Question: Monique’s Florals produced a special Mother’

> Gerty Manufacturing Company has an opportunity to purchase some technologically advanced equipment that will reduce the company’s cash outflow for operating expenses by $640,000 per year. The cost of the equipment is $3,932,522.88. Gerty expects it to ha

> To open a new store, Enid Tire Company plans to invest $320,000 in equipment expected to have a four-year useful life and no salvage value. Enid expects the new store to generate annual cash revenues of $400,000 and to incur annual cash operating expense

> Rolla Company has a choice of two investment alternatives. The present value of cash inflows and outflows for the first alternative is $125,000 and $100,000, respectively. The present value of cash inflows and outflows for the second alternative is $300,

> In a month when it sold 200 units of product, Queen Manufacturing Company (QMC) produced the following internal income statement. Revenue $8,000 Variable costs (4,800) Contribution margin 3,200 Fixed costs (2,400) Net income $ 800 QMC has the opport

> Aaron Heath is seeking part-time employment while he attends school. He is considering purchasing technical equipment that will enable him to start a small training services company that will offer tutorial services over the Internet. Aaron expects deman

> Monterey Company is considering investing in two new vans that are expected to generate combined cash inflows of $30,000 per year. The vans’ combined purchase price is $93,000. The expected life and salvage value of each are four years and $23,000, respe

> The dean of the School of Fine Arts is trying to decide whether to purchase a copy machine to place in the lobby of the building. The machine would add to student convenience, but the dean feels compelled to earn an 8 percent return on the investment of

> Gail Trevino expects to receive a $500,000 cash benefit when she retires five years from today. Ms. Trevino’s employer has offered an early retirement incentive by agreeing to pay her $325,000 today if she agrees to retire immediately. Ms. Trevino desire

> Larry Mattingly turned 20 years old today. His grandfather had established a trust fund that will pay him $120,000 on his next birthday. However, Larry needs money today to start his college education, and his father is willing to help. Mr. Mattingly has

> Garrison Rentals can purchase a van that costs $54,000; it has an expected useful life of three years and no salvage value. Garrison uses straight-line depreciation. Expected revenue is $36,000 per year. Assume that depreciation is the only expense assoc

> Rainbow Painting Company is considering whether to purchase a new spray paint machine that costs $16,000. The machine is expected to save labor, increasing net income by $1,200 per year. The effective life of the machine is 15 years according to the manu

> Currie Company has an opportunity to purchase a forklift to use in its heavy equipment rental business. The forklift would be leased on an annual basis during its first two years of operation. Thereafter, it would be leased to the general public on deman

> North Airline Company is considering expanding its territory. The company has the opportunity to purchase one of two different used airplanes. The first airplane is expected to cost $12,000,000; it will enable the company to increase its annual cash infl

> Barbara Harvey is angry with Martin Cochran. He is behind schedule developing supporting material for tomorrow’s capital budget committee meeting. When she approached him about his apparent lackadaisical attitude in general and his tardiness in particula

> As the data on the partial income statements shown as follows reveal, Netflix, Inc., increased its revenues by 72 percent from 2017 to 2019, while its operating income during this period increased by 211 percent. Table Summary: A table shows the Partial

> Velma and Keota (V&K) is a partnership that is considering two alternative investment opportunities. The first investment opportunity will have a five-year useful life, will cost $19,680.96, and will generate expected cash inflows of $4,800 per year. The

> Indicate which of the following items will result in cash inflows and which will result in cash outflows. The first one is shown as an example. Item: a. Initial investment b. Salvage value c. Recovery of working capital d. Incremental expenses e. Work

> Climax Corporation has a desired rate of return of 7.50 percent. William Tobin is in charge of one of Climax’s three investment centers. His center controlled operating assets of $4,000,000 that were used to earn $480,000 of operating income. Required Co

> Eastevan Company calculated its return on investment as 10 percent. Sales are now $300,000, and the amount of total operating assets is $320,000. Required 1. If expenses are reduced by $28,000 and sales remain unchanged, what return on investment will re

> An investment center of Tribune Corporation shows an operating income of $7,500 on total operating assets of $125,000. Required Compute the return on investment. Round the computation to two decimal points.

> Helen Kaito, the president of Gladstone Toys Corporation, is trying to determine this year’s pay raises for the store managers. Gladstone Toys has seven stores in the southwestern United States. Corporate headquarters purchases all toys from different ma

> Muskrat Medical Equipment Company makes a blood pressure measuring kit. Jason McCoy is the production manager. The production department’s static budget and actual results for Year 3 follow. Required 1. Convert the static budget into a

> Dunlop Company has provided the following Year 2 data. Required Prepare in good form a budgeted and actual income statement for internal use. Separate operating income from net income in the statements.

> Pagwa Company has employees with the following job titles: - President of the company - Vice president of marketing - Product manager - Controller - Vice president of manufacturing - Treasurer - Regional sales manager - Personnel manager - Cashier - Vice

> Airdrie Department Store is divided into three major departments: Men’s Clothing, Women’s Clothing, and Home Furnishings. Each of these three departments is supervised by a manager who reports to the general manager. The departments are subdivided into d

> Siwa Company makes and sells a decorative ceramic statue. Each statue costs $50 to manufacture and sells for $75. Siwa spends $3 to ship the statue to customers and pays salespersons a $2 commission for each statue sold. The remaining annual expenses of

> The Rolling Parts Division of Delk Company plans to set up a facility with the capacity to make 20,000 units annually of a webcam for laptop computers. The avoidable cost of making the webcam is as follows. Required 1. Assume that Delk’

> Kelowna Company has two divisions, A and B. Division A manufactures 12,000 units of product per month. The cost per unit is calculated as follows. Variable costs $ 10 Fixed costs 20 Total cost $30Page 431 Division B uses the product created by Division A

> Lumberton Home Maintenance Company (LHMC) earned operating income of $6,000,000 on operating assets of $62,500,000 during Year 2. The Tree Cutting Division earned $1,000,000 on operating assets of $10,000,000. LHMC has offered the Tree Cutting Division $

> The Monarch Division of Allgood Corporation has a current ROI of 12 percent. The company’s target ROI is 8 percent. The Monarch Division has an opportunity to invest $4,800,000 at 10 percent but is reluctant to do so because its ROI will fall to 11.25 pe

> Supply the missing information in the following table for Unify Company. Sales $605,000 ROI ? Operating assets ? Operating income ? Turnover 2.2 Residual income ? Operating profit margin 0.08 Desired rate of return 10%

> Gletchen Cough Drops operates two divisions. The following information pertains to each division for Year 1. Required 1. Compute each division’s residual income. 2. Which division increased the company’s profitability

> The production manager is responsible for the assembly, cleaning, and finishing departments. The executive vice president reports directly to the president but is responsible for the activities of the production department, the finance department, and th

> Roanoke Company expected to sell 400,000 of its outdoor cameras during Year 2. It set the standard sales price for the camera at $60 each. During June, it became obvious that the company would be unable to attain the expected volume of sales. Roanoke’s c

> Wapella Manufacturing Company set its standard variable manufacturing cost at $60 per unit of product. The company planned to make and sell 4,000 units of product during Year 3. More specifically, the master budget called for total variable manufacturing

> Secor Educational Services had budgeted its training service charge at $120 per hour. The company planned to provide 30,000 hours of training services during Year 3. By lowering the service charge to $114 per hour, the company was able to increase the ac

> Charlie Stork rented a truck for his business on two previous occasions. Since he will soon be renting a truck again, he would like to analyze his bills and determine how the rental fee is calculated. His two bills for truck rental show that on September

> According to its original plan, Topeka Consulting Services Company plans to charge its customers for service at $120 per hour in Year 2. The company president expects consulting services provided to customers to reach 45,000 hours at that rate. The marke

> Exercise 8-5A Determining flexible budget variances Use the standard price and cost data provided in Exercise 8-1A. Assume that the actual sales price is $11.76 per unit and that the actual variable cost is $6.90 per unit. The actual fixed manufacturing

> Use the information provided in Exercise 8-1A. 1. Determine the sales and variable cost volume variances. 2. Classify the variances as favorable (F) or unfavorable (U). 3. Comment on the usefulness of the variances with respect to performance evaluation

> Compute variances for the following items and indicate whether each variance is favorable (F) or unfavorable (U).

> Indicate whether each of the following variances is favorable or unfavorable. The first one has been done as an example.

> Reardan Company established a predetermined fixed overhead cost rate of $29 per unit of product. The company planned to make 7,000 units of product but actually produced only 6,500 units. Actual fixed overhead costs were $212,000. Required 1. Determine t

> Cheney Company established a predetermined variable overhead cost rate at $21.00 per direct labor hour. The actual variable overhead cost rate was $19.20 per hour. The planned level of labor activity was 76,000 hours of labor. The company actually used 8

> Pella Car Wash Inc. expected to wash 2,000 cars during the month of August. Washing each car was expected to require 0.2 hour of labor. The company actually used 420 hours of labor to wash 1,880 cars. The labor usage variance was $880 unfavorable. Requir

> Russell and Sons, a CPA firm, established the following standard labor cost data for completing what the firm referred to as a Class 2 tax return. Russell expected each Class 2 return to require 4.0 hours of labor at a cost of $30 per hour. The firm actu

> Lucas Manufacturing Company incurred a favorable labor price variance and an unfavorable labor usage variance. Required 1. Describe a scenario in which the personnel manager is responsible for the unfavorable usage variance. 2. Describe a scenario in whi

> Advances in biological technology have enabled two research companies, Bio Labs, Inc., and Scientific Associates, to develop an insect-resistant corn seed. Neither company is financially strong enough to develop the distribution channels necessary to bri

> Fulton Fruit Basket Company makes baskets of assorted fruit. The standard and actual costs of oranges used in each basket of fruit follow. Fulton actually produced 25,000 baskets. Required 1. Determine the materials price variance and indicate whether it

> Misty McDougall is the manager of the Fowler Bagel Shop. The corporate office had budgeted her store to sell 3,000 ham sandwiches during the week beginning July 17. Each sandwich was expected to contain 6 ounces of ham. During the week of July 17, the st

> Cherokee Manufacturing Company established the following standard price and cost data. Cherokee planned to produce and sell 2,000 units. Actual production and sales amounted to 2,200 units. Required 1. Prepare the pro forma income statement in contributi

> Nunn Company, which sells electric razors, had $200,000 of cost of goods sold during the month of June. The company projects a 5 percent increase in cost of goods sold during July. The inventory balance as of June 30 is $15,000, and the desired ending in

> Dickey Books buys books and magazines directly from publishers and distributes them to grocery stores. The wholesaler expects to purchase the following inventory. Dickey Books’ accountant prepared the following schedule of cash payments

> Lumpkin Company sells lamps and other lighting fixtures. The purchasing department manager prepared the following inventory purchases budget. Lumpkin’s policy is to maintain an ending inventory balance equal to 10 percent of the followi

> Ozark Company operates a candy store located in a large shopping mall. Required Write a brief memo describing the sales pattern that you would expect Ozark to experience during the year. In which months will sales likely be high? In which months will sal

> Carmen’s Dress Delivery operates a mail-order business that sells clothes designed for frequent travelers. It had sales of $400,000 in December. Because Carmen’s Dress Delivery is in the mail-order business, all sales are made on account. The company exp

> Axon Corporation, which has three divisions, is preparing its sales budget. Each division expects a different growth rate because economic conditions vary in different regions of the country. The growth expectations per quarter are 4 percent for Cummings

> Candice Sterling is a veterinarian. She has always been concerned for the pets of low-income families. These families love their pets but frequently do not have the means to provide them proper veterinary care. Dr. Sterling decides to open a part-time ve

> The budget director of Heather’s Florist has prepared the following sales budget. The company had $50,000 in accounts receivable on July 1. Heather’s Florist normally collects 100 percent of accounts receivable in the

> Magnificent Modems has excess production capacity and is considering the possibility of making and selling security tokens. The following estimates are based on a production and sales volume of 1,000 security tokens. Unit-level manufacturing costs are ex

> Use the same transaction data for Magnificent Modems, Inc. Required 1. Use the following partially completed form to prepare an income statement using the contribution margin format. Sales revenue $600,000 Variable costs Contribution margin 225,000 Fixe

> Use the same transaction data for Magnificent Modems, Inc. Required 1. Based on these data, identify each cost incurred by the company as (1) fixed versus variable relative to the number of units produced and sold; and (2) product versus selling, general

> Why are the salaries of production workers accumulated in an inventory account instead of being expensed on the income statement?

> Magnificent Modems, Inc., makes modem cards that are used in notebook computers. The company completed the following transactions during Year 1. All purchases and sales were made with cash. 1. Acquired $750,000 of cash from the owners. 2. Purchased $270,

> What does the statement “costs can be assets or expenses” mean?

> How does product costing used in financial accounting differ from product costing used in managerial accounting?

> What are the two dimensions of a total quality management (TQM) program? Why is TQM being used in business practice?

> What does the value-added principle mean as it applies to managerial accounting information? Give an example of value-added information that may be included in managerial accounting reports but is not shown in publicly reported financial statements.

> What are some differences between financial and managerial accounting?

> If Best Company sold land that cost $4,200 at a $500 gain, how much cash did it collect from the sale of land?

> Does depreciation expense affect net cash flow? Explain.

> Which of the following activities are financing activities? (a) Payment of accounts payable. (b) Payment of interest on bonds payable. (c) Sale of common stock. (d) Sale of preferred stock at a premium. (e) Payment of a cash dividend.

> Clover Company had a beginning balance in unearned revenue of $4,300 and an ending balance of $3,200. Net income amounted to $54,000. Based on this information alone, determine the amount of net cash flow from operating activities.

> Forsyth Company had a beginning balance in utilities payable of $3,300 and an ending balance of $5,200. Net income amounted to $87,000. Based on this information alone, determine the amount of net cash flow from operating activities.

> During Year 3, Anywhere Inc. (AI) incurred the following product costs. Raw materials $62,000 Labor 89,422 Overhead 58,000 Recall that the Year 2 ending balance in the Work in Process (WIP) account was $26,000. Accordingly, this is the beginning WIP bala

> Albring Company had a beginning balance in accounts receivable of $12,000 and an ending balance of $14,000. Net income amounted to $110,000. Based on this information alone, determine the amount of net cash flow from operating activities.

> What are noncash investing and financing activities? Provide an example. How are such transactions shown on the statement of cash flows?

> What are the three categories of cash flows reported on the cash flow statement? Discuss each and give an example of an inflow and an outflow for each category.

> Can a company report negative net cash flows from operating activities for the year on the statement of cash flows but still have positive net income on the income statement? Explain.

> How would Best Company report the following transactions on the statement of cash flows? (a) Purchased new equipment for $46,000 cash. (b) Sold old equipment for $8,700 cash. The equipment had a book value of $4,900.

> What is the advantage of using the direct method to present the statement of cash flows?

> What is the major advantage of using the indirect method to present the statement of cash flows?

> Which method (direct or indirect) of presenting the statement of cash flows is more intuitively logical? Why?

> What is the difference between preparing the statement of cash flows using the direct method and using the indirect method?

> In which section of the statement of cash flows would the following transactions be reported? (a) The amount of the change in the balance of accounts receivable. (b) Cash purchase of investment securities. (c) Cash purchase of equipment. (d) Cash sale of

> Magnificent Modems Inc. acquired a subsidiary named Anywhere Inc. (AI). AI manufactures a wireless modem that enables users to access the Internet through cell phones. The following Balance Sheet was drawn from the accounts of the subsidiary. The subsidi

> If Best Company sold office equipment that originally cost $7,500 and had $7,200 of accumulated depreciation at a $100 loss, what was the selling price for the office equipment?

> What is the purpose of the statement of cash flows?

> What are some limitations of the earnings per share figure?

> Which ratios are used to measure long-term debt-paying ability? How is each calculated?

> What is the difference between return on investment and return on equity?

> Why are absolute amounts of limited use when comparing companies?

> What is the difference between the current ratio and the quick ratio? What does each measure?

> What is the significance of inventory turnover, and how is it calculated?

> What is apparent from a horizontal presentation of financial statement information? A vertical presentation?

> What do the terms liquidity and solvency mean?

> Magnificent Modems Inc. (MMI) has several capital investment opportunities. The term, expected annual cash inflows, and the cost of each opportunity are outlined in the following table. MMI has established a desired rate of return of 16 percent for these

> How do accounting principles affect financial statement analysis?

> What environmental factors must be considered in analyzing companies?

> What is the price-earnings ratio? Explain the difference between it and the dividend yield.