You have been assigned to a strategic leadership committee that has been charged by the CEO with developing and implementing a comprehensive management accounting and control system. At the first planning session that you attended, the subject of financial-control systems arose, but there was some uncertainty regarding the nature of such systems and some of the behavioral considerations that might have to be made in the design process. You have been asked by the chair of the committee to prepare a short written document that could be used as the basis of discussion at the next meeting. Specifically, you have been asked to define and distinguish between operational control and financial control and how such systems relate to an organization’s management accounting and control system; explain the theory behind the use of flexible budgets, standard costs, and variance analysis as elements of a financial-control system; and provide input regarding how standards/ budgets for performance evaluation should be set (i.e., whether authoritative standards, participative standards, or perhaps a combination approach should be used in the standard-setting process). Required: Compose your response as requested.
> 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
> Walkenhorst Company’s machining department prepared its 2022 budget based on the following data: Practical capacity ……………………………………….. 40,000 units Standard machine hours per unit ………………………………….. 2 Standard variable factory overhead . $3.00 per machine h
> (Continuation of Exercises 15-29 and 15-30) The Platter Valley factory of Bybee Industries uses a two-variance analysis of the total factory overhead variance. Required: 1. Use the data given in Exercises 15-29 and 15-30 to compute the total flexible bu
> (Continuation of Exercises 15-29 and 15-30) The Platter Valley factory of Bybee Industries currently uses a four-variance analysis of the total factory overhead cost variance but is thinking of changing to a three-variance analysis. Required: 1. Use the
> For March, the Platter Valley factory of Bybee Industries budgeted $90,000 for fixed factory overhead cost. Its practical capacity is 2,500 direct labor hours per month (to manufacture 5,000 pairs of boots). The factory used 2,700 direct labor hours in M
> The Platter Valley factory of Bybee Industries manufactures field boots. The cost of each boot includes direct materials, direct labor, and manufacturing (factory) overhead. The firm traces all direct costs to products, and it assigns overhead cost to pr
> Clark Company’s master budget includes $360,000 for equipment depreciation. The master budget was prepared for an annual volume of 120,000 chargeable hours. This volume is expected to occur uniformly throughout the year. During September, Clark performed
> Overhead information for Cran-Mar Company for October follows: Total factory overhead cost incurred ………………………………….. $30,000 Budgeted fixed factory overhead cost …………………………………… $ 7,125 Total standard overhead rate per machine hour (MH) …………… $ 4.90 Stand
> Womble Inc. has beginning inventory of $200 and an ending inventory of $400 for a given period in which it purchased $13,400 worth of materials. What is the dollar amount of materials used in this period?
> The controller is satisfied with the graphical representation you prepared in conjunction with Exercise 15-25. She thinks that this graphical representation of variable overhead standard cost variances will be well received by operating managers of the c
> You are in charge of making a presentation to operating managers regarding the meaning of the total overhead variance that appears each month on their performance reports. The controller suggested that a graphical presentation might be an effective way t
> Johnny Lee, Inc., produces a line of small gasoline-powered engines that can be used in a variety of residential machines, ranging from different types of lawnmowers, to snowblowers, to garden tools (such as tillers and weed-wackers). The basic product l
> Zodiac Sound Co. manufactures audio systems, both made-to-order and mass-produced systems, that are typically sold to large-scale manufacturers of electronics equipment. For competitive reasons, the company is trying to increase its manufacturing cycle e
> This chapter deals with the design of effective control systems associated with business processes, including operating processes. As indicated in the text, a comprehensive management accounting and control system will have both financial indicators and
> Chen Inc. produces a line of soy-based products, including a premium soy milk that comes in different flavors. This company, founded by Alan Chen, has been doing business in the United States for the past 15 years. In the face of competition associated w
> As indicated in the text, both financial and nonfinancial performance indicators play important roles in an organization’s overall operational control system. Explain, concisely, the relative advantage of each type of performance indicator. That is, what
> Steinberg Company had the following direct materials costs for the manufacturing of product T in March: Actual purchase price per pound of direct materials …………………………………………… $7.50 Standard direct materials allowed for units of product T produced …………… 2
> Boron Chemical Company produces a synthetic resin that is used in the automotive industry. The company uses a standard cost system. For each gallon of output, the following direct manufacturing costs are anticipated: Direct labor: 2 hours at $25.00 per
> Use the data in Exhibit 14.5. On October 7, Schmidt Machinery Company purchased 720 pounds of PVC at $41.00 per pound. On October 9, Schmidt’s production department used 720 pounds of PVC for the 780 units of XV-1 it manufactured. Requ
> Which of the following is the correct sequence in which cost management information is developed and used? a. Business events, data, information, analysis, decisions b. Business events, data, analysis, information, decisions c. Business events, informati
> Ohio Apple Orchards Inc. (OAO) produces an organic, super-premium apple juice that it markets to specialty food outlets. OAO purchases its apples from a select group of farmers located in the Midwest. Recently, a graduate of the local university, Susanna
> A number of ethical issues arise in the design of management control systems. For example, such issues might arise when an individual’s performance relative to budget or standard cost affects the individual’s compensation or reward. Assume you are the ma
> Agrichem manufactures Insect-Be-Gone. Each bag of the product contains 60 pounds of direct materials. Twenty-five percent of the materials evaporate during manufacturing. The budget allows the direct materials to be purchased at $2.50 per pound (gross co
> Portfolio management is a powerful concept in finance and marketing. The marketing application of the concept is to develop and manage a balanced portfolio of products. Market share and market growth can be used to classify products for portfolio purpose
> RTI Company’s master budget calls for production and sale of 18,000 units for $81,000, variable costs of $30,600, and fixed costs of $20,000. During the most recent period, the company incurred $32,000 of variable costs to produce and sell 20,000 units f
> At a recent seminar you attended, the invited speaker was discussing some of the advantages and disadvantages of standard costs in terms of evaluating performance and motivating goal-congruent behavior on the part of employees. One criticism of standard
> Crane Corporation’s master budget for the year is shown below: Required: 1. During the year, the company manufactured and sold 55,000 units of product. Prepare an Excel spreadsheet that contains a flexible budget for this level of out
> Information regarding Maxwell’s direct labor cost for the month of January follows: Direct labor hourly rate paid ……………………………………………………………….. $28.50 Total standard direct labor hours for units produced this period ……………… 11,000 Direct labor hours actuall
> DES Company manufactures folding chairs. Direct materials include hard plastic for the seat and back and metal beams for the legs. The standard cost sheet for a single chair includes the following direct materials information: Last month, DES purchased
> The IMA definition of management accounting states that a. management accounting is the process of gathering, reporting, and analyzing information for management decision making. b. management accounting is a profession that involves preparation and anal
> List the four functions of management. Explain what type of cost management information is appropriate for each.
> Assume that Schmidt Machinery Company had the standard costs reflected in Exhibit 14.5. In a given month, the company used 3,450 pounds of aluminum to manufacture 920 units. The company paid $28.50 per pound during the month to purchase aluminum. At the
> Assume that in October 2022 the Schmidt Machinery Company (Exhibit 14.1) manufactured and sold 950 units for $835 each. During this month, the company incurred $475,000 total variable costs and $180,000 total fixed costs. The master budget data for the m
> As the new accountant for Cohen & Co., you have been asked to provide a succinct analysis of financial performance for the year just ended. You obtain the following information that pertains to the company’s sole product: Required
> The following information is available for Brownstone Products Required: 1. What was the master budget variance for July, rounded to the nearest whole dollar? Was this variance favorable or unfavorable? 2. Set up a spreadsheet to compute the July sales
> Matt Simpson owns and operates Quality Craft Rentals, which offers canoe rentals and shuttle service on the Nantahala River. Customers can rent canoes at one station, enter the river there, and exit at one of two designated locations to catch a shuttle t
> The Pentagon is constantly seeking ways to procure the most effective combat equipment and systems at the lowest possible cost. A key element in most procurement contracts is a fixed fee based on a percentage of the full cost for the contract plus a perc
> Williams Inc. produces a single product, a part used in the manufacture of automobile transmissions. Known for its quality and performance, the part is sold to luxury auto manufacturers around the world. Because this is a quality product, Williams has so
> The use of ratios and trends to assess the performance of a company is called: a. Business analysis. b. Financial analysis. c. Business valuation. d. Market valuation.
> Tinsley Inc. is an industry-leading cardboard manufacturer. You have been asked to determine a market value for the firm’s equity. The firm has 100,000 shares outstanding, earnings per share of $2.50 last year, and a stock price of $25. What is the marke
> Sticky Fingers Inc. produces packing and masking tape. Last year’s annual report has been compiled, and you are in charge of business analysis for the year. The company had a goal for inventory turnover of 6 for last year. The actual results were cost of
> Assume the following for Round Top Inc. for the current fiscal year. Round Top applies overhead on the basis of units produced. Budgeted overhead ……………………………………. $350,000 Actual overhead ……………………………………….. $360,000 Actual labor hours ………………………………………… 22,
> Johnson Healthcare is a health care firm specializing in products for persons who are disabled. Johnson plans to maintain a 10% gross profit margin. After analyzing last year’s data, you found that Johnson had gross profit of $250,000 and net sales of $1
> Smith Co. is a firm specializing in financial advice for retired individuals. After some analysis, you have determined that an earnings multiplier of 7 is appropriate for this type of business. Smith’s most recent earnings totaled $250,000, and earnings
> Moore Heel is a shoe manufacturing company. Moore has hired you to value the company based on the discounted cash flow method. You have determined that the present value of the company’s cash flows is $400,000, marketable securities total $150,000, and t
> Jamison Auto Parts produces replacement parts for automobiles. Last year, Jamison had EVA® net income of $200,000, cost of capital of 10%, and EVA® capital of $750,000. Determine the firm’s economic value added (to the nearest whole dollar).
> From a tax avoidance viewpoint, the best type of compensation is: a. Salary: current deduction for firm and currently taxed to employee. b. Deferred bonus: deferred tax for company, deferred deduction to employee. c. Dividends: never taxed to firm or to
> Which of the following is not one of the three key objectives of management compensation? a. To motivate managers to work hard. b. To reduce the taxes of the firm and the employee. c. To provide an incentive for managers to make decisions that are in the
> Felton Co. produces rubber bands for commercial and home use. Felton reported $1 million residual income (RI) with $20 million net book value (NBV) of assets and $5 million in operating income for the year. What was the required rate of return?
> Tinsley Plastics manufactures plastic bottles used for beverages and household cleaners. The average net book value (NBV) of assets during the quarter is estimated as $500,000. If the required rate of return is 10% on average assets and the firm wants to
> Foreman Publishing Company’s income for the most recent quarter was $500,000, and the average net book value (NBV) of assets during the quarter was $1.5 million. If the company has a required rate of return of 15% on investment, what was the residual inc
> Using the data from Brief Exercise 19-16, compute King Mattresses’s total return on sales (ROS) for the quarter. Brief Exercise 19-16: King Mattresses sells both mattress sets and bed frames. Last quarter, total sales were $50,000 for mattress sets and
> Assume the following for White Top Inc. for the current fiscal year. White Top applies overhead on the basis of units produced. Budgeted overhead ………………………………………..… $200,000 Actual overhead ………………………………………………. $222,000 Actual labor hours ………………………………………
> King Mattresses sells both mattress sets and bed frames. Last quarter, total sales were $50,000 for mattress sets and $25,000 for bed frames. Return on investment (ROI) was 10% for both divisions, while asset turnover (AT) was 5 for mattress sets and 2 f
> Moore Money is a financial services firm specializing in fixed-income investments. You have been asked by the accounting manager to analyze the company’s financial data from the last quarter. You find the firm had return on investment (ROI) of 15% and as
> Matthews Produce harvests and sells Florida oranges. Matthews has hired you to determine its return on investment (ROI) based on both net book value (NBV) and gross book value (GBV). Financial data for the company show that profits are $2 million, the NB
> Scott Healthcare provides a walk-in clinic for its patients and a pharmacy for any medication prescribed by the doctor. Last year, Scott generated total sales of $500,000 and $100,000 in profits. Scott also had average assets of $250,000 for the year. Wh
> Williams Manufacturing uses scrap metal to produce various tools, such as drill bits, hammer heads, saw blades, and nails. The CEO has asked you to analyze the saw blades division to determine asset turnover for last quarter. You find that the saw blades
> Smith Branded Apparel designs T-shirts for businesses and corporations. The accounting manager has presented the latest quarter’s return on sales of 10% and asset turnover of 1.5. What is the company’s current return on investment (ROI)?
> Meargia Plastics is evaluating its plastic bottles division. The accounting manager has come up with the following data for the year: contribution margin of $500,000, controllable fixed costs of $200,000, and noncontrollable fixed costs of $50,000. Requ
> Manuel Inc. produces textiles in many different forms. After recording lower-than-anticipated profits last year, Manuel has decided to shut down one of its divisions that is not performing well. The accounting manager has compiled the following data on t
> Phelps Glass Inc. has reported the following financial data: net revenues of $10 million, variable costs of $5 million, controllable fixed costs of $2 million, noncontrollable fixed costs of $1 million, and nontraceable costs of $500,000. Required: 1. W
> Calabria Healthcare supplies prescription drugs to pharmacies. As the management accountant, you are required to analyze the financial statements for this quarter. You already have analyzed the company’s two divisions, Name Brand and Generic, and your su
> Some firms pool overhead into a single plantwide overhead pool, while others accumulate overhead costs into manufacturing departments, each of which has an overhead cost pool and overhead cost application rate. Which approach is likely to provide more ac
> Pepper’s Automotive (see Brief Exercise 18-19) has further analyzed the exhaust system division into three products: exhaust pipes, intake valves, and intake pipes. The income statement is available below. Required: 1. What would be t
> Pepper’s Automotive produces auto parts for various automotive retailers. Pepper’s is evaluating the exhaust system division of the company and has come up with the following data for the year: net revenues are $1,000,000, variable costs are $300,000, an
> Colleen Stevens is the North Carolina senior account manager for a national medical equipment manufacturer. Colleen has overall responsibility for the Southeast sales division. The division employs approximately eight sales representatives. Colleen’s rep
> An internationally known food processing company has acquired a mineral mining company. The decision to acquire the mining company is considered strategic based on the anticipated growing demand for the minerals used to create the packages for the compan
> Which of the following is a primary motivation for using a value-stream income statement? a. To measure the financial benefits of a firm’s progress in implementing lean manufacturing b. To identify the existence of poor-quality outputs or processes c. To
> A cause-and-effect (i.e, “fish-bone” or “Ishikawa”) diagram is most helpful for which of the following? a. Estimating nonlinear cost functions b. Diagnostic purposes (i.e., guiding corrective action once poor-quality outputs have been determined) c. Dete
> Part of the process of managing and controlling quality consists of detecting poor quality and then taking appropriate corrective action. Which of the following is not a mechanism that management would typically use to detect poor quality outputs? a. His
