When the economic outlook becomes uncertain, some managers look to cut costs in research and development to provide a short-term boost to profits. The problem with this strategy is that it reduces the opportunities for new products and product improvements in the coming years, which are necessary for the long-term competitiveness of the firm. As Intel chair Craig Barrett says, “You cut off your future if you do not invest.” Required: 1. What role does risk aversion play in determining the amount to invest in research and development on an ongoing basis? How might a firm manage risk aversion so as to continue the desired level of spending on research and development? 2. What type of strategic business unit would you choose to evaluate the performance of the research and development department? Explain your choice briefly.
> Bill George, a Harvard Business School professor, notes the increasing lack of trust many now have for the executive compensation plans in place in many corporations. He suggests six policies that, if followed by regulators and the compensation committee
> There are three components to a bonus plan: the base of the bonus compensation (earnings, revenues, etc.), the bonus pool (firm- or unit-based), and the payment options (cash, stock options). It is common in many industries, including the financial servi
> Ben Johnson is the manager of the jewelry department of a large chain of department stores. The department store has succeeded on the basis of customer service and quality of merchandise. As a manager, Ben is compensated with a salary of $200,000 and a b
> Heartwood Furniture Corporation has a line of sofas marketed under the name NightTime Sleepers. Heartwood management is considering several compensation packages for Amy Johnson, NightTime’s general manager. Amy’s duties include making all investing and
> Jill Lewis is the office manager of PureBreds Inc. Her office has 30 employees whose collective job is to process applications by dog owners who want to register their pets with the firm. There is never a shortage of applications waiting to be processed,
> ADM Inc., an electronics manufacturer, uses growth in earnings per share (EPS) as a guideline for evaluating executive performance. ADM executives receive a bonus of $5,000 for every penny increase in EPS for the year. This bonus is paid in addition to f
> Anne-Marie Fox is the manager of a boat dealership. She has decided to reevaluate the compensation plan offered to her sales representatives to determine whether the plan encourages the dealership’s success. The representatives are paid no salary, but th
> Jackson Supply Company is a publicly owned firm that serves the medical supply needs of hospitals and large medical practices in six southeastern states. The firm has grown significantly in recent years as the areas it serves have grown. Jackson has focu
> When overhead is overapplied, is the balance of Cost of Goods Sold, before adjustment, too low or too high? Why?
> Crain Company has a manufacturing subsidiary in Singapore that produces high-end exercise equipment for U.S. consumers. The manufacturing subsidiary has total manufacturing costs of $1,500,000, plus general and administrative expenses of $350,000. The ma
> Using the facts from Exercise 19-32, assume that division B can sell 10,000 units outside the company for $215 per unit with variable marketing costs of $10. Required: Should division B sell outside or to division A? Explain. Exercise 19-32: Truball In
> Truball Inc., which manufactures sports equipment, consists of several operating divisions. Division A has decided to go outside the company to buy materials because division B plans to increase its selling price for the same materials to $200. Informati
> Scottsdale Manufacturing is organized into two divisions: Fabrication and Assembly. Components transferred between the two divisions are recorded at a predetermined transfer price. Standard variable manufacturing cost per unit in the Fabrication Divisio
> When transfer prices are based on actual cost, a supplying division often has no incentive to reduce cost. For example, a design change that would reduce the supplying division’s manufacturing cost would benefit only downstream divisions if the transfer
> The Boston Consulting Group identified the world’s 50 most innovative companies. The rankings are based on a survey of senior executives, as well as financial metrics such as total shareholder return (a measure that incorporates stock price change and di
> A paper published in the Harvard Business Review points out a new way to calculate economic profit that could be more appropriate for service firms and other people-intensive companies. Instead of focusing on investment and return on investment, the focu
> Heather Smith Cosmetics (HSC) manufactures a variety of products and is organized into three divisions (investment centers): soap products, skin lotions, and hair products. Information about the most recent year’s operations follows. Th
> Consider the following data (in millions) from Trident Financial Inc., which has two main divisions, mortgage loans and consumer loans: Required: 1. Based on ROI, which division is more successful? Why? 2. Trident uses residual income (RI) as a measure
> As indicated in the chapter, return on investment (ROI) is well entrenched in business practice. However, its use can have negative incentive effects on managerial behavior. For example, assume you are the manager of an investment center and that your an
> If the end-of-period balance for Cost of Goods Sold is $90,000 and underapplied overhead is $10,000, what is the ending balance in the Cost of Goods Sold account after adjusting for the underapplied overhead?
> Which is the most important function of management? Explain why.
> Schwenn Products, a bicycle manufacturer, uses normal volume as the basis for setting prices. That is, it sets prices on the basis of long-term volume predictions and then adjusts these prices only for large changes in pay rates or materials prices. You
> Liz Raiborn Inc. has the following financial results for the years 2022 through 2024 for its three regional divisions: Required: Calculate return on sales (ROS), asset turnover (AT), and return on investment (ROI) for each division and also for the fir
> Alex Chunn Inc. has the following financial data for 2022 for its three regional divisions: Required: Prepare an Excel spreadsheet that will calculate return on sales (ROS) for each division for 2022. The sales in the North Atlantic, Mid Atlantic, and
> Fill in the blanks:
> Tartan Corporation has been manufacturing high-quality home lighting systems for more than 90 years. The company’s first products in the 1920s—the Classic line—were high-quality floor lamps and table
> Fowler’s Farm is a 1,000-acre dairy and tobacco farm located in southern Virginia. Jack Fowler, the owner, has been farming since 1982. He initially purchased 235 acres and has made the following purchases since then: 300 acres in 1985, 150 acres in 1988
> Consumers, employers, and governments at all levels are very concerned about the rising costs of health care. As a result, health care systems nationwide are experiencing an ongoing demand to improve the efficiency of their operations. The health care in
> Mark Hancock Inc. manufactures a specialized surgical instrument called the HAN-20. The firm has grown rapidly in recent years because of the product’s low price and high quality. However, sales have declined this year primarily due to
> Security Technology Inc. (STI) is a manufacturer of an electronic control system used in the manufacture of certain special-duty auto transmissions used primarily for police and military applications. The part sells for $55 per unit and STI had sales of
> Yale Company manufactures hair brushes that sell at wholesale for $3 per unit. The company had no beginning inventory in the prior year. These data summarize the current and prior year operations: Required: (Round calculations to the nearest dollar) 1.
> Assume that actual overhead is $613,000 in a given year, the overhead rate is $10 per unit, 60,000 units were sold, and 59,000 units were produced. For the end of the year, is overhead underapplied or overapplied? By how much?
> Start Me Up, Inc., manufactures a caffeinated energy drink that sells for $4 each. The results for its first year of operations appear in the table below: Number of drinks produced ………………………………... 52,000 Number of drinks sold ………………………………………... 50,000 D
> Kate’s Kale Chips produces a healthy snack made primarily of kale. Each bag of the product sells for $5. The company computes the manufacturing overhead rate on a quarterly basis based upon the planned number of units to be produced that quarter. The fol
> Woodland Hotels Inc. operates four resorts in the heavily wooded areas of northern California. The resorts are named after the predominant trees at the resort: Pine Valley, Oak Glen, Mimosa, and Birch Glen. Woodland allocates its central office costs to
> Some states in the United States are encountering increased pressure from citizen groups and other organizations to increase efforts to reduce carbon emissions. One of the key producers of carbon emissions is the automobile, so some states have become mo
> Samentech Inc. operates in the highly competitive agribusiness industry. Recently, rising fuel costs have added a significant financial burden to day-to-day operations, and top management has become increasingly concerned about the financial performance
> Effective use of research and development (R&D) is an important part of any firm’s competitive strategy. Some firms take an “incrementalist” approach to R&D, continually striving to add value to their products and services. Other firms take a quite diffe
> Intangibles such as customer relationships can account for a massive amount of the total assets of firms in the United States, though such assets are not recorded on firms’ balance sheets under current U.S. accounting standards. The importance of nonfina
> Suppose there are three passengers sharing a single cab ride and that passenger A’s usual fare to his destination would be $12, passenger B’s usual fare to her destination would be $18, and passenger C’s fare would be $30. Because they are sharing the ca
> Some years ago, Walmart’s Sam’s Club outsourced 10,000 jobs (about 9% of its workforce) to independent marketing firms. The marketing firms provide in-store product demonstrations. Most of the 10,000 jobs were part-time jobs. Industry analysts suggested
> The management of office printing, duplicating, filing, and overall document storage is one of the most significant overhead costs in many companies, especially companies with large and complex product lines and/or a diverse customer base, such as the la
> For the current year BSJ Industries estimated overhead would be $1,400,000 and there would be 70,000 machine hours. Using machines hours as the allocation base, how much overhead would be assigned to each of the jobs listed below? Job ………………………………….. Ma
> Kristen Langdon, the sales manager at a large bicycle manufacturer, has secured an order from a major department store that is due to ship on November 1. She is eager to please the department store in the hope of getting more future business. She asks Br
> General Hospital leases its diagnostic equipment from Normed Leasing, which is also responsible for maintaining the equipment. Recently, the hospital’s MRI machine needed repair and physicians were required to order expensive nonemergency laboratory test
> Wical Rental Management Services manages four apartment buildings, each with a different owner. Wical’s CEO has observed that the apartment buildings with more expensive rental rates tend to require more of her time and also the time of
> Chilton Day School allocates marketing and administrative costs to its three schools on the basis of each school’s annual tuition revenue (as a percentage of the total). Last year the allocations (000s omitted) were as follows: In the
> Elvis Wilbur owns two restaurants, the Beef Barn and the Fish Bowl. Each restaurant is treated as a profit center for performance evaluation. Although the restaurants have separate kitchens, they share a central baking facility. The principal costs of th
> Training courses and other forms of professional development are commonly used by organizations to improve managers’ effectiveness in leading teams, providing the desired motivation to their employees, and leading their SBUs to success. Often these train
> John Holt is the production supervisor for ITEXX, a manufacturer of plastic parts with customers in the automobile and consumer products industries. On a Tuesday morning, one of ITEXX’s sales managers asks John to reschedule his manufacturing jobs for th
> John Smith is the production manager of Elmo’s Glue Company. Because of limited capacity, the company can produce only one of two possible products. The two products are: a. A space-age bonding formula that has a 15% probability of making a profit of $1,
> Marshall Company is a large manufacturer of office furniture. The company has recently adopted lean accounting and has identified two value streams—office chairs and office tables. Total sales in the most recent period for the two strea
> Use the following information from BSJ Industries to determine the predetermined overhead rate based on direct labor costs. Direct labor hours ……………………………………… 50,000 Average hourly pay rate …………………………..…… $16.00 Manufacturing overhead ………………………. $1,400,
> Watlow Electric Manufacturing Company introduced lean principles in 2005 and reported a successful implementation in 2008. Watlow began with the implementation of lean principles and then adopted value-stream management (VSM) using the value-stream incom
> Much discussion at your organization recently has centered on the notion of lean. In preparation for an upcoming meeting of senior managers across business functions, you have been asked to prepare an explanatory memo. Your memo should address, at a mini
> All processes illustrate some variation (in quality, conformance to specification, etc.). One hallmark of a quality process is stability. As noted in the text, both control charts and run charts (as well as histograms) can be used to examine process stab
> Refer to the background information in Exercise 17-54 for the Destin Company. Based on customer requirements for on-time delivery, management has determined that the target performance level for manufacturing cycle time is 14.0 minutes with a tolerance o
> The following causes of absenteeism for a fellow student are for the year just completed: Cause of Absenteeism ………………………… Occurrences Personal illness ………………………………………………… 12 Child’s illness ………………………………………………….. 26 Car broke down ………………………………………………… 8 P
> Grey Company is evaluating two manufacturing process layout options, each of which has the following characteristics for producing a batch of output: Required: (Note: In responding to the following questions, it may be helpful to refer back to Exhibit
> Cope Farm Equipment has recently conducted market research regarding a number of issues, including customer loyalty and customer satisfaction. In regard to the latter, Cope obtained the following responses to the question, “How likely is it that you woul
> ABC Mfg. is evaluating the desirability of implementing process improvements and is seeking your help in determining whether it should proceed with the proposed improvements. One area of focus is how the improvements will affect processing time (manufact
> Assume that the company for which you are working is interested in implementing a comprehensive monitoring and control system regarding environmental performance. The company is convinced that improved performance in this area will lead to reduced costs,
> Destin Company produces water control valves, made of brass, that it sells primarily to builders for use in commercial real estate construction. These valves must meet rigid specifications (i.e., the quality tolerance is small). Valves that, upon inspect
> The Walden Manufacturing Corp. has office support salaries of $4,000, factory supplies of $1,000, indirect labor of $6,000, direct materials of $16,000, advertising expense of $2,500, office expense of $14,000, and direct labor of $20,000. What is the to
> CVI Inc. had November sales totaling $4,200,000 and incurred the following quality-related costs: Spoiled work-in-process inventory disposal ……………………………… $28,000 Downtime, due to quality problems ……………………………………………. 24,000 Field test of new computer …………
> Pack-and-Go, a new competitor to FedEx and UPS, does intra-city package deliveries in seven major metropolitan areas. The performance of Pack-and-Go is measured by management as (1) delivery time (relative to budgeted delivery time), (2) on-time delive
> As part of its commitment to quality, the J. J. Borden manufacturing company is proposing to introduce just-in-time (JIT) production methods. Managers of the company have an intuitive feel regarding the financial benefits associated with a change to JIT,
> PIM Industries Inc. manufactures electronics components. Each unit costs $30 before the final test. The final test rejects, on average, 5% of the 50,000 units manufactured per year. The average rejection rate of the industry is 3%. A consultant has deter
> You are given the following environmental quality-related costs: Employee training ………………………………………………………………… $100,000 Product design ……………………………………………………………………….. 140,000 Supplier certification ………………………………………………………………… 40,000 Process inspection ………………
> This chapter includes an overview of a COQ reporting system. Such a system has, in fact, been applied in practice by a number of companies. This exercise pertains to the application of a COQ reporting framework to environmental management. Required: 1.
> Classify each of the following costs into one of the four quality cost (i.e., COQ) categories: 1. Materials, labor, and overhead costs of scrapped units. 2. Engineering time spent to determine the causes of failures to meet product specification. 3. Wage
> Genova Company classifies its costs of quality into four categories. The costs of quality (COQ) as a percentage of cost of goods sold for the last three years are as follows: Required: 1. Use a spreadsheet to prepare a histogram that shows the COQ tren
> Some proponents of TQM assert that quality is free—that is, that quality is a never-ending quest and that improving product/service quality will reduce a firm’s total spending on quality. Others believe that after a point, there are diminishing returns t
> Duramold specializes in manufacturing molded plastic panels to be fitted on car doors. The blueprint specification for the thickness of a high-demand model calls for 0.1875 ± 0.0025 inch. It costs $120 to manufacture and $150 to scrap a part that does no
> If a merchandising company has a beginning inventory of $400,000 and an ending inventory of $200,000, and the company purchased $1,600,000 of inventory during the month, what is the company’s cost of goods sold?
> The desired distance for Flextronchip customers is 0.2 mm between two adjacent pins. Any deviation from this value causes interference. The process of handling complaints costs the firm at approximately $40.00 per chip. The engineers of the firm expect t
> Flextronchip, an OEM manufacturer, has a fifth-generation chip for cell phones, with chip specification of 0.2 ± 0.0002 mm for the distance between two adjacent pins. The loss due to a defective chip has been estimated as $20. Required: 1. Compute (to t
> In an article by P. C. Brewer and F. A. Kennedy (“Putting Accountants on a ‘Lean Diet,’” Strategic Finance, February 2013, pp. 27–34, accessible at http://sfmagazine.com/wp-content/uploads/sfarchive/2013/02/Putting-Accountants-on-a-Lean-Diet.pdf), the a
> This chapter contains an overview of the Six Sigma process that many organizations are using today to improve the quality of their services and products. One could get the impression from the discussion that this topic is more properly a management or an
> To what (one-tailed) probabilities does each of the following sigma levels correspond, based on a standard normal curve: 3 sigma, 4 sigma, 5 sigma, and 6 sigma? (Hint: Use the NORM.DIST function in Excel. Note that this function returns the standard norm
> North Platt Machinery Company manufactures a shaft that must fit inside a sleeve. The firm has just received an order of 50,000 units from Southernstar Exploration Company for $80 per unit. North Platt can manufacture the shaft at $50 per unit. Southerns
> Keystone Electronics Corporation (KEC) is an eight-year-old company that has developed a process to produce highly reliable electronic components at a cost well below the established competition. In seeking to expand its overall components business KEC d
> Hathaway Products Inc. produces an innovative lighting system used in restaurants and high-end retail stores to provide a pleasing, warm atmosphere. Hathaway produces two versions of the product, called Starlight and Moonlight. Sales management at Hathaw
> The Greensboro Performing Arts Center (GPAC) has a total capacity of 7,500 seats: 2,000 center seats, 2,500 side seats, and 3,000 balcony seats. The budgeted and actual tickets sold for a Broadway musical show are as follows: The actual ticket prices w
> Our examples in the chapter have focused on manufacturing, where the output is units of product and the inputs are manufacturing activities or costs. The concept of productivity can be applied in a variety of settings, wherever there are inputs and outpu
> Lucas Diving Supplies Company, in its first year of business, had labor costs of $66,000, overhead costs of $98,000, materials purchases of $22,000, and ending Materials and Work-in-Process Inventories of $1,000 and $2,000, respectively. What is the amou
> A common measure of productivity, as explained in this chapter and as used by many business and trade organizations, including the U.S. Bureau of Labor Statistics, is the ratio of output to input, where input is typically measured in units of materials,
> The U.S. Bureau of Labor Statistics (https://data.bls.gov/timeseries/PRS85006092) provides quarterly data for labor productivity in business, nonfarm business, and manufacturing industries. The Bureau of Labor Statistics also breaks down these data into
> Each summer, the Harbour Report (www.oliverwyman.com/index.html) rates the productivity of the major automakers, including the “Detroit Big Three,” Toyota, Honda, and many other brands. The report is closely watched as a barometer of the future profitabi
> Lean manufacturing is what a lot of manufacturing firms are after these days. This requires a renewed focus on productivity and profitability, particularly for firms that compete using a cost leadership strategy and are facing increased global low-cost c
> Software Solution (SOS) helps subscribers solve software problems. All transactions are made over the telephone. For the year 2021, 10 engineers, most of whom are recent graduates, handled 100,000 calls. The average yearly salary for software engineers w
> ABC Corporation makes small parts from steel alloy sheets. Management has the flexibility to substitute direct materials for direct manufacturing labor and vice versa. If workers cut the steel carefully, more parts can be manufactured from a metal sheet,
> Most manufacturers have long adopted quality improvement techniques to reduce or eliminate errors, defects, and waste and speed the flow of product to the consumer. Many retailers are now following the lead. For example, Best Buy was able to save approxi
> Telematics is a system of sensors installed on cars and trucks that provides current information on the status and operation of many of the vehicle’s parts. It can be used to show the location of the vehicle, the oil level, the condition of the brake pad
> To maintain profit growth, several manufacturing companies have responded to the recession by cutting jobs. After the 2008–2010 recession, for example, Harley-Davidson reduced its workforce by 1,400 in one year and 1,600 more in the next year. As sales d
> As Noted in the text, identifying and reporting standard cost variances (such as those covered in Chapters 14 and 15) is the first step in one strategy for controlling costs and improving short-term financial performance. Required: What guidelines can y
> Jordan Sports Inc. has labor costs and overhead totaling $2.6 million during a given period. The company purchased $10.5 million of materials during the period and used $10 million of this amount. What is the amount of total manufacturing cost for the pe
> The XYZ Manufacturing Company produces two products, S-101 and C-110. You have obtained the following information regarding the annual manufacturing support (i.e., factory overhead) costs associated with the manufacturing process used to produce these tw
> Alden Company uses a three-variance analysis for factory overhead variances. Practical capacity is defined as 32 setups and 32,000 machine hours to manufacture 6,400 units for the year. Selected data for 2022 follow: Required: 1. Compute (a) the total
> Refer to the information for Johnny Lee, Inc., in Exercise 15-24. Assume that in a given month (December) the standard allowed machine hours for output produced was 5,500. Also, assume that the denominator activity level for setting the predetermined ove
