Identify three opportunity costs that might result from a decision to eliminate a business segment.
> What does the term practical capacity mean? How does it differ from budgeted?
> Suppose you have computed a favorable fixed overhead volume variance of $1,000. How would you interpret that variance?
> What is the fixed overhead spending variance? What factors can affect the variance and who is generally responsible for the variance?
> What are standard costs? When are they set?
> What are the two variable overhead variances? What factors can affect each variance and who is generally responsible for the variance?
> What is the key difference between a normal cost system and a standard cost system?
> Fellar Corp. has identified the following information: Activity cost pools Materials handling = $60,000 Machine maintenance = 51,750 Cost drivers Number of materials moves = 960 Number of machine hours = 75,000 Required: 1. Calculate the activity rate fo
> Explain how a manager might make a trade-off between the direct labor rate and the direct labor efficiency variances.
> What are the two direct labor variances? What factors can affect each variance and who is generally responsible for the variance?
> Explain how a manager might make a trade-off between the direct materials price and the direct materials quantity variances.
> What are the two direct materials variances? What factors can affect each variance and who is generally responsible for the variance?
> The spending variance can be separated into two components. Name and briefly describe them
> What type of variance is calculated by comparing actual costs to the flexible budget
> What type of variance is created by comparing the master budget to the flexible budget?
> How do the master budget, flexible budget, and static budget differ from one another?
> Briefly describe the difference between budgetary planning and control.
> Briefly explain how each of the following helps to minimize dysfunctional behaviors caused by budgeting: (a) Different budgets for different purposes. (b) Continuous budgeting. (c) Zero-based budgeting
> Refer to the information presented in E4–3. Suppose that Gable Company manufactures three products. Information about its three products follows: Required: 1. Using activity proportions, determine the amount of overhead assigned to each
> What is budgetary slack and why might it be detrimental to a company?
> What are the advantages and disadvantages of participative budgeting compared to top-down budgeting?
> Suppose a company chooses not to develop budgets. Describe three potential negative consequences of this Decision.
> Identify and briefly discuss the benefits of budgeting.
> Suppose that your strategic plan is to retire comfortably at the age of 55. List several long-term objectives, short-term objectives, and tactics that would enable you to accomplish this goal.
> What is a strategic plan and how does it relate to short- and long-term goals?
> How is a merchandiser’s budgeting process different from that of a manufacturing company?
> What role do budgets play in the planning and control cycle?
> How does the budgeting process differ for a service company compared to a manufacturing company?
> In preparing a cash budget, why must an adjustment be made for depreciation expenses?
> Refer to the information presented in E4–3. Suppose that Gable Company manufactures three products, A, B, and C. Information about these products follows: Required: Using the activity rates calculated in E4–3, determin
> In preparing a cash budget, why must an adjustment be made for depreciation expenses?
> Why is the preparation of a cash budget important?
> How are the operating budgets, cash budget, and the budgeted balance sheet interrelated?
> What are the components of the cash budget?
> What are the components of the operating budgets?
> What sources does a company utilize to determine its sales forecast? What could happen if one of the sources used is inaccurate?
> Explain why the sales budget is the starting point for a company’s budgeting process. Which budgets does the sales budget affect? Which budgets are not affected by the sales budget?
> What is the master budget, and what are its components?
> Briefly describe why budgetary planning is important to managers.
> How are the concepts of full capacity and opportunity cost interrelated?
> Gable Company uses three activity cost pools. Each pool has a cost driver. Information for Gable Company follows: Required: 1. Compute the activity rate for each activity. 2. Classify each activity as facility, product, batch, or unit level.
> Explain excess capacity and full capacity. Include the implications that each has for a company’s production decisions.
> Why should opportunity costs be factored into the decision making process, and why is it often difficult to do so?
> Explain opportunity cost and list two opportunity costs of your decision to enroll in classes this semester.
> How is an avoidable cost related to a relevant cost?
> What are the criteria for a cost to be considered relevant to any decision?
> Tom Ellis recently bought a plasma television and has since stated that he would not recommend it to others. This indicates that Tom has completed which step of the decision-making process?
> Why do decisions involve a constrained resource focus on contribution margin instead of profit margin?
> Explain how a constrained resource impacts management decisions in both the long term and the short term.
> Suppose you are considering a part-time job to earn some extra spending money. List four factors that could affect that decision and would be included in Step 3 of your decision-making process.
> Classify each of the following as Prevention (P), Appraisal or Inspection (AI), Internal Failure (IF), or External Failure (EF) costs. 1. Cost of scrapped product. 2. Damage to company’s reputation. 3. Cost of rework. 4. Quality training. 5. Costs of the
> Briefly explain what happens to total variable costs when a product line is dropped.
> How might the decision to drop a product line affect a company’s remaining products?
> How do opportunity costs affect make-or-buy decisions? How are opportunity costs shown in a make-or-buy analysis?
> How do opportunity costs affect make-or-buy decisions? How are opportunity costs shown in a make-or-buy analysis?
> Briefly describe three problems that might result from a decision to buy a component part from an external supplier. For each problem, identify one way to avoid or correct it.
> Suppose that you are the manager of a local deli. Give an example of each of the following decisions that you might have to make and identify three factors that would be relevant to each decision: a. Special order. b. Make or buy. c. Keep or drop.
> How does excess capacity impact a special-order decision?
> How might the acceptance of a special order have negative consequences for a company?
> What is a special-order decision? Why can managers ignore fixed overhead costs when making special-order decisions?
> Briefly describe the five steps of the management decision making process.
> Your co-worker has come to you for help for several things the boss mentioned recently. Specifically, the boss was discussing the company’s move to a TQM approach for its manufacturing process and repeatedly mentioned multiple types of quality costs and
> Apple Company and Baker Company are competitors in the same industry. They have similar variable costs per unit and selling prices, but Baker has more fixed costs. Explain the impact of this on each company’s break-even point.
> Explain the difference between calculating the break-even point in units and in dollars. How can one be used to double-check the other?
> A company’s cost structure can have a high proportion of fixed costs or a high proportion of variable costs. Which cost structure is more vulnerable to decreases in demand? Why?
> Explain the difference between unit contribution margin and contribution margin ratio.
> Why is it important for a company to know its break-even point? What happens to the break-even point if variable cost per unit decreases? If total fixed cost increases?
> Your supervisor has requested that you prepare a CVP graph for your company’s product but does not understand its meaning or how changes would affect the graph. Explain to your supervisor how your graph would be affected by a. an increase in the selling
> When considering a CVP graph, how is the break-even point shown?
> What is the difference between the product mix and the sales mix?
> Why is the weighted-average contribution margin ratio approach commonly used in practice?
> How do you use the weighted-average contribution margin ratio in cost-volume-profit analysis?
> Majesty Company uses target costing to ensure that its products are profitable. Assume Majesty is planning to introduce a new product with the following estimates: Required: 1. Compute the target cost of this product. 2. Compute the target cost if Majest
> Why should managers create a CVP graph?
> What will happen to a company’s break-even point if the product mix shifts to favor a product with a lower contribution margin per unit?
> How is weighted-average unit contribution margin calculated?
> Why is sales mix important to multiproduct CVP analysis? Explain how sales mix is factored into CVP analysis.
> How does degree of operating leverage help managers predict changes in profit? In general, would you prefer a higher or lower degree of operating leverage?
> Explain degree of operating leverage and how it relates to fixed cost.
> Explain how a decision to automate a manufacturing facility would likely impact a company’s cost structure and its break-even point.
> Arrange a visit with a local business and interview the manager about the firm’s sustainability goals and initiatives. The objective of the interview is to gain an understanding of what the company is currently doing in the area of sustainability and to
> Give an example of a company to which margin of safety is particularly important and explain why.
> As discussed in the chapter, companies are often classified into one of three categories: service, merchandising, and manufacturing. Required: 1. Choose one well-known company from each category and explore that company’s website. On the website, find a
> 1. Assign each of the budgeted costs above to one of the following activity cost pools: ∙ Engineering ∙ Equipment setup ∙ Quality control ∙ Factory facilities ∙ Man
> Explain margin of safety. Why is it important for managers to know their margin of safety?
> In recent years, many companies have invested in equipment to automate processes that were once performed manually. A simple example is a drive-through car wash, where robots wash and dry the cars rather than people. Required: Think of another company th
> Explain the difference between break-even analysis and target profit analysis.
> Bert Company and Ernie Company are competitors in the same industry. The companies produce a similar product and have the same amount of fixed costs and the same selling price per unit. However, Bert has higher variable cost per unit. Compare the break-e
> Go to www.YouTube.com and search for How It’s Made, a television show produced by the Discovery Channel that shows how thousands of products and services are created. Find a product that interests you by browsing through the episode list or using search
> Identify and briefly describe the assumptions of CVP.
> Enter the account names and dollar amounts from the comparative balance sheets in Exhibit 13-1 into a worksheet in a spreadsheet file. Create a second copy of the worksheet in the same spreadsheet file. Required: 1. To the right of the comparative number
> Why is a contribution margin income statement more useful to managerial decision makers than the income statement intended for external users?
> Speedy Company uses the double-declining-balance method to depreciate its property, plant, and equipment and Turtle Company uses the straight-line method. The two companies are exactly alike except for the difference in depreciation methods. Required: 1.
> What does the R square value measure?
> Turtle Inc. has developed a new and improved widget. The company plans to sell the product through an existing website. Turtle’s marketing department believes the product will sell for $80. Turtle’s goal is a 40 percent profit margin on the widget. Requi
> Cotton White, Inc., makes specialty clothing for chefs. The company reported the following costs for 2018: Required: Compute the following for Cotton White: 1. Direct materials. 2. Direct labor. 3. Manufacturing overhead. 4. Total manufacturing cost. 5.
> Capital Investments Corporation (CIC) requested a sizable loan from First Federal Bank to acquire a large piece of land for future expansion. CIC reported current assets of $1,900,000 (including $430,000 in cash) and current liabilities of $1,075,000. Fi
> Describe the three methods used to estimate cost behavior. What are the strengths and weaknesses of each method? Will these methods always yield exactly the same results?
> As a team, select an industry to analyze. Using your web browser, each team member should access the annual report or 10-K for one publicly traded company in the industry, with each member selecting a different company. Required: 1. On an individual basi
> Why is a scattergraph useful?
> Lumber Liquidators, Inc., competes with Lowe’s in product lines such as hardwood flooring, moldings, and noise-reducing underlay. The two companies reported the following financial results in fiscal 2016: Required: 1. Calculate the diff
