The management control system collects information from local managers for planning purposes. It then uses the plan to evaluate the local managers. What are the advantages of this? What are the disadvantages?
> Veach Division has total assets (net of accumulated depreciation) of $462,000 at the beginning of year 1. One of the assets is a machine that has a net book value of $42,000. Expected divisional income in year 1 is $55,440 including $2,940 in income gene
> The Plastics Division of Minock Manufacturing currently earns $2.87 million and has divisional assets of $35.0 million. The division manager is considering the acquisition of a new asset that will add to profit. The investment has a cost of $5,400,000 an
> Refer to the data in Exercise 14-37. Required Evaluate the performance of the two divisions assuming Houghton Chemicals uses residual income. Exercise 14-37:
> Refer to the information in Exhibits 13.20 and 13.21 that are part of the test of zero-based budgeting at Rainy Days Umbrellas. Information concerning the funding requests for PDG Areas 2 and 3 are as follows: Required As a result of the loss of a major
> Houghton Chemicals, which started operations one year ago, has two divisions: Alloys and Petro. Both divisions invest heavily in R&D, which is assumed to generate benefits for five years. R&D spending is made uniformly throughout the year. Hought
> Refer to the data in Exercise 14-33. Required Evaluate the performance of the two divisions assuming Lasky Manufacturing uses residual income. Exercise 14-33:
> Lasky Manufacturing has two divisions: Carolinas and Northeast. Lasky has a cost of capital of 7.5 percent. Selected financial information (in thousands of dollars) for the first year of business follows: Required Evaluate the performance of the two divi
> Albany Division is considering the acquisition of a new asset that will cost $540,000 and have a cash flow of $180,000 per year for each of the four years of its life. Depreciation is computed on a straight-line basis with no salvage value. Ignore taxes.
> The Custodial Division of Clark’s Corporate Services (CCS) has assets of $1.2 million. During the past year, the division had profits of $216,000. CCS has a cost of capital of 7.5 percent. Ignore taxes. Required a. Compute the divisional ROI for the Cust
> Your boss asks for your estimate on the costs of a major project for which you have responsibility. Your future with the company depends on your performance relative to this budget. Your best guess is, for example, $1,000,000. What will you say? Why?
> Describe four methods used to estimate sales for budgeting purposes.
> Exeter Division of Wetherby Labs acquired an asset with a cost of $800,000 and a four-year life. The cash flows from the asset, considering the effects of inflation, were scheduled as follows: The cost of the asset is expected to increase at a rate of 5
> Refer to the information in Exercise 14-45. In computing ROI, this division uses end-of-year asset values. Assume that all cash flows increase 10 percent at the end of each year. This has the following effect on the assets’ replacement
> Mansfield Information Systems (MIS) is an IT support firm. Managers and staff are billed to clients on an hourly basis. The senior administrative staff does not directly provide client support. Because of the clientele of MIS, there is significant fluctu
> Felch Tacos is a drive-thru restaurant in a coastal town with significant seasonal changes in business. The owners are trying to decide whether to remain open during the fourth quarter of the year (October through December) given the reduced business. Th
> Cymbal E-Motors is a fast-growing start-up firm that manufactures electric motors for bicycles. The following income statement is available for April: Sales volume is expected to increase by 30 percent in May, but the sales price is expected to fall 5 pe
> Refer to the data in Exercise 13-42. Cornwall estimates that the number of members in July should increase 20 percent above June levels, and the number of additional washes per member should increase by an estimated 12.5 percent. The following informatio
> Refer to data for Dill Shipyards in Exercise 12-41. Required What is the cost allocation if fixed Payroll costs of $5.6 million are allocated on the basis of number of employees and the remaining costs (all variable) are allocated on the basis of total p
> Refer to the data in Exercise 14-40. The division manager learns that there is an option to lease the asset on a year-to-year lease for $1,162,000 per year. All depreciation and other tax benefits would accrue to the lessor. Required What is the division
> Refer to data for Kentfield Advisory Services in Exercise 12-39. Required What is the cost allocation if fixed IT costs of $22.4 million are allocated on the basis of utilization and the remaining costs (all variable) are allocated on the basis of group
> Evergreen Furniture, a retailing company, is preparing the cash budget for August. The following inventory information is available: Required What are the estimated cash disbursements in August?
> Our cash budget shows a surplus for the quarter so we do not have to think about arranging any bank financing.” Comment on this statement.
> Refer to data for Giardin Outdoors in Exercise 12-37. Required Determine the cost allocation if $3.8 million of the F&A costs are fixed and allocated on the basis of revenues, and the remaining costs, which are variable, are allocated on the basis of
> Dawes Designs buys T-shirts for clubs, teams, and other organizations. Dawes takes the shirts and adds the organization’s logo. Because of the uncertainty in the timing of the sales and to avoid stock outages, Dawes tries to maintain an
> Refer to data for Mackenzie Mining in Exercise 12-35. Required Determine the cost allocation if $9.5 million of the HR costs are fixed and allocated on the basis of employees, and the remaining costs, which are variable, are allocated on the basis of the
> Mackenzie Mining has two operating divisions, Northern and Southern, that share the common costs of the company’s human resources (HR) department. The annual costs of the HR department total $14,000,000 a year. You have the following se
> Evergreen Transportation is a domestic logistics company offering warehousing and transportation services. It is organized along product lines with three sectors: Agricultural, Manufactured Goods, and Petro-Chemicals. Each of the three sectors is further
> Consider the Business Application, “Centralizing as a Cost-Cutting Approach.” Required What best describes the cost(s) Pernod Ricard SA likely hoped to reduce by removing some of the authority of local managers to sour
> Refer to the data in Exercises 14-24 and 14-28. Lauderdale Corporation has a cost of capital of 8.6 percent. Required Compute residual income for the three regions. Ignore taxes. How have these regions performed? Exercise 14-24: Exercise 14-28:
> Dolson Appliances makes coffee machines for offices and homes. For next year, the production budget is 125,000 units. Beginning inventories will be 10,000 units and the desired ending inventory will be 8,000 units. Required What is the sales budget for t
> Kirby Soups has just made its sales forecasts, and its marketing department estimates that the company will sell 3,900,000 units of its vegetable soup during the coming year. In the past, management has maintained inventories of finished goods at approxi
> My company is unique. We can’t use benchmarking.” How would you respond?
> When might the master budget start with a forecast of something other than sales— production, for example? Why?
> I know how to satisfy customers—give the product away.” How does a system with multiple measures of performance address this concern with evaluating managers in part on customer satisfaction?
> Consider the number of customer complaints as a measure of customer satisfaction. How does this measure customer satisfaction? How does it fail to measure customer satisfaction?
> Again, consider a class you are taking (or have taken). Did the instructor use solely objective measures (scores on numerical exams, for example) or did they use a mix of objective and subjective (short-essay questions, for example). Why do you think bot
> Consider your campus bookstore. Who do you think are the stakeholders? What do you think are its critical success factors? How would they differ from those of a retail bookstore in a city without a college?
> “A process control chart will tell managers when to investigate variances.” Do you agree?
> A computer company always sells the processing unit and monitor together as a bundled package. Is there any benefit to computing a sales mix variance under these circumstances?
> Many companies argue that they do not pay their managers a bonus because they believe their employees will work hard for a “fair” wage and do not need to be motivated with a bonus. Why would managers in such a system work hard? Is there a financial incen
> Actual revenues are greater than budgeted for December, so our revenue variance is favorable.” Give an example of when this would be “good” news and when it could be “bad” news.
> Refer to the Business Application item “Transfer Pricing at Weyerhaeuser.” Why might the company use market prices instead of costs for product transfers?
> Refer to Question 15-14. What type of responsibility center would you recommend the company make Alpha Division? Beta Division? Explain your reasons.
> What is the difference between the planning and the control functions of the budget? What problems do these differences create?
> In some organizations (firms, universities, government agencies), spending appears to increase as the end of the budgeting period approaches, even if there are no seasonal differences. What might cause this?
> Government agencies are limited in spending by budget categories, not just by an overall spending limit. What purpose does this serve? What problems does it create?
> Would the budgeting plans for a company that uses a just-in-time (JIT) inventory system be different from those for a company that does not? Why?
> Is the CEO ever an agent in the principal–agent relationship as discussed in the chapter? Is a division president ever a principal in the principal–agent relationship as discussed in the chapter? Explain.
> Salespeople are often paid a commission based on sales revenue. How might that incentive system lead to dysfunctional consequences?
> Preparing a budget is a waste of time. The strategic plan is what we work to accomplish.” How would you respond to this comment?
> How could a professional sports firm use the mix variance to analyze its total stadium revenues?
> What is contingent compensation?
> What is relative performance evaluation (RPE)?
> The Treadway Commission indicated that bonus plans based on achieving short-run financial results have been a factor in financial frauds, particularly when the bonus is a large component of an individual’s compensation. Why is this so?
> What is the controllability concept?
> What is goal congruence? How is it different from behavioral congruence?
> What are the five basic kinds of decentralized units in a responsibility accounting system?
> What are the advantages of financial measures of performance? What are the advantages of nonfinancial measures of performance?
> Why is worker involvement important to an organization’s success?
> Why is it important for management accountants to understand business strategy?
> If the sales activity or materials efficiency variance is zero, there is no reason to compute a mix and quantity or yield variance. True or false?
> How would you recommend accounting for variances at the end of the year? Why?
> What complication arises in variance analysis when the number of units produced is not the same as the number of units sold?
> Fixed cost variances are computed differently from the variances for variable costs. Why?
> The Treadway Commission commented that a factor giving rise to fraud is the existence of pressures on division managers to achieve unrealistic profit objectives. Why might top management set unrealistic profit targets?
> Actual direct materials costs differ from the master budget amount. What are the three primary reasons for the difference?
> Why is transfer pricing important in tax accounting?
> How does the separation of duties help prevent financial fraud?
> What role do “packages” play in zero-based budgeting? How do these roles address critiques of traditional budgeting?
> How are actual direct labor costs used in a standard cost system? Does this differ from their use in a normal costing system? If so, how? If not, why not?
> Montgomery Fashions produces and sells clothing through various retailers. Montgomery is highly decentralized and allows its managers discretion in managing with little direct oversight. This latitude in decision making is checked by using a performance
> Mack’s Juices produces and bottles a line of fruit juices. The manufacturing process entails mixing and adding juices and other ingredients at the bottling plant, which is a part of Blending Division. The finished product is packaged in
> Refer to the data in Problem 15-41. Division managers are evaluated using residual income using a 9 percent cost of capital. Required a. What is the residual income for Western without the transfer to Eastern? b. What is Western’s residual income if it t
> Washburn Associates has two divisions. Western Division, which has an investment base of $50,000,000, produces and sells 1,400,000 units of a product at a market price of $60 per unit. Its variable costs total $25 per unit. The division also charges each
> Norfolk Advisors operates a network of offices that provide business and financial advice to small businesses. Each office is managed by an office director. The office director is given relatively wide latitude in running the office, although any product
> The Treadway Commission commented that the forces leading to financial fraud were present in all companies to some extent, but fraudulent financial reporting resulted from the right combustible mixture of forces and opportunities to commit fraud. Based o
> Tarnow Manufacturing produces metal components and is organized in four geographic divisions (North, South, East, and West). The company adopted a balanced scorecard approach to performance measurement several years ago. Although there were some initial
> Many firms in the service industry have empowered their customer-facing employees to handle service complaints on the spot rather than having the customer contact a corporate customer service center. For example, some airline and hotel companies authoriz
> The interaction between customers and line employees is often more direct in service industries than in manufacturing firms. At the same time, we often observe that employees in many service firms (for example, in hotels and airlines) are given authority
> A common method of measuring performance in many college and university courses is to combine objective measures (test scores, for example) with subjective measures (class participation measures, for example). These scores are weighted and combined to de
> Venice Textiles produces cloth. The inputs are fabric, labor, and overhead. Fragmentary productivity records from plant files for the last period show the following: Required Determine the partial fabric (materials) productivity.
> Refer to the data in Exercise 18-42 (McNichols Lubricants). From the accounting records, you also gather the following information for the two years. Required a. Compute the total factor productivity measures for quarter 1 and quarter 2 based on the thre
> Boleyn Cycles produces several models of high-end bicycles and related products. The company collects various operational performance measurements monthly and reviews them as part of its continuous improvement program. The company has recently been evalu
> Henderson Parts manufactures parts for turbines. The company is in the process of adopting lean manufacturing techniques to remain competitive. Part of the effort is to eliminate as much of the nonvalue-added time in production as possible. The plant con
> Prevost Chemicals manufactures an industrial solvent at its only processing plant. A liquid chemical and labor are the two primary inputs. All other resources are included in manufacturing overhead. The plant never has any work-in-process or finished goo
> Terrell Industries produces a single product at its Roosevelt facility. The product has two main inputs, metal and labor, with additional costs being included in manufacturing overhead. The plant carries neither work-in-process nor finished goods invento
> Each April, it is common to find news articles contrasting executive pay with firm performance. For example, on April 9, 2009, The Wall Street Journal reported that the top three executives at Kilroy Realty (a California property developer and manager) w
> Mission statements can be difficult to write, especially for not-for-profit organizations engaged in charitable work. Consider the following two statements from relief organizations: • American Red Cross: “The American Red Cross prevents and alleviates h
> Write a report to the CEO of Acer Incorporated (a manufacturer of laptops) recommending specific benchmark measures. Include specific competitors against which to measure.
> Stansbury Stores is a general grocery and convenience items retailer. The business is quite competitive and margins are thin. The company recently reviewed its performance measurement system and decided to adopt a balanced scorecard. As a part of that re
> Brace Parts manufactures components for the audiovideo equipment industry. At a recent corporate retreat, the management of Brace reviewed the company strategy and decided that Brace had a strategic advantage in being able to differentiate several of its
> A company is considering using sales revenue (selling price multiplied by sales quantity) as a performance measure for its marketing manager. The newly hired compensation analyst suggests that it might be better to just use the sales quantity (a nonfinan
> Goodwin Advisors offers financial advice on an hourly basis. The following information for the second quarter is the flexible budget based on the actual volume of 3,500 hours: The master budget for the second quarter was based on selling 4,000 advising h
> McKinley City Tours offers small group guided walks. The following information for July provides the original budget: McKinley actually sold 1,440 tours in July. The price variance was $2,880 unfavorable, the variable cost variance was $5,760 unfavorable
> La Salle Outfitters organizes wilderness tours. For the most recent touring season, the industry volume variance showed La Salle sold 336 more tours than expected, but the market share variance resulted in 96 fewer tours than expected. The standard contr
> You are a county supervisor for Firwood County and are preparing for the monthly supervisor meeting where the operations of various units are reviewed. One of the units that the county government operates is a motor pool with 50 vehicles. The motor pool
> The Berry Bowl sells fresh fruit cups from a cart. The owner want to compare this quarter’s results with those for last quarter. The owner believes that the last quarter’s operations were “what we exp
> Consider the Business Application “Recent Experiences with Zero-Based Budgeting. According to the Application, the company Kraft Heinz intends to keep using zero-based budgeting while other firms in the same industry are dropping it. What might lead one
> Refer to the information in Problem 17-58. Required Write a memo to the managers at Pease Contractors recommending which variances they should investigate this period, along with your reasons. Problem 17-58:
> Earle Soup Company makes three varieties of soups: Bean, Tomato, and Vegetable. Sales volume for the annual budget is determined by estimating the total market volume for soups and then applying the company’s prior-year market share, ad
