Are the concepts underlying a relevant-cost analysis still valid in an advanced manufacturing environment? Are these concepts valid when activity-based costing is used? Explain.
> How do organizations use pay for performance to motivate managers?
> What is the managerial accountant’s primary objective in designing a responsibility-accounting system?
> Give an example of a gain sharing plan that could be implemented by an airline.
> Define the term manufacturing cycle efficiency.
> List seven areas in which nonfinancial, operational performance measures are receiving increased emphasis in today’s manufacturing environment.
> List and explain three key features of the segmented income statement shown in Exhibit 12–7. Exhibit 12–7: Segment of Company Segment of Oahu Division Aloha Hotels Maul Oahu Walmea Beach Dlamond Head Walkiki Sands
> Why do some managers and accountants choose not to allocate common costs in segmented reports?
> Explain what is meant by a segmented income statement.
> Under what circumstances would it be appropriate to change the Waikiki Sands Hotel from a profit center to an investment center?
> Which is more consistent with cost-volume-profit analysis, variable costing or absorption costing? Why
> Refer to the information given in Case 2 for Huron Chalk Company. Selected information from Huron’s year-end balance sheets for its first two years of operation is as follows: Information in case 2: Huron Chalk Company manufactures sid
> Data Screen Corporation is a highly automated manufacturing firm. The vice president of finance has decided that traditional standards are inappropriate for performance measures in an automated environment. Labor is insignificant in terms of the total co
> What types of organizations use flexible budgets?
> What is the fixed-overhead budget variance?
> Jeffries Company’s only variable-overhead cost is electricity. Does an unfavorable variable-overhead spending variance imply that the company paid more than the anticipated rate per kilowatt-hour
> Explain the advantage of using a flexible budget.
> Distinguish between static and flexible budgets.
> Describe five factors that managers often consider when determining the significance of a variance.
> Refer to Review Question 10–11. Why does an analogous question not arise in the context of the direct-labor variances?
> What manager is generally in the best position to influence the direct-labor efficiency variance?
> What is the interpretation of the direct-labor efficiency variance?
> Why do proponents of absorption costing argue that absorption costing is preferable as the basis for pricing decisions?
> What manager is usually in the best position to influence the direct-material quantity variance?
> What is the interpretation of the direct-material quantity variance?
> Explain how standard material prices and quantities are set
> Describe how a bank might use standards.
> Briefly explain the purpose of a cause-and-effect (or fishbone) diagram
> “An ounce of prevention is worth a pound of cure.” Interpret this old adage in light of Exhibit 8-6 Exhibit 8-6: May 20x2 Quality Costs Percent of Total Prevention costs Quality training Relability engineering-
> How can an organization help to reduce the problems caused by budgetary slack?
> Distinguish between a product’s quality of design and its quality of conformance
> What manager is generally in the best position to influence the direct-labor rate variance?
> Visit the website of Interface, Inc., at http://www.interfaceglobal.com. Read about its efforts toward sustainable development by clicking on the “Sustainability” link. Required: What is Interface’s product? Describe the company’s efforts toward sustai
> Will variable and absorption costing result in significantly different income measures in a JIT setting? Why?
> “Accounting systems should produce only relevant data and forget about the irrelevant data. Then I’d know what was relevant and what wasn’t!” Comment on this remark by a company president.
> Give two examples of sunk costs, and explain why they are irrelevant in decision making.
> Why can unitized fixed costs cause errors in decision making?
> There is an important link between decision making and managerial performance evaluation. Explain
> How is sensitivity analysis used to cope with uncertainty in decision making?
> Briefly describe the proper approach to making a production decision when limited resources are involved.
> What is a joint production process? Describe a special decision that commonly arises in the context of a joint production process. Briefly describe the proper approach for making this type of decision.
> Briefly describe the proper approach for making a decision about adding or dropping a product line.
> What behavioral tendency do people often exhibit with regard to opportunity costs?
> Define the term opportunity cost, and give an example of one.
> When inventory increases, will absorption-costing or variable-costing income be greater? Why?
> Why might a manager exhibit a behavioral tendency to inappropriately consider sunk costs in making a decision?
> Is the book value of inventory on hand a relevant cost? Why?
> List and explain two important criteria that must be satisfied in order for information to be relevant.
> What is meant by each of the following potential characteristics of information: relevant, accurate, and timely? Is objective information always relevant? Accurate?
> A quantitative analysis enables a decision maker to put a “price” on the sum total of the qualitative characteristics in a decision situation. Explain this statement, and give an example.
> Refer to the data given in the preceding exercise for Plato Corporation. Assume that the d irect-labor rate is $12 per hour, and 11,000 labor hours are available per year. In addition, the company has a short supply of machine time. Only 9,000 hours are
> Plato Corporation manufactures two products, Alpha and Beta. Contribution margin data follow. Plato Corporation’s production process uses highly skilled labor, which is in short supply. The same employees work on both products and earn
> Global’s special order also requires 1,000 kilograms of genatope, a solid chemical regularly used in the company’s products. The current stock of genatope is 8,000 kilograms at a book value of 12.15 p per kilogram. If the special order is accepted, the f
> Global Chemical Company, located in Buenos Aires, Argentina, recently received an order for a product it does not normally produce. Since the company has excess production capacity, management is considering accepting the order. In analyzing the decision
> The term direct costing is a misnomer. Variable costing is a better term for the product-costing method. Do you agree or disagree? Why?
> Juarez Corporation produces cleaning compounds and solutions for industrial and household use. While most of its products are processed independently, a few are related. Grit 337, a coarse cleaning powder with many industrial uses, costs $3.20 a pound to
> Thorpe Industries produces chemicals for the swimming pool industry. In one joint process, 10,000 gallons of GSX are processed into 7,000 gallons of xenolite and 3,000 gallons of banolide. The cost of the joint process, including the GSX, is $17,500. The
> Armstrong Corporation manufactures bicycle parts. The company currently has a $19,500 inventory of parts that have become obsolete due to changes in design specifications. The parts could be sold for $7,000, or modified for $10,000 and sold for $20,300.
> College Town Pizza’s owner bought his current pizza oven two years ago for $10,500, and it has one more year of life remaining. He is using straight-line depreciation for the oven. He could purchase a new oven for $2,200, but it would last only one year.
> If Toon Town Toy Company closes its Packaging Department, the department manager will be appointed manager of the Cutting Department. The Packaging Department manager makes $51,000 per year. To hire a new Cutting Department manager will cost Toon Town $6
> Toon Town Toy Company is considering the elimination of its Packaging Department. Management has received an offer from an outside firm to supply all Toon Town’s packaging needs. To help her in making the decision, Toon Town’s president has asked the con
> Day Street Deli’s owner is disturbed by the poor pr o fit performance of his ice cream counter. He has prepared the following profit analysis for the year just ended. Required: Criticize and correct the owner’s analys
> Redo Exhibit 14–4 without the irrelevant data. Exhibit 14-1: 1. Clarity the decision problem 2. Specity the criterion Managerial accountant participates as part of Quantitative cross-functional Analysis 3. Identity the alternatives
> Choose an organization and a particular decision situation. Then give examples, u s ing that decision context, of each step illustrated in Exhibit 14–1. Exhibit 14-1: 1. Clarity the decision problem 2. Specity the criterion Manager
> New Jersey Chemical Company manufactures two industrial chemical products, called zanide and kreolite. Two machines are used in the process, and each machine has 24 hours of capacity per day. The following data are available: The company can produce and
> Timing is the key in distinguishing between absorption and variable costing. Explain this statement
> Why might income-tax laws affect the transfer-pricing policies of multinational companies?
> Describe four methods by which transfer prices may be set.
> Identify and explain the managerial accountant’s primary objective in choosing a transfer-pricing policy
> Discuss the importance of nonfinancial information in measuring investment-center performance.
> List three nonfinancial measures that could be used to evaluate a division of an insurance company.
> How does inflation affect investment-center performance measures?
> Describe an alternative to using ROI or residual income to measure investment-center performance
> Explain why it is important in performance evaluation to distinguish between investment centers and their managers.
> Why do some companies use gross book value instead of net book value to measure a division’s invested capital?
> Distinguish between the following measures of invested capital, and briefly explain when each should be used: (a) total assets, (b) total productive assets, and (c) total assets less current liabilities.
> Explain three strategies of environmental cost management.
> Define the term economic value added. How does it differ from residual income?
> Why is there typically a rise in ROI or residual income across time in a division? What undesirable behavioral implications could this phenomenon have?
> What is the chief disadvantage of ROI as an investment center performance measure? How does the residual income measure eliminate this disadvantage?
> Create an example showing how residual income is calculated. What information is used in computing residual income that is not used in computing ROI?
> Explain how the manager of the Automobile Division of an insurance company could improve her division’s ROI.
> Define and give three examples of an investment center.
> Describe the managerial approach known as management by objectives or MBO.
> Define goal congruence, and explain why it is important to an organization’s success.
> Explain the role of import duties, or tariffs, in affecting the transfer-pricing policies of multinational companies
> Redstone Industrial Resources Company (RIRC) has several divisions. However, only two divisions transfer products to other divisions. The Mining Division refines toldine, which is then transferred to the Metals Division. The toldine is processed into an
> Industrial Technologies, Inc. (ITI), produces two compression machines that are popular with manufacturers of plastics: no. 165 and no. 172. Machine no. 165 has an average selling price of $30,000, whereas no. 172 typically sells for approximately $27,50
> Weathermaster Window Company manufactures windows for the home-building industry. T he window frames are produced in the Frame Division. The frames are then transferred to the Glass Division, where the glass and hardware are installed. The companyâ
> Mitachlordion Technology, Inc. (MTI), has two divisions: Birmingham and Tampa. Birmingham currently sells a diode reducer to manufacturers of aircraft navigation systems for $1,550 per unit. Variable costs amount to $1,000, and demand for this product cu
> Cape Cod Lobster Shacks, Inc. (CCLS), is a seafood restaurant chain operating throughout the northeast. The company has two sources of long-term capital: debt and equity. The cost to CCLS of issuing debt is the after-tax cost of the interest payments on
> Maple Leaf Industries, headquartered in Toronto, is a multiproduct company with three divisions: Pacific Division, Plains Division, and Atlantic Division. The company has two sources of long-term capital: debt and equity. The interest rate on Maple Leaf&
> Hoosier Industries manufactures a variety of household products. Roy Washburn, head of the company’s Hardware Division, has just completed a miserable nine months. “If it could have gone wrong, it did. Sales are down,
> Prepare a table similar to Exhibit 13–3, which focuses on residual income. Use a 10 percent rate to compute the imputed interest charge. The table should show the residual income on the investment during each year in its five-year life.
> Refer to Exhibit 13–3. Prepare a similar table of the changing ROI assuming the following accelerated depreciation schedule. Assume the same income before depreciation as shown in Exhibit 13–3. (If there is a loss, lea
> Megatronics Corporation, a massive retailer of electronic products, is organized in four separate divisions. The four divisional managers are evaluated at year-end, and bonuses are awarded based on ROI. Last year, the company as a whole produced a 13 per
> Refer to the data for problem 1 regarding Omaha Grain Company. Data from problem 1: Omaha Grain Company has two divisions, which reported the following results for the most recent year Required: Compute each division’s residual incom
> Refer to the preceding problem about Calrisian Enterprises. Data from preceding problem: The following data pertain to three divisions of Calrisian Enterprises. The company’s required rate of return on invested capital is 8 percent. R
> Great Outdoze, Inc., manufactures high-quality sleeping bags, which sell for $130 each. The variable costs of production are as follows: Direct material .............................................................. $40 Direct la.........................
> The following data pertain to three divisions of Calrisian Enterprises. The company’s required rate of return on invested capital is 8 percent. Required: Fill in the blanks above. Division I Division II Division III $40,000,000 $8
> Omaha Grain Company has two divisions, which reported the following results for the most recent year c/ Required: Which was the most successful division during the year? Think carefully about this, and explain your answer.
