Maple Cargo is an all-cargo airline that operates on four continents. Its headquarters are in New Zealand. It has two divisions, Cargo and Maintenance. Cargo Division flies cargo to and from international locations. Maple Cargo also has a maintenance facility located in Hong Kong and schedules its planes in such a way that most maintenance can be done there. In addition to Maple aircraft, Maintenance Division also provides services to several other passenger and cargo air companies. All of the Cargo Division income is deemed to be earned in New Zealand. Income from the Maintenance Division is deemed to be earned in Hong Kong. Maple’s income deemed attributable to New Zealand is taxed at a 28 percent rate. Its income attributable to Hong Kong is taxed at a 16.5 percent rate. Last year, Maintenance Division had operating revenues of $39 million, excluding services performed for Cargo Division aircraft. Cargo Division revenues last year were $150 million. Operating costs of Maintenance Division were $24 million last year and operating costs for the Cargo Division, before considering maintenance costs, totaled $74 million. No similar maintenance facilities in Hong Kong are available to Maple. Recently, a maintenance facility opened in Malaysia. That facility proposed to Cargo Division that it could conduct the maintenance in Malaysia. The facility proposed a price of $33 million for the services that Maintenance Division in Hong Kong provided to Cargo Division. Maple management estimated that had the services been provided in New Zealand, the costs for the year would have totaled $50 million. In its latest tax filing, Maple assigned the $50 million as the appropriate transfer price Cargo paid for the services from Maintenance. The New Zealand tax authorities denied that expense and instead applied $33 million as the appropriate transfer price. Required What is the difference in tax costs to Maple between the alternate transfer prices for maintenance services, that is, the difference between transfer prices of $33 million and $50 million?
> How could a hospital firm use the mix variance to analyze its revenues?
> How is return on investment (ROI) computed?
> What makes creating budgets for marketing and administration more difficult than creating, for example, the production cost budget?
> Write out the inventory equation that is used to determine required production in the production budget for a manufacturing firm.
> What is participative budgeting? What are some advantages of participative budgeting? What are some disadvantages?
> What is the purpose of the cash budget if the budgeted income statement will indicate whether the firm expects to be profitable?
> What does the phrase “use it or lose it” mean in the context of budgeting?
> Which has more detail, the budget for the coming period or a long-range forecast? Why?
> What is the dual-rate method of corporate cost allocation?
> The owner-manager of Molena Restaurant describes the balanced scorecard measures used to assess performance by listing the following performance measures: Required a. Link the measures to the perspectives of the balanced scorecard by filling in the follo
> A regional airline discloses that it uses a balanced scorecard with the following performance measures: • Profit • Gate agent assessments • Load factor (percentage of seats filled) •
> Reviewing the variance report for one of the manufacturing plants in your company, you see a large unfavorable fixed cost price variance and large favorable production volume variance. You contact the plant controller, who says that there is no problem:
> What role does the master budget play in the planning and budgeting exercise?
> Refer to the information in Problem 16-78. Variable overhead is applied on the basis of machine hours. The standard cost sheet follows: The actual resource usage for July per unit of output follows: Required Prepare a manufacturing cost variance analysis
> Harlow Parts produces a single product at its Superior Plant. The master budget for July follows: The following operating income statement shows the actual results for July: Required Prepare a profit variance analysis for the Superior Plant for July such
> Pease Contractors is a local home remodeling company. In analyzing financial performance, the accountant compares actual results with a flexible budget. The standard direct labor rates used in the flexible budget are established each year at the time the
> Stearn & Company makes a lubricating oil using two grades of petroleum (Alpha and Beta). Within certain limits, the two grades can substitute for one another, so the actual mix of inputs often differs from the standard mix. Stearn holds no materials
> Robinwood Fixtures manufactures two products, K4 and X7. The company prepares its master budget on the basis of standard costs. The following data are for September: Required a. Prepare a variance analysis for each variable cost for each product. b. Prep
> McKinney Solvents produces a wide variety of products for the manufacturing industry. The standard mix for producing a single batch of 100 gallons of its biggest-selling product is as follows: There is a standard 20 percent loss in liquid volume during p
> Refer to the data for the Earle Soup Company (Problem 17-54). Required Break down the total activity variance into sales mix and quantity parts. Problem 17-54:
> Wisner Fabrication prepares its budgets on the basis of standard costs. Variances are analyzed and reported monthly. There are no materials inventories. The following information relates to the current period: Actual costs and activities for the month fo
> Refer to the data in Problem 16-61. Required Prepare a sales activity variance analysis for Savery Parts for March like the one in Exhibit 16.4. Problem 16-61:
> The results for March for Savery Parts follow: Required Prepare a flexible budget for Savery Parts for March.
> Production cost variances are not useful in my company. There is substantial learning that takes place, so we are more efficient, the more we produce. A standard cost sheet doesn’t reflect that.” Do you agree?
> Refer to the data in Problem 16-58. Required Use the information for Nottingham Forest Products in Problem 16-58 to prepare a profit variance analysis like the one in Exhibit 16.5. Problem 16-58:
> The following partial information is contained in the variance analysis received from the Western Plant of Eastlawn Company. All plants at Eastlawn apply overhead on the basis of direct labor-hours. Required a. Prepare a variable overhead analysis like t
> The management at Inverness Manufacturing feels confident about the company’s prospect in the current year (year 2). Sales in the first quarter were one-third ahead of last year, and the sales department predicted that this rate would c
> Monitor Devices shows the following overhead information for the current period. Required What are the variable overhead price and efficiency variances and fixed overhead price variance?
> Nottingham Forest Products reports the following information concerning operations for the most recent month: There are no inventories. Required Prepare a flexible budget for Nottingham Forest Products.
> Information about direct materials cost follows for Jennings Chemicals: Required What was the actual purchase price per gallon?
> Refer to the data in Problem 16-61. Required Prepare a profit variance analysis for Savery Parts for March like the one in Exhibit 16.5. Problem 16-61:
> New Town Foods sells a variety of packaged foods through supermarkets and other outlets using a dedicated sales team. The budget planning group has just received the sales team expense summary for the third quarter, which follows: You have been asked to
> Gable Corporate Services uses EVA to evaluate the performance of division managers. For the Media Division, after-tax divisional income was $3,100,000 in year 3. The company adjusts the after-tax income for advertising expenses. First, it adds the annual
> Normandy Instruments invests heavily in research and development (R&D), although it must currently treat its R&D expenditures as expenses for financial accounting purposes. To encourage investment in R&D, Normandy evaluates its division managers using EV
> A CEO tells you, “Division A always reports large, favorable variances. This saves us a lot of time because we do not have to spend time reviewing their results.” Comment.
> Refer to the data in Problem 16-58. Required Prepare a sales activity variance analysis for Nottingham Forest Products like the one in Exhibit 16.4. Problem 16-58:
> The following information is available for Fairmount Industries from year 1 operations: All depreciation charges are fixed. Old manufacturing equipment with an annual depreciation charge of $22,000 will be fully depreciated by the end of year 1 and will
> Refer to Problem 15-56. Suppose Testing could sell time on the machine to other companies in the area on a per-hour basis. Further, it can sell all the time available for $22 per hour. Required a. What is the optimal transfer price rule Testing should us
> Coyle Manufacturing reports the following information for year 1: All depreciation charges are fixed. Manufacturing depreciation is expected to increase by 10 percent in year 2. Marketing and administrative depreciation are expected to remain the same fo
> Refer to the data in Problem 15-54. At the end of the year, the following data are available on actual operations at the landfill: Required Based on the actual activities and costs, would you change the recommendation you made in Problem 15-54? Why or wh
> Consider the following well-known companies and their key products and services: Required Identify one thing that is a core capability for each. Also identify one capability that companies have that is not core.
> Graves Bank & Trust (GB&T) estimates that its overhead costs for policy administration should be $55 for each new account opened and $0.60 per year for each $1,000 of deposits. The company set a budget of opening 35,000 new accounts during the coming per
> Leidich Corporation manufactures hospital equipment. The Measurement Division (MD) manufactures testing and measurement equipment including a special cardiovascular instrument. MD started the year with $6.25 million in other assets. At the beginning of t
> Leverette Mortgage Lenders (LML) is a financial institution that originates mortgage loans. The company charges a service fee for processing loan applications. This fee is set twice a year based on the cost of processing a loan application. For the first
> Lothrop Consulting Group is a small firm that offers services to two business segments: not-for profits (NFPs) and corporate clients. Lothrop’s business model is to rely to a great extent on nonemployee consultants (called â€
> The production volume variance should be charged to the production manager. Do you agree? Why or why not?
> Wilde Vintners produces and sells wine. The following data concern the three varietals of white wine the company currently offers. Sales data for November are given as follows: Required a. Compute the sales price variance for all three wines. b. Compute
> The following graph is similar to that in Exhibit 17.4. It has been prepared for Longacre Parts. Required a. Industry volume variance. b. Actual industry volume. c. Budgeted market share. d. Budgeted industry volume. e. Actual market share.
> Pasadena Industries has prepared the following graph similar to the one presented in Exhibit 17.4: Required a. The difference between actual and budgeted sales volume. b. Budgeted industry volume. c. Budgeted market share percent. d. Actual market share
> Santos Shipping Lines (SSL) operates a fleet of container ships in international trade between Brazil and Ireland. All of the shipping income (that is, that related to SSL’s ships) is deemed to be earned in Brazil. SSL also owns a dock facility in Irelan
> Bortle Manufacturing Group estimates that sales for the coming year will be 576,000 units. Company policy is to maintain a finished goods inventory of one and one-half months’ unit sales. Beginning inventory is 75,000 units. Assume sales occur uniformly
> Ethel Company manufactures and sells desk lamps for hotel and motel rooms. Last year, it sold 120,000 units of its model Y lamp for $45 per unit. The company estimates that this volume represents a 24 percent share of the current market. The market is ex
> Gladys Bank & Trust has $360 million in consumer loans with an average interest rate of 7.25 percent. The bank also has $240 million in home equity loans with an average interest rate of 5 percent. Finally, the company owns $60 million in government secu
> The master budget at Cherrylawn Corporation at the beginning of the year was based on sales of 275,000 units with revenues of $3,300,000. Total variable costs were budgeted at $1,925,000 and fixed costs at $950,000. During the period, actual production a
> Refer to the data in Exercises 16-23 and 16-24. Required Prepare a profit variance analysis like the one in Exhibit 16.5. Exercise 16-23: The master budget at Monroe Manufacturing last period called for sales of 42,000 units at $42 each. The costs were
> The production volume variance indicates whether a company has spent more or less than called for in the budget. True or false?
> Refer to the data in Exercise 16-23. Required Prepare a sales activity variance analysis like the one in Exhibit 16.4. Exercise 16-23: The master budget at Monroe Manufacturing last period called for sales of 42,000 units at $42 each. The costs were est
> Raynor Testing Services (RTS) is a new company that has not yet developed a formal planning and budgeting process. RTS is unsure how to proceed. It understands that the following five steps need to be completed. It is unsure, however, in what order the s
> Fischer Fabrication reported the following information concerning its direct materials: Required Compute the direct materials cost variances. Prepare an analysis for management like the one in Exhibit 17.3.
> In many manufacturing plants, employees on the manufacturing lines are empowered to stop the line (halt production on a particular assembly line) if they see something they believe is “not right.” For example, if they begin to see units that appear outsi
> Canfield Components produces machine parts. The average times for its largest volume product (in hours) follow: Required Calculate the manufacturing cycle efficiency.
> Steger & Company has the following average times (in minutes): Required Calculate the manufacturing cycle efficiency.
> Observe the operations of a fitness center and identify an important nonfinancial performance measure for it.
> Match each of the following specific measurements with its benchmark category:
> Match each of the following specific measurements to its benchmark category:
> Crawford County Park is a historical center and recreation area located in a rural county. It is a not-for-profit organization that relies on ticket sales, memberships, and donations for financial support. Required Crawford Park management discloses that
> My firm has a wage contract with the union. Therefore, we do not need to compute a labor price variance; it will always be zero.” Comment.
> Walden Tire Store is a chain of tire and auto accessory retail stores. Required Walden discloses that it uses a balanced scorecard with seven performance measures. Link the measures to the perspectives of the balanced scorecard by labelling each performa
> Consider the following large organizations. Would you classify them as primarily cost leaders, product differentiators, or focused competitors according to the Porter strategy framework? Why?
> The standard direct labor cost per call for Crescent Call Centers (CCC) is $5.25 (= $21 per labor hour ÷ 4 calls per hour). Actual direct labor costs during the period totaled $82,810. Also during the period, 4,180 labor-hours were worked, and 14,800 cal
> Oakman Accounting Partners is a small tax and accounting services firm. Each billable hour of partner time has a $960 budgeted price and $450 budgeted variable cost. Each billable hour of staff time has a budgeted price of $250 and a budgeted variable co
> Refer to the data in Exercise 17-38. Required Prepare a profit variance analysis for Kentford Associates like the one in Exhibit 16.5 of the previous chapter. Exercise 17-38:
> Refer to the data in Exercise 17-38. Required Prepare a sales activity variance analysis like the one in Exhibit 16.4 of the previous chapter. Exercise 17-38:
> Kentford Associates is a small professional services firm. Last month, Kentford billed more hours than expected, and profits reflected this. Required Prepare a flexible budget for Kentford. Use billable hours as the measure of output (that is, units prod
> Pembridge Burritos has two categories of direct labor: unskilled, which costs $16 per hour, and skilled, which costs $30 per hour. Management has established standards per “meal,” which has been defined as a typical me
> Casino Pest Control (CPC) provides services to residential households by an application of a special chemical mix that varies somewhat in proportion based on environmental factors. CPC mixes two chemicals, Red-10 and Blue-12, in proportions depending on
> Windward Chemicals produces a product using a process that allows for substitution between two materials, Sol-1 and Sol-2. The company has the following direct materials data for its product: The company had the following results in June: Required a. Com
> A rush order for a major customer has led to considerable overtime and an unfavorable variance for production costs. Is this variance the responsibility of the marketing manager, the production manager, both, neither, or someone else?
> Proctor Cleaning Products manufactures a product using a process that allows for substitution between two materials, X-1 and Y-7. The company has the following direct materials data for its product: The following results were reported for January: Procto
> Lee Lighting produces two models of floor lamps: Standard and Smart. The two differ primarily in the quality of the materials and the additional electronics required for the Smart lamp. At budget, Standard sells for $18 per unit and has a variable cost t
> Beatrice Math Tutors offers two tutoring models: individual and group. The individual model provides one-on-one tutoring, while the group model consists of groups of no more than four students. The individual model has a budgeted average price of $275. T
> Allonby Foods processes frozen meals for sale in grocery and other retail outlets. Two versions are produced: The FlavorPak version has a budgeted price of $16 per case and a standard variable cost of $9 per case. The Gourmet version has a budgeted price
> Olivet Devices sells two models of fitness devices. The budgeted price per unit for the wireless model is $38 and the budgeted price per unit for the wireless and cellular model is $83. The master budget called for sales of 40,000 wireless models and 10,
> Piper Products sold 406,000 units during the last period when industry volume totaled 2.8 million units. The company originally expected to sell 442,500 based on a budgeted market share of 15 percent. The budgeted selling price was $13 per unit. Budgete
> Logan Passport Services budgeted sales of 8,000 units of its Basic Visa Service (BVS). This was based on its estimated 5 percent share of this service in the relevant regional market. Actual sales of the BVS for Logan totaled 11,200 units on total indust
> Appoline Juices budgeted sales of 87,000 units of Grape, assuming that the company would have 30 percent of 290,000 units sold in a particular market. The actual results were 78,000 units sold by Appoline, which represented a 26 percent share of the tota
> Refer to the information in Exercise 17-24. Assume that Sheffer Systems had no beginning finished goods or direct materials inventory and only produced one product. Sheffer sold 27,720 units during the period. Required a. Assume Sheffer writes off all va
> The cost analyst for Sheffer Systems collected the following data concerning direct materials: Required Compute the direct materials cost variances. Prepare an analysis for management like the one in Exhibit 17.3.
> Consider a university setting with many colleges, such as the Engineering College, the Business College, Arts & Sciences College, and so on. The central administration is responsible for finance, personnel, legal, and other costs. Because the university
> The Faraday Plant of Hindle, Inc. shows the following overhead information for the current period: Required What are the variable overhead price and efficiency variances and the fixed overhead price variance?
> Wetherbee Tech Services (WTS) is a chain of computer maintenance technicians for households and small businesses. The following data are available for last year’s services: ∙ WTS recorded 120,000 tech calls last year.
> Refer to the data in Exercise 16-46. Management would like to see results reported graphically. Required Prepare a graph like that shown in Exhibit 16.18. Exercise 16-46:
> Information on Grixdale Partner’s fixed overhead costs follows: Required What are the fixed overhead price and production volume variances? (Refer to Exhibit 16.17 for the format to use.)
> Information on Chicago Crafters direct materials costs follows: Chicago Crafters carries no materials inventories. Required a. What were Chicago Crafters’ direct materials price and efficiency variances? b. (Appendix) Prepare the journa
> The records of Heritage Home Supplies show the following for July: Required Compute the direct labor and variable overhead price and efficiency variances.
> Records at the Farnsworth Corporation contained the following data for the most recent period of activity: Variable overhead is applied based on standard direct labor-hours allowed. Required Compute the labor and variable overhead price and efficiency va
> The standard direct material cost per unit for Willis Group was $124 (= $31 per gallon × 4 gallons per unit). During the period, actual direct materials costs amounted to $1,635,480, materials used totaled 55,440 gallons, and 13,200 units were produced.
> Refer to the information in Exercise 16-38. The following is the actual income statement (in thousands of dollars) for the year for Golden Food Products: Required Prepare a profit variance analysis like the one in Exhibit 16.5. Exercise 16-38:
> Refer to the data in Exercise 16-32 and the analysis in Exercise 16-33. Required Prepare a profit variance analysis for Fournier Fixtures like the one in Exhibit 16.5. Exercise 16-32:
> Consider a company that leases a fleet of aircraft for passenger service. Because the planes often fly with room in the cargo area, the company adds a new business shipping timesensitive freight. The company organizes into two profit centers—Passenger Se
