Question: WRX uses a standard costing system. For

> List four advantages related to decentralization of a firm’s operations.

> Poseidon Electronics operates 10 stores in Washington, Oregon, and California, selling consumer electronics including stereo equipment and home theater systems. The following financial information is available for 2018 and 2017: Required: a. Although ne

> Atomic Electronics is considering instituting a plan whereby managers will be evaluated and rewarded based on a measure of economic value added (EVA). Before adopting the plan, management wants you to calculate what EVA will be in 2018, based on financia

> Consider the following information for Executive Electronics: Required: a. Evaluate the company in terms of residual income (RI), which is equivalent to EVA since there are no adjustments for accounting distortions. b. While income has increased in fis

> Consider the following information for McKinley and Son: Required: a. Evaluate the company in terms of ROI. b. While income has increased in fiscal 2018, is it clear that the company’s performance has improved? 12/31/2017 12/31/20

> Top management of the Gates Corporation is trying to construct a performance evaluation system to use to evaluate each of its three divisions. This past year’s financial data are as follows: Required: a. How would the divisions be rank

> Sarah Jones, the manager of the Teen division of the Eve Clothing Company, was evaluating the acquisition of a new embroidery machine. The budgeted operating income of the Teen division was $5,000,000 with total assets of $33,000,000 and noninterest-bea

> Pinnacle Engineering, an acclaimed chemical engineering team of engineers, chemists, and other scientists, had the following income in 2017: The following changes are expected in 2018: 1. The company is expecting a 12 percent increase in revenues becau

> Montana Woolen Products has two divisions: a Fabric division that manufactures woolen fabrics and a Clothing division that manufactures woolen dresses, coats, shirts, and accessories. All fabric used by the Clothing division is supplied by the Fabric div

> The City of Medina Park operates a plumbing and electrical maintenance department, responsible for maintaining all water and electric service functions in buildings owned by the city. The city administration is concerned about the rising costs of the mai

> The Leviathan Steel Company has a coal-mining subsidiary in West Virginia. A substantial amount of the coal produced by the subsidiary is used by Leviathan’s steel foundries located in Pennsylvania. Required: a. Recommend and defend a transfer price (m

> Kasper Industries produces custom molds that are used by producers of molded products (e.g., ski boots and snowboards). Many of its customers use just-in-time (JIT) manufacturing, and on-time delivery of the molds is critical because production is halted

> Consider the following data related to the financial performance of Royal Company: Between 2015 and 2018, income increased by 63 percent, showing a significant increase in income each year. In light of this performance, the board of directors has awarde

> The Spectrum Book Company has two divisions: The Brick and Mortar division sells books through more than 100 bookstores throughout the United States; the Internet division was formed 18 months ago and sells books via the Internet. Data for the past year

> Magellan Materials manufactures metal and plastic gutters for use in commercial and residential construction. Production occurs in two separate plants. Distribution is from a central warehouse, and there is a centrally managed sales office. Both producti

> Bechtel Technical Clothing produces parkas used by arctic explorers, mountain climbers, and people living in Minnesota. The company uses a standard costing system, and standards call for 2.5 yards of material at $55 per yard for each parka. The standard

> The National Battery Company produces a wide variety of batteries for home, automobile, and marine use. One example of its many products is the Road Guardian automobile battery. The standard cost for this battery is as follows: Standard cost, road guardi

> In her review of annual production variances, Amy Abel, CFO of Chanceworth Manufacturing, noted that there was a $80,000 favorable material price variance, a $70,000 unfavorable material quantity variance, an $90,000 favorable labor rate variance, and a

> Modern Healthcare, a group practice clinic with 10 physicians, had the following income in 2017: The following changes are expected in 2018: 1. The clinic is expecting a 2 percent decline in revenues because of increasing pressure from insurance compan

> Xcom Software operates a 24-hour help line to answer customer questions. To control the cost of operations, the company compares the actual time required to answer customer questions with a standard time of 6 minutes per customer call. Monthly bonuses ar

> The Dudley Travel Agency has found that, on average, its travel agents take 2 hours to serve each client and that those travel agents are paid a standard rate of $30 per hour. The following table contains the labor data for the Dudley Travel Agency for 2

> Will Norton, the general manager of Cummings Manufactured Siding, is reviewing a monthly variance summary. The summary reveals a large favorable material price variance and large unfavorable material quantity and labor efficiency variances. All other var

> Recycled Plastics manufactures a plastic dimensional lumber product from recycled plastic milk jugs. The company purchases consumer-recycled milk jugs in 700-pound bales and then shreds them into small pieces in its grinding department. Once ground, the

> Northwest Medical Testing draws blood samples from approximately 1,500 clients each month. The standard time for a technician to draw and prepare a blood sample for testing is 20 minutes. The standard wage rate for technicians is $40 per hour. During Aug

> The Antikron Company produces rubber seals used in the aerospace industry. Standards call for 3 pounds of material at $2.50 per pound for each seal. The standard cost for labor is 1.5 hours at $15 per hour. Standard overhead is $10 per unit. For the year

> Bowser Products operates a small plant in New Mexico that produces dog food in batches of 1,500 pounds. The product sells for $6 per pound. Standard costs for 2018 are: Standard direct labor cost = $15 per hour Standard direct labor hours per batch = 1

> Selzer & Hollinger, a low-cost legal firm, has set time standards for each of the two basic legal services it offers, which include the following: Required: a. Calculate the labor rate and labor efficiency variances for attorneys doing business inco

> Dante’s Protein Powder produces a dietary supplement. The standard cost of producing one unit is: Material (1.25 pounds × $2.50…………………. $ 3.13 Labor (1.2 hours × $10)…………………………….12.00 Overhead………………………………………………..11.60 Total………………………………………………………$26.73 Sta

> XO-20 is an oil-based product used to remove rust on bolts and nuts that are stuck. Its accounting system uses standard costs. The standards per .5-liter can of solution call for 0.75 liters of material and 4 hours of labor. (0.75 liters of material are

> The World Restaurant is situated in a local shopping center and serves food of many different cultures. It also caters private functions for companies. The results of operations for the fourth quarter of 2017 are as follows: Sales……………………………………………………………

> The chief operating officer of the Wisconsin Corporation is considering the effect of depreciation on the company’s ROI. In the most recent year, net operating profit after taxes was $35,000,000 and investment (total assets of $460,000,000 less nonintere

> K&J Web Designs creates websites for businesses. K&J has a basic website creation package that it offers for a flat fee of $750. This package includes everything that a business would need to have a simple but functional website built. K&J estimates that

> Sarah Aiken is the owner of Pretty Paws, a dog-grooming service. At standard, it takes 1 hour to groom each dog. During the month of October, it took Pretty Paws employees 350 hours to groom 300 dogs, at a total labor cost of $4,890. In November, employe

> T&C Tees is a manufacturer of T-shirts. The standard amount of 100% cotton jersey fabric used to make each T-shirt is 2.3 yards. The standard price per yard of the fabric is $2.75. During last month, T&C purchased 6,200 yards of the jersey fabric for $13

> Hank’s is a chain of 55 coffee shops. The standard amount of ground coffee per cup is .75 ounces. During the month of September, the company sold 325,000 cups of coffee (reported via electronic cash registers), and the 55 shops reported using 16,800 poun

> The following income statements and other information are available for the Schneider Company: Required: Calculate EVA for 2017. Assume that for purposes of calculating EVA, the company capitalizes research and development expenditures and amortizes the

> Consider two companies: Quantum Products and Aquafin Products. Senior managers at Quantum Products are evaluated in terms of increases in profit. In fiscal 2017, Quantum Products had a net operating profit after taxes of $4,600,000 and invested capital o

> Consider the following data, which relate to the two divisions of McIntyre Products: Required: Compare the two divisions in terms of return on investment and residual income. In the past year, which division has created the most wealth for McIntyre shar

> Refer to the summary of variances in Exercise 11-16. At Bell Computers, the ending balance in Finished Goods Inventory is $117,000; the ending balance in Work in Process Inventory is $54,000, and the balance in Cost of Goods Sold is $437,500. Required:

> Paramount Medical Services has two outpatient clinics and a pathology laboratory, which are organized as separate profit centers. When the pathology laboratory conducts tests ordered by the clinics, the clinics are charged the basic market price of the t

> The Schrödinger Science Store operates a retail store in a local shopping mall. The results of operations for the fourth quarter of 2017 are as follows: Sales………………………………………………………………………………. $350,000 Less cost of sales………………………………………………………………. 205,000 Gr

> The Linneas Company uses a standard costing system. During 2018, the company incurred actual overhead of $575,000. The standard rate for applying overhead is $4.25 per unit, and 130,000 units were produced in 2018. One-third of the total overhead varianc

> The Vanderwaal Company uses a standard costing system. In August, 5,450 actual labor hours were worked at a rate of $12.25 per hour. The standard number of hours is 5,270 and the standard wage rate is $13 per hour. Prepare a journal entry to record labor

> The Quality Cabinet Company uses a standard costing system and produced 2,000 cabinets during May. The standard cost of wood is $22 per linear foot, and the standard quantity for each cabinet is 27 linear feet. During May, the company purchased 57,000 li

> At the start of the year, Frigicor estimated that the company would produce 960 refrigeration units during the year (80 per month). Annual fixed overhead costs were estimated to be $1,200,000 ($100,000 per month), and estimated variable overhead costs we

> At the start of 2018, Textile Express Company determined its standard labor cost to be 2.25 hours per unit at $12.00 per hour. The budget for variable overhead was $9 per unit, and budgeted fixed overhead was $15,000 for the year. Expected annual product

> Lakeside Hospital is a division of Superior Healthcare that is organized as an investment center. In the past year, the hospital reported an after-tax income of $3,500,000. Total interest expense was $1,650,000, and the hospital’s tax rate was 35 percent

> Star Band Uniforms uses a standard costing system. The standard material and labor costs for producing a marching band hat are as follows: Materials (.90 yards × $12.00)…………………..$10.80 Direct labor (1.2 hours × $14.00) ………………. $16.80 During May, the com

> The standard labor cost in the production of a pair of Tukor Brand athletic shoes is .40 hours at $13.00 per hour. During the month of June, 25,000 pairs were produced. Actual labor costs were $111,700 for 8,200 hours. Compute the labor rate and labor ef

> Samson Software operates a training facility that offers classes in the use of its software products. Historically, the classes have been offered at a modest charge that covers the cost of the instructor’s salary but not overhead related to the training

> Techlabs operates a computer training center. The following data relate to the preparation of a master budget for January 2018. 1. At the end of 2017, the company’s general ledger indicated the following balances: 2. Tuition revenue i

> The Stanton Supply Company produces cleaning equipment for professional cleaners. At the start of the year, Stanton estimated variable overhead costs to be $13 per unit and total fixed overhead costs at $301,000, based on a volume of 66,000 units. The de

> Write a paragraph explaining why, in the calculation of a company’s EVA, noninterest-bearing current liabilities are subtracted from total assets to determine investment.

> Explain why, in the calculation of EVA, the profit measure used (NOPAT) excludes interest expense.

> Write a paragraph explaining how, if workers improve a production process, they actually may generate an unfavorable labor efficiency variance.

> Five Star Tools is a small family-owned firm that manufactures diamond-coated cutting tools (chisels and saws) used by jewelers. Production involves three major processes. First, steel “blanks” (tools without the diamo

> For fiscal year 2018, Katherine’s Department Store had net income of $6,000,000. Interest expense was $2,250,000, and the company’s tax rate on income was 40 percent. Total assets were $80,000,000, and noninterest-bearing current liabilities were $6,700,

> Davenport Mills is a division of Iowa Woolen Products. For the most recent year, Davenport had net income of $20,000,000. Included in income was interest expense of $1,400,000. The operation’s tax rate is 40 percent. Total assets of Davenport Mills are $

> Major’s Fitness Club operates a 20,000-square-foot facility in Dallas. For the coming year, the company is considering development of a balanced scorecard. Required: Support the use of market prices or cost-based prices for charging clinics for tests pe

> Some advocates of the balanced scorecard have argued that managing a company with just financial performance measures is like driving a car and just looking in the rearview mirror. That’s why they recommend customer, internal processes, and learning and

> In 2016, five retired software developers opened an auto dealership in Redmond, Washington, which they named WinTechMotors. The company specializes in high-end sports and luxury autos and has one of the largest inventories of used Porsches on the West Co

> The results of operations for the Garret Bug Spray Manufacturing Company for the fourth quarter of 2017 were as follows (in thousands): Note: Garret uses the variable costing method. Thus, only variable costs are included in the cost of goods sold. Fixe

> Home Value Stores operates 264 membership warehouse stores in the United States, Europe, and Asia. The company offers low prices on a limited selection of household and grocery products. In the past year, sales increased by approximately 10.8 percent and

> Stan Holbert, the purchasing manager for Champion Industries, recently attended a meeting with a potential supplier, Wallace Materials. At the meeting, a Wallace manager demonstrated a material that was easier to handle and shape than the material curren

> Franz Manteca is the president of Max Storage Devices, a wholly owned subsidiary of Vanguard Industries. His annual salary is $600,000. In addition, he receives a $200,000 bonus if Max Storage’s profit exceeds 75 percent of budget. He also receives 1 per

> The Watch and Timepiece Division of Geraldo Jewelers had significant problems in 2018. Sales and production were down by almost 35 percent as compared with the budget. Manufacturing was plagued by quality problems and had frequent customer complaints. Ti

> The Customer Support Department at Silvan.com budgeted for the following costs in June, assuming 35 customer consultants responding to 11,200 customer calls: Salaries of customer consultants…………. $160,000 Salaries of supervisors……………………………. 30,000 Office

> Debra Green is the division manager of the Consumer Banking Division of Pennywise Bank. Each year Debra submits an annual budget to Barney Stringer, the bank’s chief financial officer. Debra’s bonus, salary increases, and promotion opportunities are base

> Javier Andreas is in the process of developing a spreadsheet to budget annual sales and purchases of inventory for his company, The Backyard Place, a retail store that sells lighting, furniture, and other amenities for the backyard. In 2017, sales were a

> The accountant at Supreme Audio resigned while he was in the midst of preparing the budget for 2018. His work papers indicated the following: Assumptions: Sales will increase by 25 percent over 2017. Cost of sales equals 75 percent of sales. For 2018

> Jackson Sound produces amplifiers and mixing boards in a modern production facility. The company is well known for its quality products. Each item is thoroughly tested before it leaves the plant. Workers are highly skilled. The company considers direct l

> What is the difference between residual income and EVA?

> Should managers investigate only unfavorable variances?

> Discuss goal congruence and how it impacts the decision to decentralize.

> “You get what you measure!” If so, what problem might be created by managers attempting to achieve favorable material price variances?

> What is the difference between an ideal standard and an attainable standard?

> List two disadvantages associated with decentralization of a firm’s operations.

> Provide two measures for each perspective of a balanced scorecard.

> What is empire building in a managerial context?

> In the fourth quarter of 2017, Casey Wholesalers had the following net income: Sales $650,000 Less cost of sales 300,000 Gross margin 350,000 Selling and administration 250,000 Income before taxes 100,000 Income taxes 35,000 Net income $ 65,000 Purchases

> The results of operations for the Preston Manufacturing Company for the fourth quarter of 2017 were as follows: Note: Preston Manufacturing uses the variable costing method. Thus, only variable production costs are included in inventory and cost of good

> What portion of consolidated retained earnings is assigned to the noncontrolling interest in the consolidated balance sheet?

> Select the correct answer for each of the following questions. Amber Corporation holds 80 percent of the stock of Movie Productions Inc. During 20X4, Amber purchased an inventory of snack bar items for $40,000 and resold $30,000 to Movie Productions for

> How is the amount assigned to the noncontrolling interest normally determined when a consolidated balance sheet is prepared immediately after a business combination?

> Why must inventory transfers to related companies be eliminated in preparing consolidated financial statements?

> Why must a noncontrolling interest be reported in the consolidated balance sheet?

> Where is the balance assigned to the noncontrolling interest reported in the consolidated balance sheet?

> Companies have many different practices for pricing transfers of goods and services from one affiliate to another. Regardless of the approaches used for internal decision making and performance evaluation or for tax purposes, all intercompany profits, un

> Diamond Manufacturing Company regularly purchases janitorial and maintenance services from its wholly owned subsidiary, Schwartz Maintenance Services Inc. Schwartz bills Diamond monthly at its regular rates for the services provided, with the services co

> Current reporting standards require the consolidated entity to include all the revenues, expenses, assets, and liabilities of the parent and its subsidiaries in the consolidated financial statements. When the parent does not own all of a subsidiary’s sha

> Dream Corporation owns 90 percent of Classic Company’s common stock and 70 percent of Plain Company’s stock. Dream provides legal services to each subsidiary and bills it for 150 percent of the cost of the services provided. During 20X3, Classic recorded

> Plug Corporation purchased 60 percent of Coy Company’s common stock approximately 10 years ago. On January 1, 20X2, Coy sold equipment to Plug for $850,000 and recorded a $150,000 loss on the sale. Coy had purchased the equipment for $1,200,000 on Januar

> Many companies transfer inventories from one affiliate to another. Often the companies have integrated operations in which one affiliate provides the raw materials, another manufactures finished products, another distributes the products, and perhaps ano

> Ready Building Products has six subsidiaries that sell building materials and supplies to the public and to the parent and other subsidiaries. Because of the invoicing system Ready uses, it is not possible to keep track of which items have been purchased

> Morrison Company owns 80 percent of Bloom Corporation’s stock, acquired when Bloom’s fair value as a whole was equal to its book value. The companies frequently engage in intercompany inventory transactions. Required: Name the conditions that woul

> Water Products Corporation has been supplying high-quality bathroom fixtures to its customers for several decades and uses a LIFO inventory system. Rapid increases in the cost of fixtures have resulted in inventory values substantially below current repl

> Shortcut Charlie usually manages to develop some simple rule to handle even the most complex situations. In providing for the elimination of the effects of inventory transfers between the parent company and a subsidiary or between subsidiaries, Shortcut

> Monsanto Company, a St. Louis–based company, is a leading provider of agricultural products for farmers. It sells seeds, biotechnology trait products, and herbicides worldwide. Required How did Monsanto Company report its income to noncontrolling (min

> A new employee has been given responsibility for preparing the consolidated financial statements of Sample Company. After attempting to work alone for some time, the employee seeks assistance in gaining a better overall understanding of the way in which

> Rose Corporation and Krome Company established a joint venture to manufacture components for both companies’ use on January 1, 20X1, and have operated it quite successfully for the past four years. Rose and Krome both contributed 50 percent of the equity