What role do return on investment and residual income play in responsibility accounting?
> What is the primary difference between financial accounting and managerial accounting?
> From last year to this year, Berry Barn reported that its Net Sales increased from $300,000 to $400,000 and its Gross Profit increased from $90,000 to $130,000. Was the Gross Profit increase caused by (a) an increase in sales volume only, (b) an incr
> From last year to this year, Colossal Company’s current ratio increased and its inventory turnover decreased. Does this imply a higher, or lower, risk of obsolete inventory?
> Camp Rainbow offers overnight summer camp programs for children ages 10 to 14 every summer during June and July. Each camp session is one week and can accommodate up to 200 children. The camp is not coed, so boys attend during the odd-numbered weeks and
> Slow Cellar’s current ratio increased from 1.2 to 1.5. What is one favorable interpretation of this change? What is one unfavorable interpretation of this change?
> Why are some analyses called horizontal and others called vertical?
> Into what three categories of performance are most financial ratios reported? To what in particular does each of these categories relate?
> What benchmarks are commonly used for interpreting ratios?
> What is ratio analysis? Why is it useful?
> How is a year-over-year percentage calculated?
> Explain whether the following situations, taken independently, would be favorable or unfavorable: (a) increase in gross profit percentage, (b) decrease in inventory turnover ratio, (c) increase in earnings per share, (d) decrease in days to collect,
> What is the general goal of trend analysis?
> Explain why a $50,000 increase in inventory during the year must be included in computing cash flows from operating activities under both the direct and indirect methods.
> Explain why cash outflows during the period for purchases and salaries are not specifically reported on a statement of cash flows prepared using the indirect method.
> Odessa, Inc., manufactures one model of computer desk. The following data are available regarding units shipped and total shipping costs Required: 1. Prepare a scattergraph of Odessa’s shipping cost and draw the line you believe best fi
> Under the indirect method, depreciation expense is added to net income to report cash flows from operating activities. Does depreciation cause an inflow of cash?
> Describe the types of items used to compute cash flows from operating activities under the two alternative methods of reporting
> What are the typical cash inflows from operating activities? What are the typical cash outflows from operating activities?
> What are the major categories of business activities reported on the statement of cash flows? Define each of these activities.
> What are cash equivalents? How are they reported on the statement of cash flows?
> What information does the statement of cash flows report that is not reported on the other required financial statements?
> How is the sale of equipment reported on the statement of cash flows using the indirect method?
> What are noncash investing and financing activities? Give one example. How are noncash investing and financing activities reported on the statement of cash flows?
> What are the typical cash inflows from financing activities? What are the typical cash outflows from financing activities?
> What are the typical cash inflows from investing activities? What are the typical cash outflows from investing activities?
> Consider Mountain Dental’s cost equation results obtained in E5–9 using least-squares regression. Required: 1. Determine Mountain Dental’s unit contribution margin and contribution margin ratio if it
> As a junior analyst, you are evaluating the financial performance of Digilog Corporation. Impressed by this year’s growth in sales (20 percent increase), receivables (40 percent increase), and inventories (50 percent increase), you plan to report a fa
> Loan covenants require that E-Gadget Corporation (EGC) generate $200,000 cash from operating activities each year. Without intervening during the last month of the current year, EGC will generate only $180,000 cash from operations. What are the pros and
> Compare the purposes of the income statement, the balance sheet, and the statement of cash flows.
> When would you use an annuity factor in a net present value calculation instead of a present value factor for a single cash flow?
> What do a positive NPV and a negative NPV indicate about an investment?
> In everyday terms, explain what information the payback period provides about an investment.
> How do cash flow and net income differ? Explain why this difference is important to capital budgeting.
> What is a company’s hurdle rate? How is it relevant to capital budgeting?
> Which capital budgeting methods incorporate the time value of money and which do not? Which are considered superior and why?
> Briefly explain what the time value of money means.
> Consider Mountain Dental’s cost equation results obtained in E5–7 using the high-low method. Required: 1. Determine Mountain Dental’s unit contribution margin and contribution margin ratio if it charg
> What is the difference between independent projects and mutually exclusive projects? Give an example of each from your own experiences.
> Use Tables 11.1A to 11.4A to complete the following schedule: Data from Table 11.1A: Data from Table 11.4A:
> When would you use the PV of annuity table instead of the PV of $1 table
> If you hold a valid contract that will pay you $8,000 cash 10 years from now and the going rate of interest is 10 percent, what is its present value?
> If you deposited $10,000 in a savings account that earns 10 percent, how much would you have at the end of 10 years?
> Explain the basic difference between future value and present value.
> Briefly explain how the profitability index is calculated and interpreted.
> Why is the net present value method generally preferred over the internal rate of return method?
> Explain how the internal rate of return and net present value are related. If a project has an NPV of $50,000 using a 10 percent discount factor, what does this imply about that project’s IRR?
> Explain the difference between screening decisions and preference decisions.
> Match each of the terms by inserting the appropriate definition letter in the space provided. Not all definitions will be used. 1. Contribution margin 2. Contribution margin income statement 3. Contribution margin ratio 4. Fixed cost 5. Full absorption c
> Return on investment may be separated into two components. Name them and describe what each can tell you.
> How do investment center managers differ from profit center managers?
> Why are profit center managers evaluated on segment margin instead of net operating income?
> Briefly explain the difference between segment margin and net operating income.
> Name the four types of responsibility centers and describe the managers’ responsibilities and authority in each.
> What is the controllability principle and why is it crucial to responsibility accounting?
> What are negotiated transfer prices? Explain two possible disadvantages of allowing managers to negotiate a transfer price.
> Describe the cost-based method of transfer pricing.
> How does excess capacity affect a transfer price?
> Schell Company manufactures automobile floor mats. It currently has two product lines, the Standard and the Deluxe. Schell has a total of $39,060 in overhead. It currently uses a traditional cost system with overhead applied to the product on the basis o
> What is the market-price method of transfer pricing?
> Explain the meaning of minimum and maximum transfer prices and identify who (the buyer or the seller) would determine each.
> Explain why two managers employed by the same company may be diametrically opposed to each other when considering a transfer price.
> What is a transfer price?
> Why does decentralization create the need for responsibility accounting in an organization?
> Why are incentive systems that emphasize long-term performance more consistent with a balanced scorecard approach?
> Why must a company consider its incentive and reward system when implementing a balanced scorecard approach?
> What are the four dimensions of a balanced scorecard? What does each dimension represent?
> Explain the balanced scorecard approach to performance evaluation. What advantages does this approach have over using only financial measurements?
> Other than the one(s) mentioned in the text, give an example of an action that management might take to improve financial performance in the short run that could prove detrimental in the long run.
> Bluefield has decided to use an ABC costing system and has identified the following detailed information about its cost pools and cost drivers: Required: 1. Calculate Bluefield’s activity rate for each cost pool. 2. Determine the amount
> Cartwell Inc. makes picture frames which are sold in a local retail store and through various websites. Required: Determine each of the following: 1. Direct material. 2. Direct labor. 3. Manufacturing overhead. 4. Total manufacturing cost. 5. Total peri
> What are the primary limitations of financial measures of performance?
> How does EVA differ from residual income
> What benefit does residual income offer in comparison to return on investment when evaluating performance?
> How is residual income calculated?
> Explain how relying on return on investment for performance evaluation of investment center managers could lead to goal incongruence.
> Explain how centralized and decentralized companies differ. What are the advantages and disadvantages of each?
> Explain what the terms favorable variance and unfavorable variance mean.
> How do the terms standard and budget relate to one another and how do they differ?
> What is a standard cost card, and why is it important?
> Briefly describe the two types of standards on which a standard cost system relies.
> Bluefield Corp. has two product lines, A and B. Bluefield has identified the following information about its overhead and potential cost drivers: Required: 1. Suppose Bluefield Corp. uses a traditional costing system with number of labor hours as the cos
> What type of standard is best for motivating individuals to work hard?
> What is the difference between ideal and easily attainable standards?
> Explain a standard cost system and how a company uses it.
> What happens to all of the variances that have been recorded during a period?
> What does the term practical capacity mean? How does it differ from budgeted?
> Suppose you have computed a favorable fixed overhead volume variance of $1,000. How would you interpret that variance?
> What is the fixed overhead spending variance? What factors can affect the variance and who is generally responsible for the variance?
> What are standard costs? When are they set?
> What are the two variable overhead variances? What factors can affect each variance and who is generally responsible for the variance?
> What is the key difference between a normal cost system and a standard cost system?
> Fellar Corp. has identified the following information: Activity cost pools Materials handling = $60,000 Machine maintenance = 51,750 Cost drivers Number of materials moves = 960 Number of machine hours = 75,000 Required: 1. Calculate the activity rate fo
> Explain how a manager might make a trade-off between the direct labor rate and the direct labor efficiency variances.
> What are the two direct labor variances? What factors can affect each variance and who is generally responsible for the variance?
> Explain how a manager might make a trade-off between the direct materials price and the direct materials quantity variances.
> What are the two direct materials variances? What factors can affect each variance and who is generally responsible for the variance?
> The spending variance can be separated into two components. Name and briefly describe them
> What type of variance is calculated by comparing actual costs to the flexible budget
> What type of variance is created by comparing the master budget to the flexible budget?
> How do the master budget, flexible budget, and static budget differ from one another?
