What are the basic assumptions of CVP analysis?
> What is target costing? briefly explain.
> “The net present value (NPV) method weighs early receipts of cash much more heavily than more distant receipts of cash.” Do you agree? Why?
> List at least three important behavioral issues related to the capital budgeting process.
> What should be the decision criterion when using the NPV method to evaluate capital investments? Does the IRR method use the same criterion?
> Does the accounting (book) rate of return (ARR) method provide a valid (or meaningful) measure of the return on investment? How about the investment’s internal rate of return (IRR)?
> What are the limitations of the payback period method for making capital budgeting decisions (e.g., whether to accept or reject a proposed investment)? Does the present value payback period overcome these limitations?
> In capital budgeting analysis, what is meant by the income tax effect? Give three examples of the tax effect pertaining to the acquisition of new factory (manufacturing) equipment.
> Given an asset with a net book value (NBV) of $25,000, what are the after-tax proceeds for a firm in the 34% tax bracket if this asset is sold for $35,000 cash? What are the after-tax proceeds for this same firm if the asset is sold for $15,000 cash?
> What is the analytic hierarchy process (AHP), and how can it be used in making capital budgeting decisions?
> In what ways can accountants add value to the capital budgeting process?
> How does the size of the initial investment affect the indicated internal rate of return (IRR) and net present value (NPV) of a proposed investment?
> When analyzing a proposed capital investment, what conditions or factors may lead the results to differ between the net present value (NPV) and internal rate of return (IRR) decision models?
> What decision criterion should be used to choose investment projects for a firm with unlimited funds available at a weighted-average cost of 10% (after tax)? Can the firm use the same decision criterion if it has only a limited amount of available funds,
> Provide a short explanation of the modified internal rate of return (MIRR) financial performance metric. How does MIRR differ from IRR? (In addition to the discussion in the text, see, for example, www.journalofaccountancy.com/issues/2017/feb/calculate-i
> Should the firm accept the independent projects described below? Why or why not? (a) The firm’s cost of capital is 10% and the estimated internal rate of return (IRR) of the project is 11%. (b) A capital project requires a $150,000 initial investment.
> “Depreciation expenses have no effect on cash flows and, therefore, are not relevant in capital expenditure analysis.” Do you agree? Why or why not?
> What are the distinguishing characteristics of capital budgeting decisions?
> How does the presence of one production constraint affect the relevant cost analysis model? Two or more production constraints?
> A company purchases an asset that costs $10,000. This asset qualifies as 3-year property under MACRS. The company uses an after-tax discount rate of 12% and faces a 40% income tax rate. (a) Use the appropriate present value factors found in Appendix C,
> List some of the behavioral, implementation, and legal problems to be anticipated in the use of relevant cost analysis.
> How do strategic factors affect the proper use of relevant cost analysis?
> List for or five important limitations of relevant cost analysis.
> How do short-term evaluations affect a manager's incentives and performance?
> List four to six strategic factors that are often important in the make-or-buy decision.
> What is the relevant cost when determining whether to sell a product before or after additional processing?
> List at least four different decisions for which the relevant cost model can be used effectively.
> What is the relationship, if any, between the relevant cost analysis method and cost-volume-profit analysis (Chapter 09)?
> What are relevant costs? Provide several examples for the decision to replace a piece of equipment.
> Define the term “budgetary slack.” Why is it common to find slack in budgets?
> Refer to Exhibit 12.4 in the text. What is the depreciation expense deduction in each of 4 years for a $10,000 asset classified under MACRS as 3-year property? Exhibit 12.4:
> What is zero-base budgeting (ZBB)?
> List the major components of a cash budget.
> In addition to the sales budget, what additional information does a firm need to complete its materials purchases budget?
> Why is the sales budget considered the cornerstone of the organization’s master budget?
> Some critics of budgeting believe that budgets are effective tools for planning but not for control purposes. What is the essence of this argument?
> Many accountants believe that the most important benefit of the master budgeting process is the end result: a set of budgeted (i.e., pro-forma) financial statements. What is the rationale for this view?
> Differentiate master, operating, and financial budgets.
> Define the terms “relative performance contract” and “rolling financial forecasts.” What role for these is envisioned by critics of the traditional budgeting process?
> Define what is meant by the terms what-if analysis and scenario analysis.
> What is the essence of a fixed-performance contract and what dysfunctional consequences can occur through the use of this type of incentive system?
> Calculate the net after-tax cash flow effect of the following information: sales, $260; expenses other than depreciation, $140; depreciation expense, $50; marginal income tax rate, 35%. Round your answer to 2 decimal places.
> How does the use of a time-driven activity-based cost (TDABC) system facilitate the preparation of budgets for an organization?
> Describe at least three benefits that an organization can expect to realize from budgeting.
> Define “degree of operating leverage” (DOL). How is DOL measured?
> What is operating leverage, and for what is it used?
> What is the margin of safety (MOS), and for what is it used?
> Why does the issue of taxes not affect the calculation of the breakeven point?
> What type of risk does sensitivity analysis address?
> Why do management accountants use sensitivity analysis?
> What is the contribution margin ratio and how is it used?
> Use the appropriate function in Excel (= SLN) to calculate the annual straight-line (SL) depreciation charge for an asset that has a $10,000 acquisition cost, an estimated salvage value of $500, and a useful life of 4 years.
> How is CVP analysis used to calculate the breakeven point for multiple products?
> What is the underlying relationship depicted in a CVP analysis?
> What are nonlinear cost relationships? Give two examples.
> Explain how to choose the dependent and independent variables in regression analysis used for cost estimation.
> How can cost estimation be used in activity-based costing?
> Contrast the use of regression analysis and the high-low method to estimate costs.
> What are the six steps in cost estimation? Which one is the most important? Why?
> Explain the implementation problems in cost estimation.
> List the two methods of cost estimation. Explain the advantages and disadvantages of each.
> Explain the strategic role of cost estimation.
> For a firm facing a marginal income tax rate of 34%, what is the after-tax cash flow effect of (a) a $1,000 increase in contribution margin during the year and (b) a $500 increase in cash operating expenses?
> Carter Dry Cleaning has developed two regression analyses for cost estimation. The accounting manager has presented statistical measures for both of these regressions. Regression A has an R-squared value of .53 and a t-value of 1.08. Regression B has an
> What does the coefficient of determination (R-squared) measure?
> How do we know when high correlation exists? Is high correlation the same as cause and effect?
> Explain what dummy variables are and how they are used in regression analysis.
> List four advantages of regression analysis.
> Define cost estimation and explain its purpose in each of the management functions.
> What are the implementation issues of departmental cost allocation?
> What are the limitations of joint product and departmental cost allocations?
> What are the four methods used in by-product costing, and how do they differ? Which is the preferred method and why?
> Give two or three examples of the use of cost allocation in service industries and not-for-profit organizations.
> Jamison Health Care is trying to decide if it should eliminate its orthopedic care division. Last year, the orthopedic division had a total contribution margin of $100,000 and allocated overhead costs of $200,000, of which $90,000 could be eliminated if
> What are the three phases of the departmental allocation approach? What happens at each phase?
> What are the three methods of departmental cost allocation? Explain how they differ, which is the most preferred, and why.
> What does the term reciprocal mean in the context of departmental cost allocation?
> Explain the difference between joint products and by-products.
> What are some of the ethical issues of cost allocation?
> What are the four objectives in the strategic role of cost allocation? Explain each briefly.
> Specify the advantages of the weighted-average method of process costing in contrast to the FIFO method.
> Identify the conditions under which the weighted-average method of process costing is inappropriate.
> What is the distinction between equivalent units under the FIFO method and equivalent units under the weighted-average method?
> What is a production cost report? What are the five key steps in preparing a production cost report?
> The external purchase price is $35 for a part that can be manufactured for $33 per unit; the $33 manufacturing cost includes $5 per unit allocated fixed cost. What is the per-unit savings to make rather than to buy?
> How is the equivalent unit calculation affected when direct materials are added at the beginning of the process rather than uniformly throughout the process?
> What does the term equivalent units mean?
> Explain the primary differences between job costing and process costing.
> List three types of industries that would likely use process costing.
> Explain activity-based process costing.
> How do cost flows in backflush costing systems differ from those in traditional costing systems?
> What is the main difference between journal entries in process costing and in job costing?
> Under the FIFO method, only current period costs and work are included in equivilent unit costs and equivalent units computation. Under the weighted-average method, what assumptions are made when unit costs and equivalent units are computed?
> Under the weighted-average method, all units transferred out are treated the same way. How does this differ from the FIFO method of handling units transferred out?
> Suppose that manufacturing is performed in sequential production departments. Prepare a journal entry to show a transfer of partially completed units from the first department to the second department. Assume the amount of the costs transferred is $50,00
> Wings Diner has a box lunch that it sells on football game days at the local university. Each box lunch sells for $6.00, which is made up of $2.50 of variable costs and packaging, and $2.50 of fixed cost, plus a $1 markup. In the short run, what is the m
> What are transferred-in costs?
> From the standpoint of cost control, why is the FIFO method superior to the weighted-average method? Is it possible to monitor cost trends using the weighted-average method
> What are the typical characteristics of a company that should use a process costing system?
> What are batch-level activities? Give two examples of batch-level activities.
> What are unit-level activities? Give two examples of unit-level activities.
