Question: Compare and contrast the direct, step, and

> For The Ages Inc. produces solid-oak umbrella stands. Each stand is handmade and hand finished using the finest materials available. The firm has been operating at capacity (2,000 stands per year) for the past three years. Based on this capacity of opera

> What does the term relevance mean in the context of making management decisions?

> What is the distinction between a return of capital and a return on capital?

> What does the payback method measure? What are its major weaknesses?

> Why are post investment audits performed? When should they be performed?

> Because depreciation is not a cash flow, why is it important in capital budgeting evaluation techniques that use discounted cash flows?

> What is dual pricing? What is the intended effect of dual pricing on the performance of each division affected by the dual price?

> What is the objective function in a linear programming model? What are the two common types of objective functions? Appendix: Most companies combine many materials and various classes of direct labor to produce goods. In such settings, the material and

> Under what circumstances is linear programming needed to analyze a scarce resource decision? Appendix: Most companies combine many materials and various classes of direct labor to produce goods. In such settings, the material and labor variance computat

> What is measured by the internal rate of return? When is a project considered acceptable using this method?

> How are time lines helpful in evaluating capital projects?

> Wisconsin Metal Co. produces 12.5-gauge barbed wire that is retailed through farm supply companies. Presently, the company has the capacity to produce 100,000 tons of wire per year. It is operating at 80 percent of annual capacity and, at this level of o

> High Frequency manufactures and sells MP-3 players. Information on last year’s operations (sales and production of the 2010 model) follows. Sales price per unit ………………………………………………….$70 Costs per unit Direct material ……………………………………………………….$16 Direct labor

> When the algebraic method of allocating support department costs is used, total costs for each support department increase from what they were prior to the allocation. Why does this occur, and how are the additional costs treated?

> What is a capital asset? How is it distinguished from other assets?

> Why is it not possible simply to take a cost management system “off the shelf. ”?

> Describe sunk costs. Are there circumstances in which sunk costs are relevant to decisions? Discuss.

> By what criteria would management determine whether to proceed with processing at each decision point in a joint production process?

> How can a company evaluate whether it is effectively managing its costs?

> Production of ethanol, made from corn, is on the rise. Some states are even requiring that ethanol be blended in small amounts with gasoline to reduce pollution. The problem is that there is not enough corn being produced: the consumption of corn either

> How is the profitability index (PI) related to the NPV method? What does the PI measure?

> Will the NPV amount determined in the capital budgeting process be the same amount as that which actually occurs after a project is undertaken? Why or why not?

> What is measured by the net present value (NPV) of a potential project? If the NPV of a project is $0, is it an acceptable project? Explain.

> Pet Palace provides two types of services to dog owners: grooming and training. All company personnel can perform each service equally well. To expand sales and market share, Pet Palace’s manager, Jim Jones, relies heavily on radio and

> Why do capital budgeting evaluation methods use cash flows rather than accounting income?

> What is meant by the term time value of money? Why is a present value always less than the future value to which it relates? Appendix 1: The time value of money can be discussed in relation to either its future or its present value. Future value (FV) re

> How is sensitivity analysis used in capital budgeting?

> How is risk defined in capital budgeting analysis? List several aspects of a project in which risk is involved and how risk can affect a project’s net present value.

> What four questions should managers ask when choosing the investment proposals to fund?

> What is the balanced scorecard? What perspectives are considered in selecting performance measures for the balanced scorecard, and why is each of these perspectives important?

> In designing a performance measurement system, why should managerial rewards be linked to performance measures? Why would an effective compensation strategy treat top managers, middle managers, and other workers differently?

> What is residual income, and how is it used to measure divisional performance? How is it similar to, and different from, the return on investment measure? How is residual income similar to, and different from, economic value added? How is economic value

> The president of Toys for Boys evaluates the performance of Annie and Andy, the divisional managers, on the basis of a variety of net income measures. Drew, the controller, informs the president that such measures could be misleading. What are the major

> How can cash flow be used as a performance measure? In what ways is cash flow a relatively stronger or weaker performance measure than accrual measures such as segment income?

> Michigan Mfg. makes electronic products. Because the employees of one of the company’s plants are on strike, the Chicago plant is operating at peak capacity. It makes two electronic products: MP3 players and PDAs. Presently, the company

> On what basis should the performance of a responsibility center be measured? What are the traditional financial performance measures for each type of responsibility center? Why can the same quantitative measures of performance not be used for all types o

> What benefits can be gained by allowing a manager to participate in developing the performance measures that will be used to assess that manager’s performance?

> Why is performance measurement important to the success of businesses? Should performance measures be qualitative, quantitative, or both? Justify your answer. For performance measurements to be meaningful, why is it necessary to establish benchmarks?

> What are some of the important equity issues in designing reward structures? Why is the achievement of equity in the reward structure important?

> Many pay structures involve compensation combining both cash and stock. Why do firms want employees to be holders of the firm’s common stock? What additional performance measurement and reward issues are created when managers are not shareholders in the

> How can feedback, both positive and negative, be used to improve managerial performance? How is feedback used in a performance-based reward system?

> Why should different missions for two subunits result in different performance reward structures for the managers of those subunits? How does the mission of an organizational subunit affect the mix of financial and nonfinancial, and short-term and longte

> How does the time perspective of a performance-based plan affect the selection of performance measures?

> If worker performance measures used in a pay-for-performance plan are not highly correlated with corporate goals, what is the likely result for the organization? For the workers?

> Why is the trend in U.S. business away from automatic pay increases and toward increased use of incentive compensation plans?

> A local businesswoman, Jane Aire, has hired you and a colleague, Joanna, from your cost accounting class to advise her regarding her small manufacturing business that makes leather valises. The business was organized just two years ago and has failed to

> What are the benefits of organizational mission and values statements? How are organizational missions and strategies related to performance measures?

> What problems might be encountered when attempting to implement a cost-based transfer pricing system? A market-based transfer pricing system?

> What are transfer prices, and why do companies use them? How could the use of transfer prices improve or impair goal congruence?

> The four criteria for selecting an allocation base for support department costs should be applied equally.” Discuss the merits of this statement.

> Why are support department costs often allocated to operating departments? Is such an allocation process always useful from a decision-making standpoint? How might support department cost allocation create a feeling of cost responsibility among managers

> What is suboptimization, and what factors contribute to it in a decentralized firm?

> Why are responsibility reports prepared? Is it appropriate for a single responsibility report to be prepared for a division of a major company? Why or why not?

> Explain why the determination of transfer prices is more complex in a multinational, rather than in a domestic, setting.

> How can support departments use transfer prices, and what advantages do transfer prices have over cost allocation methods?

> Identify which of the CVP assumptions is violated in each of the circumstances described below. a. Price per unit declines as the volume of sales and production increase. b. Labor productivity increases as the volume of production declines. c. The sales

> What type of transfer price would you recommend be used in each of the following selling and buying responsibility centers: cost, revenue, profit, and investment? How and why would such prices be set?

> Wayne Litcomb is the president and chief operating officer of Litcomb Electronics. He founded the company and has led it to its prominent place in the electronics field. He has manufacturing plants or retail outlets in 40 states. Litcomb is finding, howe

> In the present highly competitive environment, why has cost management risen to such a high level of concern whereas price management has declined in importance?

> How does a product’s life cycle stage influence the nature of information required to successfully manage costs of that product?

> How could an organization’s culture be used as a control mechanism?

> What information could be generated by a cost management system that would help an organization manage its core competencies?

> How does the choice of organizational form influence the design of a firm’s cost management system?

> Why does a cost management system necessarily have both a short-term and longterm focus?

> What is a control system? What purpose does a control system serve in an organization?

> What is CAM-I, and why is it organized? Appendix: Most companies combine many materials and various classes of direct labor to produce goods. In such settings, the material and labor variance computations presented in this chapter are insufficient. Whe

> Niobrara Pesticide Company’s new president has learned that, for the past four years, the company has been dumping its industrial waste into the local river and falsifying reports to authorities about the levels of suspected carcinogens in that waste. Th

> Why must not-for-profit organizations determine when it is appropriate to allocate any cost for a joint activity among fund-raising, program, and administrative activities?

> When is by-product/scrap cost considered in setting the predetermined overhead rate in a job order costing system? When is cost not considered?

> Which of the two common approaches used to account for by-product/scrap provides better information to management? Discuss the rationale for your answer.

> Why are approximated, rather than actual, net realizable values at split-off sometimes used to allocate joint cost?

> Compare the advantages and disadvantages of the two primary methods used to allocate joint cost to joint products.

> Why is cost allocation necessary in accounting? Why is it necessary in a joint process?

> In a company that engages in a joint production process, will all processing stop at the split-off point? Discuss the rationale for your answer.

> How does management determine how to classify each type of output from a joint process? Is this decided before or after production?

> What is the objective of managing the sales mix of products? What are the major factors that influence sales mix?

> What is a scarce resource? Why is an organization’s most scarce resource likely to change from time to time?

> Compute the answers to each of the following independent situations. a. Orlando Ray sells liquid and spray mouthwash in a sales mix of 1:2, respectively. The liquid mouthwash has a contribution margin of $10 per unit; the spray’s CM is $5 per unit. Annua

> What is outsourcing? Why is the practice heatedly debated in the United States?

> What are opportunity costs and why are they often the most difficult costs to analyze in decision making?

> How does the passage of time affect the set of costs that is relevant to a decision?

> What is segment margin? How is segment margin used in the quantitative analysis of a decision to drop or keep a product line?

> What is a special order decision? Under what circumstances would a company refuse to accept a special order?

> Define and explain the relationship between margin of safety and degree of operating leverage.

> A multiproduct company has a sales mix of nine widgees to three squigees. Widgees have a contribution margin ratio of 45 percent, and squigees have a contribution margin ratio of 80 percent. If the sales mix changes to six widgees to six squigees, will t

> How is the “bag” assumption used in CVP analysis for a multiproduct firm? What additional assumption must be made in multiproduct CVP analysis that doesn’t pertain to a single-product CVP situation?

> Why is CVP analysis generally used as a short-run tool? Would CVP ever be appropriate as a long-run model?

> What is the contribution margin ratio? How is it used to calculate the break-even point?

> A friend of yours, attending another university, states she learned that CVP is a short-run-oriented model and is, therefore, of limited usefulness. Your professor, however, has often discussed CVP in presentations about long-run planning to your cost ac

> How is “break-even point” defined? What are the differences among the formula, graph, and income statement approaches for computing breakeven?

> What information provided by a variable costing income statement is used in computing the break-even point? Is this information on an absorption costing income statement? Explain your answer.

> How is the accounting rate of return computed? How does this rate differ from the discount rate and the internal rate of return? Appendix 2: Accounting Rate of Return The accounting rate of return (ARR) measures the rate of earnings obtained on the aver

> Wayne Coyle, the controller of PEI Potato Co., is disillusioned with the company’s system of evaluating the performance of divisional profit centers and their managers. The present system focuses on a comparison of budgeted to actual income from operatio

> Many domestic companies have chosen to “offshore” their production operations to countries with lower wage rates. Some of the countries being used have been accused of allowing sweatshops, child labor, and polluting conditions that would not be allowed d

> Assume you are the newly appointed CFO of an international engineering services firm. As one of your first assignments you need to appoint a new controller for the branch of your firm located in Buenos Aires. You have identified an assistant controller i

> Family Fun Vehicle Co. (FFV), a subsidiary of Drummondville Automotive, manufactures go-carts and other recreational vehicles. Family recreational centers that feature go-cart tracks, miniature golf, batting cages, paint ball wars, and arcade games have

> Anthem Manufacturing has just initiated a formula bonus plan that rewards plant managers for various achievements. One of the current criteria for bonuses is the improvement of asset turnover. The plant manager of the Eastern Plant asked Sam Jensen, his

> A recent survey of U.S. chief financial officers provides compelling evidence that managers are willing to take extraordinary measures to achieve financial earnings targets. For example, the survey found 26 percent were willing to sacrifice some long-ter

> San Francisco Sea Salt’s controller prepared the following cash flow statements (in thousands of dollars) for the past two years, the current year (2010), and the upcoming year (2011): After preparation of the budgeted cash flow statem

> A group of prospective investors has asked for your help in understanding the comparative advantages and disadvantages of starting a company that is either labor intensive or, in contrast, one that uses significant cutting-edge technology and is therefor