Questions and Answers of Managerial Accounting Tools For Business Decision Making

Why does traditional absorption costing often yield inaccurate product costs?
In a plant producing multiple products, would absorption costing overcost or undercost the more complex products?Why?
What are the four mutually exclusive categories used in activity-based cost accounting?
Does activity-based costing allocate more or less total costs to products than unit-based costing?
What are two purposes for implementing activity-based costing?
What problems are associated with tracking historical costs?
How does the trade-off between decision management and decision control affect the form that an absorption cost system takes within a particular firm?
Under unit-based absorption costing systems, are high- or low-volume products overcosted? Why?
Define standard cost.
Name three areas in which standard costs can be used in the decision-making process.
Can standard costs be viewed as a proxy for opportunity costs?
How do standard costs illustrate the trade-off between decision making and control?
What is target costing? How does it differ from traditional standard costing?
What are the three sets of standard cost variances produced by most firms?
What are the two components of direct labor variances?
When might large favorable variances be viewed as bad?
What are the components of the direct materials variance?
What are some of the incentive effects when standard cost variances are used as part of the performance evaluation system?
Describe how price variances create incentives to build inventories.
Describe some externalities created by standard cost variances.
Why are variances usually written off to cost of goods sold?
What are some of the costs and benefits of standard cost systems?
Software Associates (SA) is a computer software consulting firm that specializes in designing and implementing integrated marketing database warehousing programs. Humphrey Catalog is a client.In
Golf ball manufacturer Trevino is generally regarded as the industry leader. It commands a 40 percent market share in its targeted channels of distribution and reported net profits of $31.5 million
What are three definitions of volume? Describe each.
Describe the two different ways of estimating budgeted volume. How do they differ?
Describe the various steps used to determine overhead variances.
What are the three components of the overhead variance?Describe each.
Give three reasons why a spending variance could occur.
Define four different marketing variances.
Describe what the mix and sales variances measure.
UOP is a manufacturing firm that has depreciation as its only overhead expense (i.e., there are no indirect labor, indirect materials, property taxes, factory insurance, etc.). UOP uses a flexible
Define the firm’s business strategy.
Describe how the firm’s business strategy affects its organizational architecture.
Describe why technological innovation and changes in market structure cause firms to change their organizational architecture.
Is it a good idea for managers to copy organizational changes adopted by other firms?
Describe four different definitions of quality.
If quality is defined as meeting customer expectations, what does measuring quality require?
Total quality costs can be categorized into four groups. What are they?
How does cost accounting become easier in a just-in-time environment?
What are some of the problematic aspects of a JIT environment?
Describe which parts of Figure 14–1 are affected by a firm’s adoption of a balanced scorecard approach. FIGURE 14-1 The determinants of business strategy, organizational architecture, and firm
Describe two criticisms of the balanced scorecard.
Winter Games manufactures a competitive line of skis and sells its skis to retailers at a price of $225 per pair. Based on an annual volume of 5,000 pairs, the cost per pair is $185:Sports Palace, a
What causes the conflict between using internal accounting systems for decision making and control?
Describe the different kinds of information provided by the internal accounting system.
No single system can adequately answer the demands made by diverse functions of cost systems.While companies can use one method to capture all their detailed transactions data, the processing of this
Give three examples of the uses of an accounting system.
List the characteristics of an internal accounting system.
The opening paragraph of an accounting textbook says, “Managers need accounting information and need to know how to use it.”10 Critically evaluate this statement.
Do firms have multiple accounting systems? Why or why not?
Define economic Darwinism.
A finance professor and a marketing professor were recently comparing notes on their perceptions of corporations. The finance professor claimed that the goal of a corporation should be to maximize
Describe the major functions of the chief financial officer.
Salespeople at a particular firm forecast what they expect to sell next period. Their supervisors then review the forecasts and make revisions. These forecasts are used to set production and
Golf Specialties (GS), a Belgian company, manufactures a variety of golf paraphernalia, such as head covers for woods, embroidered golf towels, and umbrellas. GS sells all its products exclusively in
Parkview Hospital, a regional hospital, serves a population of 400,000 people. The next closest hospital is 50 miles away. Parkview’s accounting system is adequate for patient billing. The system
Montana Pen Company manufactures a full line of premium writing instruments. It has 12 different styles and within each style, it offers ball point pens, fountain pens, mechanical pencils, and a
Define opportunity cost.
What are some characteristics of opportunity costs?
A firm paid $8,325 last year for some raw material it planned to use in production. When is the $8,325 a good estimate of the opportunity cost of the material?
Define sunk cost and give an example.
Data for the Bidwell Company are as follows:Required:a. Based on the preceding data, calculate break-even sales in units.b. If Bidwell Company is subject to an effective income tax rate of 40
What are avoidable and unavoidable costs? How are they related to opportunity costs?
Define mixed cost and give an example.
Define step cost and give an example.
Define fixed cost.
Sunnybrook Farms is a local grocery store that is currently open only Monday through Saturday.Sunnybrook is considering opening on Sundays. The annual incremental costs of Sunday openings are
Define variable cost. Is it the same as marginal cost? Explain.
What are the underlying assumptions in a cost–volume–profit analysis?
What are the benefits and limitations of cost–volume–profit analysis?
Describe the four major steps in the management decision process. How are agency problems reduced in this process?
It is often argued that private country clubs tend to have low-quality food operations because the members do not join or frequent their clubs for the food but rather for the golf and fellowship.(A
What role does the firm’s internal accounting system play in resolving organizational problems?
Describe three different types of responsibility centers.Include any shortcomings the centers might have.
What is the controllability principle and what are its limitations?
Discretionary costs are defined as “costs that (1) arise from periodic (usually yearly) appropriation decisions regarding the maximum amounts to be incurred and (2) have no well-specified function
What two points must be kept in mind when examining performance-based measurement systems?
What are the two main reasons for transfer pricing within firms?
Name four alternative methods for determining transfer prices.
Is the choice of transfer pricing methods a zero-sum game?
U.S. Pump is a multidivisional firm that manufactures and installs chemical piping and pump systems.The valve division makes a single standardized valve. The valve division and the installation
A large corporation has a manufacturing division with 40 parts departments and 20 assembly departments.The parts departments manufacture most of the parts for the products, and the assembly
Hochstedt is a German firm with a wholly owned U.S. subsidiary. The parent firm manufactures and exports products from Germany to its U.S. subsidiary for sale in the United States. Hochstedt also has
Savannah Products, a small integrated wood and lumber products company with substantial timber holdings, has two divisions: Forest and Lumber. Forest Division manages the timber holdings, maintains
How are budgets developed?
How are key planning assumptions derived?
Define budget variance.
Are budgets part of the performance measurement system or the performance reward system?
What are some of the synergies that budgets provide within a large corporation?
How do budgets partition decision rights within a firm?
What purposes are served by the budgeting process in a large firm?
Why would managers bias their forecasts when preparing a budget?
What is a bottom-up budgeting system?
What is the ratchet effect?
Describe participative budgeting.
What are short-run and long-run budgets?
What are the advantages and disadvantages of line-item budgets?
Why do some organizations practice budget lapsing? What are the disadvantages?
Define static and flexible budgets. Discuss their advantages and weaknesses.

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