Question: Describe sunk costs. Are there circumstances in

> Star International manufactures after-market parts for lawn mowers and recreational all-terrain vehicles (ATVs). Because of the growth in the ATV market, sales of Star International’s products have grown at double digit rates over the past five years and

> Pittsburg Tar Co. had the following income statement for 2010: a. Compute the break-even point using the equation approach. b. Prepare a CVP graph to reflect the relationships among cost, revenue, profit, and volume. c. Prepare a profit-volume graph. d.

> Susan Cheng is the CFO of Automotive Solutions, a small company that makes specialized lighting equipment for the car industry. Because of intensified competition from foreign companies, Automotive Solutions has experienced extreme price pressure for its

> The use of stock options to compensate executives has become much more common in recent years. The increased use of options to compensate executives is based on efforts of boards of directors to align the interests of managers and stockholders. Prior to

> In recent years, many firms have been forced to restate the earnings that they previously reported in their public financial reports. A number of these restatements have been linked to attempts by top management to manipulate the reported accounting info

> A few years after graduation, Ibrahim and four of his friends from college organized an engineering consulting business called 5Q. All five individuals had earned degrees in engineering fields and were anxious to pool their expertise and work together in

> All-A-Buzz makes three products from a joint production process using honey. Joint cost for the process in 2010 is $123,200. Each container of honey butter, jam, and syrup, respectively, contains 16 ounces, 8 ounces, and 3 ounces of product. a. Determin

> Keiffer Production manufactures three joint products in a single process. The following information is available for August 2010: Allocate the joint cost of $558,000 to the production based on the a. number of gallons. b. sales value at split-off. c. ap

> MediaForum has three operating groups: Games, News, and Documentaries. In May, the company incurred $24,000,000 of joint cost for facilities and administration. May revenues and separate production costs of each group are as follows: a. What amount of j

> FINS produces three products from its fish farm: fish, fish oil, and fish meal. During July 2010, FINS produced the following average quantities of each product from each pound (16 ounces) of fish processed: Product

> Cal-C-Yum produces milk and sour cream from a joint process. During June, the company produced 120,000 quarts of milk and 160,000 pints of sour cream (there are two pints in a quart). Sales value at split-off point was $120,000 for the milk and $280,000

> Michigan Timber uses a joint process to manufacture two grades of wood: A and B. During October 2010, the company incurred $12,000,000 of joint production cost in producing 18,000,000 board feet of Grade A and 6,000,000 board feet of Grade B lumber. The

> Diamond Jim’s makes and sells class rings for local schools. Operating information is as follows: Selling price per ring ………………………………………………….$600 Variable cost per ring Rings and stones ……………………………………………………..$220 Sales commissions ……………………………………………

> Hammatt Inc. provides a variety of services for commercial clients. Hammatt destroys any paper client records after seven years and the shredded paper is sold to a recycling company. The net realizable value of the recycled paper is treated as a reductio

> Potato skins are generated as a by-product in making potato chips and frozen hash browns at Zeena Foods. The skins are sold to restaurants for use in appetizers. Processing and disposal costs associated with by-product sales are $0.06 per pound of potato

> The Bishop’s Falls Lumber Corporation harvests lumber and prepares it for sale to wholesalers of lumber and wood products. The main product is finished lumber, which is sold to wholesale construction suppliers. A byproduct of the process is wood pellets,

> Dover Studios shot hundreds of hours of footage that cost $20,000,000. From this footage, the company produced two movies: Greedy CEOs and Greedy CEOs: The Sequel. The sequel used better sound effects than the original and was significantly more expensiv

> Bethany Lutrell’s uncle has asked her to take over the family poultry processing plant. Provide Lutrell, who graduated in engineering, answers to the following issues: a. What are the important questions to be answered about joint processes in a poultry

> Your employer engages in numerous joint processes that produce significant quantities and types of by-product. You have been asked to give a report to management on the best way to account for by-product. Develop criteria for making such a choice and pro

> Indicate whether each item that follows is associated with (1) the realized value approach or (2) the net realizable value approach. a. Is easier to apply b. Is used to reduce the cost of main products in the period the by-product is produced c. Presents

> Abrula Archery provides archery training for children and adults. During 2010, the camp had the following operating data: Direct instructional costs for 2010 were $120,000; overhead costs for the two programs were $55,500. Camp owners want to know the c

> Ring Corporation, which began operations in 2010, produces gasoline and a gasoline by-product. The following information is available pertaining to 2010 sales and production: Total production costs to split-off point …………………………….$240,000 Gasoline sales …

> English Realty separates its activities into two operating divisions: Rentals and Sales. In March 2010, the firm spent $21,000 for general company promotions (as opposed to advertisements for specific properties). The corporate controller has decided to

> Assume that you are about to graduate from your university and are deciding whether to apply for graduate school or enter the job market. To help make the decision, you have gathered the following data: Costs incurred for the bachelor’s degree …………………………

> In a joint process, Sylvia’s Styles produces precut fabrics for three products: dresses, jackets, and blouses. Joint cost is allocated on the basis of relative sales value at split-off. The company can choose to process each of the prod

> Washington Cannery makes three products from a single joint process. For 2010, the cannery processed all three products beyond split-off. The following data were generated for the year: Analysis of 2010 market data reveals that candied apples, apple jel

> Orlando Auto Accessories produces pickup truck bumpers that it sells on a wholesale basis to new car retailers. The average bumper sales price is $160. Normal annual sales volume is 300,000 units, which is the company’s maximum production capacity. At th

> Certain production equipment used by Cincinnati Chemical has become obsolete relative to current technology. The company is considering whether it should keep or replace its existing equipment. To aid in this decision, the company’s con

> Your roommate, Jill Blalock, purchased a new portable DVD player just before this school term for $80. Shortly after the semester began, her new DVD player was crushed by an errant “flying plant” during a party at her apartment. Returning the equipment t

> Ludmilla Sanches is a college student with a food budget of $250 per month. She wants to get a certain level of nutritional benefits from the food she buys. The following table lists the foods she can buy with the nutritional information per serving. Wr

> Lakeland Financial Services provides outsourcing services for three areas: payroll, general ledger (GL), and tax compliance. The company is currently contemplating the elimination of the GL area because it is showing a pre-tax loss. An annual income stat

> Operations of Borderland Oil Drilling Services are separated into two geographical divisions: United States and Mexico. The operating results of each division for 2010 are as follows: Corporate fixed costs are allocated to the divisions based on relativ

> Go to the Ernst & Young Web site to find information on the 2009 Transfer Pricing Global Reference Guide. Choose five countries (other than the United States) and compare and contrast the transfer pricing survey results for those countries, including APA

> 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. ”?

> 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?

> Compare and contrast the direct, step, and algebraic methods of allocating support department costs. What are the advantages and disadvantages of each method?

> 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