers. (c) Warehousing costs fo
> Identify two qualitative considerations that could be associated with special order decisions.
> Are all fixed costs unavoidable?
> Identify the primary qualities of revenues and costs that are relevant for decision making.
> To facilitate cost tracing, a company’s activities can be subdivided into four hierarchical categories. What are these four categories? Describe them and give at least two examples of each category.
> Tom Rehr made the following comment: “Facility-level costs should not be allocated to products because they are irrelevant for decision-making purposes.” Do you agree or disagree with this statement? Justify your response.
> Briefly describe the activity-based costing allocation process.
> Martinez Manufacturing makes two products, one of which is produced at a significantly higher volume than the other. The low-volume product consumes more of the company’s engineering resources because it is technologically complex. Even so, the company’s
> The following ratios are for four companies in different industries. Some of these ratios have been discussed in the textbook and others have not, but their names explain how the ratio was computed. These data are for the companies’ 201
> When would it be appropriate to use volume-based cost drivers in an activity-based costing system?
