Multiple-doctor medical practices are often structured with each doctor acting as a profit center. a. Discuss why such an organizational structure would be useful. b. Go to the Web and find some software packages that could be used to account for such an organizational structure. c. List some costs of a medical practice that would be directly traceable to each physician. d. List some costs of a medical practice that might not be directly traceable to each physician. Provide possible allocation bases for such costs. Answer Important considerations follow. a. In multiple doctor medical practices, setting up the recordkeeping system to reflect each doctor as his/her own profit center will give insight into the expenses each doctor is absorbing against revenue directly generated by him/her. The data generated from this exercise gives management another tool in evaluating performance for salary adjustments, bonuses and promotions. b. The typical software accounting packages used by medical practices are Peachtree, QuickBooks and Creative Solutions. c. Some directly traceable costs include salary, malpractice insurance, fringe benefits, conferences and seminars, vehicle expense, meals and entertainment, patient refunds, insurance refunds, travel and lodging, licenses, supplies and vaccines that are used by a specialist, and dues and fees. d. Indirect expenses include building rent, depreciation, equipment lease payments, interest expense, legal and accounting fees, office supplies, medical waste disposal, pension expense, utilities, and staff salaries, taxes and fringe benefits. Allocations bases would include gross revenues generated by doctor, percent of cash receipts generated by doctor, percent of patients seen by doctor, percent of occupancy space used by doctor, or equal allocation among all doctors.
> Memphis Jazz Company is preparing a pamphlet that will provide information on the types of jazz, jazz terminology, and biographies of some of the better-known jazz musicians. In addition, the pamphlet will include a request for funding to support the jaz
> The following financial data have been determined from analyzing the records of Tim’s Brake Co. (a one-product firm): Contribution margin per unit ………………………$ 50 Variable cost per unit …………………………………….42 Annual fixed cost ……………………………….$180,000 How does ea
> Macon Farms raises peaches that, at harvest, are separated into three grades: premium, good, and fair. Joint cost is allocated to products based on bushels of output. The $337,500 joint cost for one harvest yielded the following output quantities.
> Portsmouth Port Services creates and maintains shipping channels at various ports around the world. The company is considering the purchase of a $72,000,000 ocean-going dredge that has a 5-year life and no salvage value. The company depreciates assets on
> You have just purchased a new car, making a down payment of $8,000 and financing the balance of the purchase cost on an installment credit plan. According to the credit agreement, you will pay $600 per month for a period of 48 months. If the credit agree
> You have just invested $60,000 in a bank account that guarantees to pay you 6 percent interest, compounded annually. At the end of 5 years, how much money will have accumulated in your investment account? (Ignore taxes.)
> Brenda’s Bees is considering the purchase of new honey processing equipment. The equipment would cost $100,000, have an expected life of 7 years, and save the firm $28,000 annually in maintenance, operating, and cleanup costs. The firm’s cost of capital
> Mosbee Designs uses a job order costing system to account for the various architectural services offered to commercial clients. For each major job, architectural models of the completed structures are built for client presentations. At the completion of
> Renaissance Creations restores antique stained glass windows. All jobs generate some breakage or improper cuts. This scrap can be sold to stained glass hobbyists. Renaissance Creations expects to incur approximately 45,000 direct labor hours during 2010.
> Ramirez Tax Services is considering the installation of a new system for electronically filing tax returns. The system has an initial cost of $80,000 and an expected life of 5 years. a. If the company’s cost of capital is 10 percent, how much annual incr
> Trady’s Tree People manufactures wood statues, which yields sawdust as a by-product. Selling costs associated with the sawdust are $25 per ton sold. The company accounts for sawdust sales by deducting the sawdust’s net realizable value from the major pr
> New York Fabrics makes three clothing items: pants, shorts, and shirts. Contribution margins for the products are $4.25, $4.05, and $2.70 per unit, respectively. The company’s manager must decide what mix of clothes to make. New York Fa
> Lundholm Corp. is considering the purchase of a robotic machine that would replace a manual labor production task. This project would require an upfront cash commitment of $2,000,000 to purchase and install the equipment. The equipment would have an expe
> The variable costs for four different products are $9.30, $7.86, $8.78, and $19.44. State the objective function in equation form to minimize the variable costs.
> The contribution margins for three different products are $19.00, $8.00, and $3.50. State the objective function in equation form to maximize the contribution margin.
> For each of the following limitations of the capital project evaluation methods, indicate to which method, or methods, the limitation applies. Consider all of the following methods: payback, NPV, PI, IRR, and ARR (accounting rate of return). a. Cash flow
> Qvat Division, a subsidiary of Imogene Ltd., manufactures a product with the following costs: Direct material …………………………………..$15.00 Direct labor ………………………………………...26.25 Variable overhead ……………………………….12.75 Fixed overhead …………………………………..18.00 Total ………………
> For each of the following assumptions that underlie the capital project evaluation methods, indicate to which method, or methods, the assumption applies. Consider all of the following methods: payback, NPV, PI, IRR, and ARR (accounting rate of return). a
> Three years ago, Girston Gravel Pit purchased a material conveyor system. The company has decided to sell the system and acquire more advanced technology. Data relating to the existing system follow. Current market value …………………………………………………………..$37,000 O
> Winnovia Mills processes cotton in a joint process that yields two joint products: fabric and yarn. May’s joint cost is $120,000, and thesales values at split-off are $360,000 for fabric and $300,000 for yarn. If the products are processed beyond split-o
> Jenna Smith recently purchased an annuity contract that will pay her $125,000 per year for the next 7 years. According to Smith’s calculations, the estimated internal rate of return on this investment is 14 percent. If Smith’s cost of capital is 10 perce
> Mountain Mist Inc.’s cost of capital is 11 percent. In 2010, one of the firm’s divisions generated an EVA of $1,130,000. The fair market value of the capital investment in that division was $29,500,000. How much after-tax income was generated by the divi
> Dallas Office Systems has annual sales of $2,250,000 with variable expenses of 60 percent of sales and fixed expenses per month of $25,000. By how much must annual sales increase for Dallas Office Systems to have pre-tax income equal to 30 percent of sal
> Indicate whether a firm exhibiting each of the following characteristics would more likely be centralized (C) or decentralized (D). a. Large number of employees who telecommute b. Slow growth rate c. Few employees d. Subordinates highly trained and mento
> Casper Ceramics is considering the purchase of new production technology that would require an initial investment of $1,500,000 and have an expected life of 10 years. At the end of its life, the equipment would have no salvage value. By installing the ne
> In recent years, stock price averages (such as the Dow Jones Industrial Average) have shown sensitivity to changes in interest rates. Based on your understanding of the factors that determine stock prices and of how future cash flows are discounted, prep
> Kurt’s Office Services is evaluating the purchase of a state-of-the-art desktop publishing system that costs $40,000, has a 6-year life, and has no salvage value at the end of its life. The company’s controller estimates that the system will annually gen
> Use the tables in Appendix A to determine the answers to the following questions. Ignore taxes in all circumstances. a. Titus wishes to have $50,000 in 6 years. He can make an investment today that will earn 8 percent each year, compounded annually. What
> Management of Frisco Films is considering the following capital projects: Assume that all projects have no salvage value and that the firm uses a discount rate of 10 percent. Management has decided that only $25,000,000 can be spent in the current year
> Lastlock Security Systems is considering an investment in computer-based production technology as part of a business reengineering process. The necessary equipment, installation, and training will cost $18,000,000, have a life of 8 years, and generate an
> Maine Trucking provides truck freight services throughout the northeast United States. The firm is considering an investment in a mainframe computer and communications software, which would cost $1,000,000 and have an expected life of 8 years. For tax pu
> Natural Foods is considering the purchase of new food processing technology, which would cost $900,000 and would generate $150,000 in annual cost savings. No salvage is expected on the technology at the end of its 10-year life. The firm’s cost of capital
> Rockport Municipal Marina is considering adding a new dock to accommodate large yachts. The dock would cost $700,000 and would generate $144,000 annually in new cash inflows. Its expected life would be 8 years, and it would have no salvage value. The org
> Nashville Tours is considering adding a new bus route. To do so, the company would be required to purchase a new bus, which would cost $600,000, have a 10-year life, and have no salvage value. If the new bus is purchased, Nashville Tours’ managers expect
> Bill’s Cabinets sells a product for $360 per unit. The company’s variable cost per unit is $60 for direct material, $50 per unit for direct labor, and $34 per unit for overhead. Annual fixed production overhead is $74,800, and fixed selling and administr
> In discussing your cost accounting class with friends, you explained that you were currently studying methods of evaluating capital investments. You mentioned that most of these methods rely upon cash flow analysis. One particularly sophisticated friend
> The following 2010 information is available for Cornwall Industries: average assets invested, $7,200,000; revenues, $26,400,000; and expenses, $24,600,000. a. Calculate return on investment. b. Calculate profit margin. c. Calculate asset turnover. d. Usi
> For the most recent fiscal year, the Northern Division of Eastern Corporation generated an asset turnover ratio of 4 and a profit margin (as measured by the segment margin) ratio of 4 percent on sales of $4,000,000. a. Compute the average assets employed
> The company president has asked you, as the new controller, to comment on any deficiencies of the firm. After saying you believe that the firm needs long-run performance measurements, the president says that the long run is really just a series of short
> In recent years, salaries for chief financial officers (CFOs) of large U.S. corporations averaged only about 20 percent of the total CFO compensation package; the other 80 percent is performance-based, variable compensation that includes mostly stock opt
> Jeannie South is a division manager of Montana Manufacturing Inc. She is in the process of evaluating a $4,000,000 investment. The following net annual increases, before depreciation, in divisional income are expected during the investment’s five-year li
> Following is a list of transactions that affected one division within a multiple-division company. Indicate, for the current fiscal year, whether each transaction would increase (I), decrease (D), have no effect (N), or have an indeterminate (?) effect o
> EVA is used by top management at College Learning Technologies to measure and evaluate the performance of segment managers. The company’s cost of capital is 11 percent. In 2010, its Audio/Visual subsidiary generated after-tax income of $2,260,000, with $
> Schulz GmbH, a German company, set an 18 percent target rate of return for its U.S. division for 2010. For 2010, the U.S. division generated $39,000,000 of revenue on average assets of $25,000,000. The division’s variable costs were 45 percent of sales,
> London Ltd. operates its two divisions as investment centers. Information about these divisions follows. a. What is the residual income of each division if the “charge” on invested assets is 13 percent? Which division
> Sheridan Shacks makes portable garden sheds that sell for $1,800 each. Costs are as follows: a. How many garden sheds must the company sell to break even? b. If Sheridan Shacks’ management wants to earn a pre-tax profit of $200,000, ho
> Theta Property Management provides management services for commercial real estate development projects. The firm recently started a new division to market video game services to existing clients. The new division will purchase and maintain the video equi
> You have asked your sales manager to explain why budgeted revenues for your division are below expectations. The budget indicated $472,500 of revenues based on a sales volume of 630,000 units. Sales records indicate that 645,000 product units were actual
> For 2010, Wagner Company planned to sell 460,000 units at a $37 selling price. In early 2011, the marketing manager was asked to explain why budgeted revenue had not been achieved. Investigation revealed the following information: Actual sales volume ………
> For each of the following organizational units, indicate whether the unit would most likely be classified as a cost center (C), a revenue center (R), a profit center (P), or an investment center (I): a. Laundry of a large bed-and-breakfast b. Corporate-o
> Many companies are trying to determine the best organizational structure for information technology (IT) operations. Although IT operations had been decentralized in the past, there has been a growing trend to bring such operations back to a central loca
> Use the Internet to identify a multinational company encountering tax problems related to transfer pricing between its organizational units in different countries. Prepare a brief discussion of the issues and the actual or potential consequences.
> Walsdorf Company’s information technology department is developing a support department transfer price based on minutes of computer time. For 2010, its expected capacity was 700,000 minutes, and theoretical capacity was 1,000,000 minutes. Costs of the IT
> Great Taste Food Stores operates 20 large supermarkets in the East. Each store is evaluated as a profit center, and store managers have complete control over their purchases and inventory policy. Company policy is that transfers between stores will be ma
> Peyvandi Co., a profit center of California Enterprises, manufactures Product BP3751-9S to sell internally to other company divisions as well as externally. One unit of Product BP3751-9S sells for $72. Production and selling costs for a unit of Product B
> Prior to the 2009 Super Bowl, a Phoenixarea retailer ordered 50,000 T-shirts that read: Arizona Cardinals—2009 Super Bowl Champs. The company paid $11.75 for each of the custom T-shirts. Following the loss of Arizona to the Pittsburgh Steelers, the retai
> Elba Division of Haimes Industries manufactures product #54B89. Three-fourths of the production is transferred to the Crete Division of Haimes Industries; the remainder is sold externally for $67 per unit. The following information is available about pro
> Leander Mfg. has three support departments (human resources, administration, and maintenance) and two revenue-generating departments (assembly and finishing). The company uses the step method to allocate support department costs to operating departments.
> Francis Mendez delivers two-day statistical process control seminars for manufacturing workers. For each program, a $4,200 fee is normally paid. In 2009, Mendez presented 30 seminars, and he budgeted a 30 percent increase in seminars for 2010. At the end
> Prepare an oral presentation discussing how accounting information can (a) help and (b) hinder an organization’s progress toward its mission and objectives. Be sure to differentiate between the effects of what you perceive as “traditional” versus “nontra
> Many firms now engage in some form of B2B (business-to-business) Internet-based commerce. A specific type is B2B buy-side, which is Internet technology that allows firms to solicit bids on inputs that firms require to support production, sales, and admin
> Write a paper that compares and contrasts the corporate, general partnership, limited partnership, LLP, and LLC forms of business. At a minimum, discuss issues related to formation, capital generation, managerial authority and responsibility, taxation, o
> Following are descriptions of three businesses. For each, assume that you are the CEO. Identify the most critical information you would need to manage the strategic decisions of that business. a. Private hospital that competes on the basis of delivering
> As a financial analyst, you have just been handed the 2010 financial report of Firm A, a large, global pharmaceutical company. Firm A competes in both traditional pharmaceutical products and in evolving biotechnology products. The following data (in bill
> Following are activities that are components of a management control system in a production department. For each item listed, discuss whether it is a detector, assessor, effector, or communications network: a. Comparing actual costs to budgeted costs and
> 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?
