Question: Under what circumstances may a static budget

> “Incremental analysis involves the accumulation of information concerning a single course of action.” Do you agree? Why?

> Distinguish between a master budget and a sales forecast.

> Lori Wilkins maintains that the only difference between budgeting and long-range planning is time. Do you agree? Why or why not?

> What criteria are helpful in determining the length of the budget period? What is the most common budget period?

> Jane Gilligan asks your help in understanding the essentials of effective budgeting. Identify the essentials for Jane.

> Alou Company has 20,000 beginning finished goods units. Budgeted sales units are 160,000. If management desires 15,000 ending finished goods units, what are the required units of production?

> “The production budget shows both unit production data and unit cost data.” Is this true? Explain.

> What budget is the starting point in preparing the master budget? What may result if this budget is inaccurate?

> How may expected revenues in a service company be computed?

> School costs money. Is this an expenditure that you should have avoided? A year of tuition at a public four-year college costs about $8,655, and a year of tuition at a public two-year college costs about $1,359. If you did not go to college, you might av

> What is the formula for determining required merchandise purchases for a merchandiser?

> Noterman Company has credit sales of $600,000 in January. Past experience suggests that 40% is collected in the month of sale, 50% in the month following the sale, and 10% in the second month following the sale. Compute the cash collections from January

> Your roommate, Anna Polis, contends that accounting contributes to most of the steps in management’s decision-making process. Is your roommate correct? Explain.

> Identify the three sections of a cash budget. What balances are also shown in this budget?

> Indicate the supporting schedules used in preparing a budgeted income statement through gross profit for a manufacturer.

> For Goody Company, the budgeted cost for one unit of product is direct materials $10, direct labor $20, and manufacturing overhead 80% of direct labor cost. If 25,000 units are expected to be sold at $65 each, what is the budgeted gross profit?

> Everly Company’s variable selling and administrative expenses are 12% of net sales. Fixed expenses are $50,000 per quarter. The sales budget shows expected sales of $200,000 and $240,000 in the first and second quarters, respectively. What are the total

> Ortiz Company’s manufacturing overhead budget shows total variable costs of $198,000 and total fixed costs of $162,000. Total production in units is expected to be 150,000. It takes 20 minutes to make one unit, and the direct labor rate is $15 per hour.

> The production budget of Justus Company calls for 80,000 units to be produced. If it takes 45 minutes to make one unit and the direct labor rate is $16 per hour, what is the total budgeted direct labor cost?

> In preparing the direct materials budget for Quan Company, management concludes that required purchases are 64,000 units. If 52,000 direct materials units are required in production and there are 9,000 units of beginning direct materials, what is the des

> Managerial accounting techniques can be used in a wide variety of settings. As we have frequently pointed out, you can use them in many personal situations. They also can be useful in trying to find solutions for societal issues that appear to be hard to

> The executive team at Current Designs has gathered to evaluate the company’s operations for the last month. One of the topics on the agenda is the special order from Huegel Hollow, which was presented in BYP2-1. Recall that Current Designs had a special

> Huang Inc. has one product line that is unprofitable. What circumstances may cause overall company net income to be lower if the unprofitable product line is eliminated?

> Your roommate, Gale Dunham, is confused about sunk costs. Explain to your roommate the meaning of sunk costs and their relevance to a decision to retain or replace equipment.

> How are allocated joint costs treated when making a sell-or-process-further decision?

> What steps are frequently involved in management’s decision-making process?

> What simplifying assumptions were made in the chapter regarding calculation of net present value?

> What is the decision rule under the net present value method?

> Tom Wells claims the formula for the cash payback technique is the same as the formula for the annual rate of return technique. Is Tom correct? What is the formula for the cash payback technique?

> What are the advantages and disadvantages of the cash payback technique?

> Your classmate, Mike Dawson, is confused about the factors that are included in the annual rate of return technique. What is the formula for this technique?

> What advantages does the profitability index provide over direct comparison of net present value when comparing two projects?

> Hank Jewell is a production manager at a metal fabricating plant. Last night, he read an article about a new piece of equipment that would dramatically reduce his division’s costs. Hank was very excited about the prospect, and the first thing he did this

> How is the predetermined overhead rate determined when standard costs are used?

> “The objective in setting the direct labor quantity standard is to determine the aggregate time required to make one unit of product.” Do you agree? What allowances should be made in setting this standard?

> Distinguish between an ideal standard and a normal standard.

> Contrast the roles of the management accountant and management in setting standard costs.

> Alma Ortiz does not understand why the overhead volume variance indicates that fixed overhead costs are under- or over applied. Clarify this matter for Alma.

> What is the purpose of computing the overhead volume variance? What is the basic formula for this variance?

> If the $9 per hour overhead rate in Question 12 includes $5 variable, and actual overhead costs were $248,000, what is the overhead controllable variance for June? The normal capacity hours were 28,000. Is the variance favorable or unfavorable?

> Kerry James says that the balanced scorecard was created to replace financial measures as the primary mechanism for performance evaluation. He says that it uses only nonfinancial measures. Is this true?

> How often should variances be reported to management? What principle may be used with variance reports?

> Mikan Company’s standard predetermined overhead rate is $9 per direct labor hour. For the month of June, 26,000 actual hours were worked, and 27,000 standard hours were allowed. How much overhead was applied?

> Viera Corporation is considering investing in a new facility. The estimated cost of the facility is $2,045,000. It will be used for 12 years, then sold for $716,000. The facility will generate annual cash inflows of $400,000 and will need new annual cash

> In the direct labor variance matrix, there are three factors: (1) Actual hours x Actual rate, (2) Actual hours x Standard rate, and (3) Standard hours x Standard rate. Using the numbers, indicate the formulas for each of the direct labor variances.

> In each of the following formulas, supply the words that should be inserted for each number in parentheses. (a) (Actual quantity x (1)) - (Standard quantity x (2)) = Total materials variance (b) ((3) x Actual price) - (Actual quantity x (4)) =Materials p

> A static overhead budget based on 40,000 direct labor hours shows Factory Insurance $6,500 as a fixed cost. At the 50,000 direct labor hours worked in March, factory insurance costs were $6,300. Is this a favorable or unfavorable performance? Why?

> The static manufacturing overhead budget based on 40,000 direct labor hours shows budgeted indirect labor costs of $54,000. During March, the department incurs $64,000 of indirect labor while working 45,000 direct labor hours. Is this a favorable or unfa

> “A flexible budget is really a series of static budgets.” Is this true? Why?

> Ken Bay questions the usefulness of a master sales budget in evaluating sales performance. Is there justification for Ken’s concern? Explain.

> How may a budget report for the second quarter differ from a budget report for the first quarter?

> What is a major disadvantage of using ROI to evaluate investment and company performance?

> Indicate two behavioral principles that pertain to (a) the manager being evaluated and (b) top management.

> Horowitz Company is evaluating the purchase of a rebuilt spot-welding machine to be used in the manufacture of a new product. The machine will cost $176,000, has an estimated useful life of 7 years, a salvage value of zero, and will increase net annual c

> Explain the ways that ROI can be improved.

> What is the primary basis for evaluating the performance of the manager of an investment center? Indicate the formula for this basis.

> Jane Nott is confused about controllable margin reported in an income statement for a profit center. How is this margin computed, and what is its primary purpose?

> The following purposes are part of a budgetary reporting system: (a) Determine efficient use of materials. (b) Control overhead costs. (c) Determine whether income objectives are being met. For each purpose, indicate the name of the report, the freque

> (a) What costs are included in a performance report for a cost center? (b) In the report, are variable and fixed costs identified?

> What is the relationship, if any, between a responsibility reporting system and a company’s organization chart?

> Using the information in P23-3B, compute the overhead controllable variance and the overhead volume variance. Information in P23-3B: Zimmerman Clothiers manufactures women’s business suits. The company uses a standard cost accounting s

> Using the information in P23-2B, compute the overhead controllable variance and the overhead volume variance. Information in P23-2B: Huang Company uses a standard cost accounting system to account for the manufacture of exhaust fans. In July 2014, it ac

> Using the information in P23-1B, compute the overhead controllable variance and the overhead volume variance. Information in P23-1B: Buil Corporation manufactures a single product. The standard cost per unit of product is as follows. Direct materials—2

> Using the information in P23-5B, compute the overhead controllable variance and the overhead volume variance. Information in P23-5B: Bonita Labs performs steroid testing services to high schools, colleges, and universities. Because the company deals sol

> Quillen Company is performing a post-audit of a project completed one year ago. The initial estimates were that the project would cost $250,000, would have a useful life of 9 years, zero salvage value, and would result in net annual cash flows of $46,000

> Using the information in P23-3A, compute the overhead controllable variance and the overhead volume variance. Information in P23-5A: Hopkins Clothiers is a small company that manufactures tall-men’s suits. The company has used a standa

> Using the information in P23-2A, compute the overhead controllable variance and the overhead volume variance. Information in P23-2A: Ayala Corporation accumulates the following data relative to jobs started and finished during the month of June 2014.

> Using the information in P23-1A, compute the overhead controllable variance and the overhead volume variance. Information in P23-1A: Costello Corporation manufactures a single product. The standard cost per unit of product is shown below. Direct materi

> Using the information in P23-5A, compute the overhead controllable variance and the overhead volume variance. Information in P23-5A: Pace Labs, Inc. provides mad cow disease testing for both state and federal governmental agricultural agencies. Because

> Manufacturing overhead data for the production of Product H by Smart Company are as follows. Overhead incurred for 52,000 actual direct labor hours worked ……………$263,000 Overhead rate (variable $3; fixed $2) at normal capacity of 54,000 direct la

> Wallowa Company is considering a long-term investment project called ZIP. ZIP will require an investment of $120,000. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $80,000, and annual cash outflows woul

> Indicate which of the four perspectives in the balanced scorecard is most likely associated with the objectives that follow. 1. Ethics violations. 2. Credit rating. 3. Customer retention. 4. Stockouts. 5. Reportable accidents. 6. Brand recognition.

> In Pargo Company’s flexible budget graph, the fixed cost line and the total budgeted cost line intersect the vertical axis at $90,000. The total budgeted cost line is $330,000 at an activity level of 50,000 direct labor hours. Compute total budgeted cost

> Use this list of terms to complete the sentences that follow. Long-range plans Participative budgeting Sales forecast Operating budgets Master budget

> Maize Company incurs a cost of $35 per unit, of which $20 is variable, to make a product that normally sells for $58. A foreign wholesaler offers to buy 6,000 units at $30 each. Maize will incur additional costs of $3 per unit to imprint a logo and to pa

> Beacon Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $400,000, has an expected useful life of 10 years, a salvage value of zero, and is expected to increase net annual cash flows by $70,000. P

> Numerous articles have been written that identify early warning signs that you might be getting into trouble with your personal debt load. You can find many good articles on this topic on the Web. Instructions: Find an article that identifies early warn

> Mecha Oil Company is considering investing in a new oil well. It is expected that the oil well will increase annual revenues by $130,000 and will increase annual expenses by $70,000 including depreciation. The oil well will cost $470,000 and will have a

> Hsung Company accumulates the following data concerning a proposed capital investment: cash cost $215,000, net annual cash flows $40,000, present value factor of cash inflows for 10 years 5.65 (rounded). Determine the net present value, and indicate whet

> Bella Company is considering purchasing new equipment for $450,000. It is expected that the equipment will produce net annual cash flows of $50,000 over its 10-year useful life. Annual depreciation will be $45,000. Compute the cash payback period.

> Journalize the following transactions for Dewey, Inc. (a) Incurred direct labor costs of $24,000 for 3,000 hours. The standard labor cost was $25,500. (b) Assigned 3,000 direct labor hours costing $24,000 to production. Standard hours were 3,150.

> The four perspectives in the balanced scorecard are (1) financial, (2) customer, (3) internal process, and (4) learning and growth. Match each of the following objectives with the perspective it is most likely associated with: (a) Plant capacity uti

> Hartley Company’s standard labor cost per unit of output is $22 (2 hours 3 $11 per hour). During August, the company incurs 2,100 hours of direct labor at an hourly cost of $10.80 per hour in making 1,000 units of finished product. Compute the total, pri

> Simba Company’s standard materials cost per unit of output is $10 (2 pounds 3 $5). During July, the company purchases and uses 3,200 pounds of materials costing $16,192 in making 1,500 units of finished product. Compute the total, price, and quantity mat

> Labor data for making one gallon of finished product in Tang Company are as follows: (1) Price—hourly wage rate $13.00, payroll taxes $0.80, and fringe benefits $1.20. (2) Quantity—actual production time 1.1 hours, rest periods and cleanup 0.25 hours, an

> Tang Company accumulates the following data concerning raw materials in making one gallon of finished product: (1) Price—net purchase price $2.30, freight-in$0.20, and receiving and handling $0.10. (2) Quantity—required materials 3.6 pounds, allowance

> Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $200,000 and has an estimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine will provide net ann

> Using the data in BE23-6 and BE23-10, compute the overhead volume variance. Normal capacity was 25,000 direct labor hours Data in BE23-6 and BE23-10: In October, Roby Company reports 21,000 actual direct labor hours, and it incurs $118,000 of manufactur

> Some overhead data for Roby Company are given in BE23-6. In addition, the flexible manufacturing overhead budget shows that budgeted costs are $4 variable per direct labor hour and $50,000 fixed. Compute the overhead controllable variance. Data given in

> For its three investment centers, Kaspar Company accumulates the following data Compute the return on investment (ROI) for each center. I II III $ 4,000,000 3,600,000 Sales $2,000,000 $4,000,000 2,000,000 Controllable margin Average operating asset

> Journalize the following transactions for Combs Company. (a) Purchased 6,000 units of raw materials on account for $11,500. The standard cost was $12,000. (b) Issued 5,600 units of raw materials for production. The standard units were 5,800.

> Kobe Company has a factory machine with a book value of $90,000 and a remaining useful life of 5 years. It can be sold for $30,000. A new machine is available at a cost of $300,000. This machine will have a 5-year useful life with no salvage value. The n

> In October, Roby Company reports 21,000 actual direct labor hours, and it incurs $118,000 of manufacturing overhead costs. Standard hours allowed for the work done is 20,400 hours. The predetermined overhead rate is $6 per direct labor hour. Compute the

> Data for Maris Company are given in BE22-1. In the second quarter, budgeted sales were $380,000, and actual sales were $384,000. Prepare a static budget report for the second quarter and for the year to date. Data given in BE22-1: For the quarter ended

> Manson Industries incurs unit costs of $8 ($5 variable and $3 fixed) in making a subassembly part for its finished product. A supplier offers to make 10,000 of the assembly part at $6 per unit. If the offer is accepted, Manson will save all variable cost

> For the quarter ended March 31, 2014, Maris Company accumulates the following sales data for its product, Garden-Tools: $310,000 budget; $305,000 actual. Prepare a static budget report for the quarter.

> Bogart Company is considering two alternatives. Alternative A will have revenues of $160,000 and costs of $100,000. Alternative B will have revenues of $180,000 and costs of $125,000. Compare Alternative A to Alternative B showing incremental revenues, c

> Magic Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $136,000 and have an estimated useful life of 5 years. It will be sold for $65,000 at that time. (Amusement parks need to rotate exhibits t

> The steps in management’s decision-making process are listed in random order below. Indicate the order in which the steps should be executed. ________ Make a decision. ________ Review results of the decision. ________ Identify the problem and assign _

> What steps can be taken to incorporate intangible benefits into the capital budget evaluation process?