How do managers use the statement of cash flows?
> What makes a cost relevant or irrelevant when making a decision? Suppose a company is evaluating whether to use its warehouse for storage of its own inventory or whether to rent it out to a local theater group for housing props. Describe what informatio
> How are the cost of goods manufactured, the cost of goods sold, the income statement, and the balance sheet related for a manufacturing company? What specific items flow from one statement or schedule to the next? Describe the flow of costs between the c
> Describe how the income statement of a merchandising company differs from the income statement of a manufacturing company. Also comment on how the income statement from a merchandising company is similar to the income statement of a manufacturing company
> Stakeholders are frequently the reason that companies adopt sustainable practices. Think of an organization with which you are familiar. List as many stakeholders as you can think of for this organization. For each stakeholder listed, describe why that s
> Oftentimes, an investment in sustainable technology is more costly than a comparable investment in traditional technology. What arguments can you make for the investment in sustainable technology? What arguments can you make for the investment in traditi
> Compare product costs to period costs. Using a product of your choice, give examples of product costs and period costs. Explain why you categorized your costs as you did.
> The effect of sustainability on the environment is probably the most visible component of the triple bottom line. For a company with which you are familiar, list two examples of its sustainability efforts related to the planet.
> Information from an environmental management accounting (EMA) system can be used to support managers and their primary responsibilities of planning, directing, and control-ling. Think of an organization you’re familiar with. Give an example of informatio
> Compare and contrast a master budget and a flexible budget.
> Perform an online search on the terms “carbon offset” and “carbon footprint.” What is a carbon footprint? What is a carbon offset? Why would carbon offsets be of interest to a company? What are some companies that offer (sell) carbon offsets?
> What types of EMA information might be reported internally by this company? Make reasonable “guesses”; the annual report will not give this information directly. Use your imagination.
> What environmental goals does this company have for the upcoming five to ten years?
> What environmental accounting information does this company report?
> Perform an online search for sustainability issues in the industry in which this organization operates. Does the company appear to be addressing the sustainability issues of the industry?
> Judging from the information in the report(s) from the company, does the company appear to emphasize profits, environment, or society? Or does the company appear to give equal emphasis to each component of the triple bottom line? Justify your answer.
> Suppose a company has a relatively high inventory turnover. What does the high inventory turnover indicate about the company’s short-term liquidity?
> What does the accounts receivable turnover measure? What does a relatively high ac-counts receivable turnover indicate about a company?
> What is meant by the term product costs? What is meant by the term period costs? Why does it matter whether a cost is a product cost or a period cost?
> Describe horizontal analysis. Describe vertical analysis. What is each technique used for? How are the two methods similar? How are they different?
> Define residual income. How is it calculated? Describe the major weakness of residual income.
> Describe at least four financial conditions that may signal financial trouble.
> Compare and contrast the current ratio and the quick ratio.
> Describe at least two reasons that a company’s ratios might not be comparable over time.
> Describe the set of circumstances that could result in net income increasing while return on investment (ROI) decreases.
> Assume a company has a current ratio of 2.0. List two examples of transactions that could cause the current ratio to increase. Also list two examples of transactions that could cause the current ratio to decrease.
> How is the current ratio calculated? What is it used to measure? How is it interpreted?
> Describe why book value per share of common stock may not be useful for investment analysis.
> Calculate at least two ratios that help to analyze the stock as an investment.
> Calculate at least two ratios that measure profitability.
> Compare direct costs to indirect costs. Give an example of a cost at a company that could be a direct cost at one level of the organization but would be considered an indirect cost at a different level of that organization. Explain why this same cost co
> Contrast lag indicators with lead indicators. Provide an example of each type of indicator.
> Calculate at least two ratios that measure the ability to pay long-term debt.
> Calculate at least two ratios that measure the ability to sell inventory and collect receivables.
> Calculate two ratios that measure the ability to pay current liabilities.
> Now that you have crunched the numbers, interpret the ratios. What can you tell about each company and its financial position? Is one company clearly better than the others in terms of its financial position, or are all three companies similar to each ot
> Provide an example of an operating cash inflow that could result from sustainability activities. Also provide an example of an operating cash outflow that would support sustainability.
> Summarize the process for preparing the operating section of the statement of cash flows when using the direct method.
> Describe the process for reconciling net income to the cash basis. What items are added to net income? What items are subtracted from net income?
> Describe the difference between the direct and the indirect methods of preparing the operating section of the statement of cash flows.
> Define a “noncash investing or financing” activity. Describe an activity that would need to be disclosed as a noncash investing or financing activity.
> Define a “financing activity.” List two examples of a financing activity on the statement of cash flows that would increase cash. List two examples of a financing activity that would decrease cash.
> Locate the company’s annual report as outlined previously. Find the company’s segment information; it should be in the “Notes to Consolidated Financial Statements” or another, similarly named section. Look for the word “Segment” in a heading; that is usu
> What is the value chain? What are the six types of business activities found in the value chain? Which type(s) of business activities in the value chain generate costs that go directly to the income statement once incurred? What type(s) of business activ
> What is the Sarbanes-Oxley Act of 2002 (SOX)? How does SOX affect financial accounting? How does SOX impact managerial accounting? Is there any overlap between financial and managerial accounting in terms of the SOX impact? If so, what are the areas of
> Define an “investing activity.” List two examples of an investing activity on the statement of cash flows that would increase cash. List two examples of an investing activity that would decrease cash.
> Define an “operating activity.” List two examples of an operating activity on the statement of cash flows that would increase cash. List two examples of an operating activity that would decrease cash.
> Think of a company with which you are familiar. Describe an investing activity related to a company’s sustainability efforts that would be classified as a use of cash on a company’s statement of cash flows. Describe a financing activity related to a comp
> When preparing a statement of cash flows using the indirect method, what information is needed? What documents or statements would be used?
> Describe at least four needs for cash within a business.
> Did financing activities in total increase cash or decrease cash during the year? What were the major uses or sources of cash related to financing?
> Did investing activities in total increase cash or decrease cash during the year? What were the major uses or sources of cash related to investing?
> Can you calculate RI using the data presented? Why or why not?
> Overall, was cash increased or decreased by operating activities?
> What items decreased cash provided by operations?
> Briefly describe a service company, a merchandising company, and a manufacturing company. Give an example of each type of company, but do not use the same examples as given in the chapter.
> What items increased cash provided by operations?
> Which method is used to calculate the cash provided or used by operations?
> What items (if any) are disclosed as significant noncash financing or investing activities? Now that you have looked at each company’s cash flow statements individually, compare the two companies. What can you tell about each company from its statement o
> The net present value method assumes that future cash inflows are immediately rein-vested at the required rate of return, while the internal rate of return method assumes that future cash inflows are immediately invested at the internal rate of return ra
> Suppose you are a manager and you have three potential capital investment projects from which to choose. Funds are limited, so you can only choose one of the three projects. Describe at least three methods you can use to select the one project in which t
> Summarize the net present value method for evaluating a capital investment opportunity. Describe the circumstances that create a positive net present value. Describe the circum-stances that may cause the net present value of a project to be negative. Des
> “As the required rate of return increases, the net present value of a project also increases.” Explain why you agree or disagree with this statement.
> Use the data you collected in Requirement 2 to calculate each segment’s ROI. Interpret your results.
> List and describe the advantages and disadvantages of the internal rate of return method.
> List and describe the advantages and disadvantages of the payback method.
> The decision rule for NPV analysis states that the project with the highest NPV should be selected. Describe at least two situations when the project with the highest NPV may not necessarily be the best project to select.
> A cost object can be anything for which managers want a separate measurement of cost. List three different potential cost objects other than the product itself for the company you have selected.
> Net cash inflows and net cash outflows are used in the net present value method and in the internal rate of return method. Explain why accounting net income is not used instead of cash flows.
> Define capital investment. List at least three examples of capital investments other than the examples provided in the chapter.
> Describe the capital budgeting process in your own words.
> Research the cost of each model (include taxes and title costs). Also, obtain an estimate of the miles-per-gallon fuel efficiency of each model.
> What qualitative factors might affect your decision about which model to purchase?
> Now look at the payback period of the hybrid model. Use the difference between the cost of the hybrid model and the gasoline-engine model as the investment. Use the annual fuel savings as the expected annual net cash inflow. Ignoring the time value of mo
> Describe the six value chain business activities that this product would pass through from its inception to its ultimate delivery to the customer.
> Compare the NPV of the hybrid model with the cost of the gasoline-engine model. Which model has the lowest cost (the lowest NPV)? From a purely financial standpoint, does the hybrid model make sense?
> Given your previous estimates from 1 and 2, estimate the total fuel cost of driving the hybrid model for one year. Also estimate the total fuel cost of driving the nonhybrid model for one year. Calculate the fuel cost savings offered by the hybrid model
> Estimate the number of miles you drive each year. Also estimate the cost of a gallon of fuel.
> Calculate the NPV of the hybrid model, using the annual fuel savings as the annual cash inflow for the 10 years you would own the car. Assume a required rate of return of 10%.
> Classify each cost you identified in the value chain as being either a product cost or a period cost. Explain your justification.
> Describe at least four ways a company could use standard costing and variance analysis.
> What are the two variable manufacturing overhead variances? What does each measure? Who within the organization would be responsible for each of these variances?
> What does the direct labor efficiency variance measure? Who is generally responsible for the direct labor efficiency variance? Describe two situations that could result in a favor-able direct labor efficiency variance. Describe two situations that could
> What does the direct labor rate variance measure? Who is generally responsible for the direct labor rate variance? Describe two situations that could result in a favorable labor rate variance. Describe two situations that could result in an unfavorable d
> What does the direct materials quantity variance measure? Who is generally responsible for the direct materials quantity variance? Describe two situations that could result in a favorable direct materials quantity variance. Describe two situations that c
> Use the data you collected in Requirement 2 to calculate each segment’s sales margin. Interpret your results.
> What does the direct materials price variance measure? Who is generally responsible for the direct materials price variance? Describe two situations that could result in a favorable materials price variance. Describe two situations that could result in a
> What advantages might a company experience if it adopts ideal standards for its direct material standards and direct labor standards? What advantages are there to using practical standards? As an employee, which would you prefer and why? Does your answer
> Make a detailed list of all the materials needed to make your product. Include quantities needed of each material. Also include the cost of the material on a per-unit basis
> Describe your product. What market are you targeting this product for? What price will you sell your product for? Make projections of your sales in units over each of the upcoming five years
> How realistic is your potential venture? Do you think you would be able to break even in each of the projected five years? How risky is your venture (use the margin of safety to help answer this question). Do you think your target profits are achievable?
> Define the term “relevant range.” Why is it important to managers?
> What is a mixed cost? Give an example of a mixed cost. Sketch a graph of this example.
> A company has adopted a lean production philosophy and, as a result, has cut its inventory levels significantly. Describe the impact on the company’s external financial statements as a result of this inventory reduction. Also describe the impact of the i
> Over the past year, a company’s inventory has increased significantly. The company uses absorption costing for financial statements, but internally, the company uses variable costing for financial statements. Which set of financial statements will show t
> Describe the term “R-square.” If a regression analysis for predicting manufacturing over - head using direct labor hours as the dependent variable has an R-square of 0.40, why might this be a problem? Given the low R-square value, describe the options a
> Suppose a company is implementing lean accounting throughout the organization. Why might standard costing not be beneficial for that company?
> Define the terms “independent variable” and “dependent variable,” as used in regression analysis. Illustrate the concepts of independent variables and dependent variables by selecting a cost a company would want to predict and what activity it might use
> Compare discretionary fixed costs to committed fixed costs. Think of an organization with which you are familiar. Give two examples of discretionary fixed costs and two examples of committed fixed costs which that organization may have. Explain why the c
> What are the four ethical standards in the Institute of Management Accountants’ Statement of Ethical Professional Practice? Describe the meaning of each of the four standards. How does each of these standards impact planning, directing, and controlling?
> Describe a specific situation when a scatter plot could be useful to a manager.
