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managerial accounting
Questions and Answers of
Managerial Accounting
The Mazdiak Company has converted to an activity-based costing (ABC) system, as discussed in Chapter 4. Accordingly, the company prepares a flexible budget based on the four activity costs for
The price variance for fixed overhead represents the savings or extra cost if production personnel are efficient. Do you agree? If you do not agree, explain why not.
The performance report of Custom Jewelry included the following variances for direct labor: price (rate) variance, $4,000 favorable; quantity (efficiency) variance, $14,000 unfavorable. For each
Holtje sells hammocks to many different retail outlets, and has gathered the following information for the period:* U = unfavorable, F = favorable.Additional information:● Planned production was
Standard costs should be based on the assumption of ideal (maximum efficiency) conditions to hold production and purchasing employees accountable. Do you agree? If you do not agree, explain why not.
As part of the management by exception philosophy, Luggage Manufacturing gives bonuses based on positive variances with respect to the following:i. Using less materials than allowed in the flexible
Trendy Corporation manufactures a basic line of ground cover with the following standard unit costs:The following information pertains to the month of December:Standards are based on normal monthly
The sum of the price and quantity variances for variable overhead equals the flexible budget variance for variable overhead. Do you agree? If you do not agree, explain why not.
Crispin Company uses a standard-cost system. The standard direct materials cost per unit is $20, consisting of 4 lb at $5 per lb. The standard direct labor cost per unit is $40, consisting of 2 hours
The balanced scorecard is a performance measurement system that recognizes both financial and nonfinancial measures when evaluating a company’s performance. The balanced scorecard consists of four
The only reason a company would use a standard costing system is for planning and control purposes. Do you agree? If you do not agree, explain why not.
Costs of quality fall into four main categories: prevention, appraisal, internal failure, or external failure.a. Indicate for each of the costs whether it should be classified as a prevention,
Young, Inc., manufactures cardboard boxes. Young has shared the most recent performance report with you as follows:a. What are the master budget revenues?b. What are the master budget variable
Describe the contents of a flexible budget in a standard costing system for a manufacturer.
Morra is the new manager of the parking division of a small college; her division is set up as a profit center. Morra has responsibility for control of the costs and for revenues generated by parking
Describe the information contained in a performance report that a company using a standard costing system would prepare.
Purchasing Company budgeted $100,000 of factory overhead cost to manufacture 5,000 units in 2022. At the end of 2022, management asked production why only 4,000 units were produced and the factory
Variances are insufficient performance metrics since they represent past historical/sunk costs; promote short-term thinking; represent mainly lag indicators; do not shed light on the source of the
If a company spends less on materials than the master budget, management is working efficiently and should not investigate the variances. Do you agree? If you do not agree, explain why not.
Actual weekly payroll costs for direct labor for installations of Easy Applications were $10,500 for 500 hours. The standard was 2 hours per installation. The direct labor standard cost was $18 per
Variances only list the amounts over or under budget; they do not explain the causes of the problems. Do you agree? Explain.
Give three reasons why a direct labor unfavorable variance may occur.
Find an article that discusses the role of the balanced scorecard within organizations. Write a one-page summary of the article. Make sure to cite your sources.
Basing bonuses only on favorable purchasing and production variances could encourage employees in the short run to act in a manner that does not promote goal congruence (is best for the company). Do
How is the concept of “management by exception” used with standard costing?
What is a balanced scorecard report, and how is it useful to management?
If a company spends more money on appropriate prevention and appraisal costs, it should realize lower internal and external failure costs of quality in future periods. Do you agree? Explain.
What are capital projects? Explain the purpose of capital projects.
The Taylor Company is planning to purchase a new machine for $30,000. The payback period is expected to be 5 years. The new machine is expected to provide after tax cash flow from operations of
Cainas/Jozsi Cookies is considering leasing a new kitchen space and purchasing new equipment, or completing an addition on the current kitchen space and refurbishing some of the old equipment. Other
Jenny’s Flower Shop wants to expand its operations and is looking for a larger facility. The company can add to the current building or sell the building and lease a larger facility nearby. Other
Describe the input-process-output model as it applies to capital budgeting.
Limon Company is planning to invest in a machine with a useful life of 5 years and no salvage value. The machine is expected to produce after-tax cash inflows from operations of $20,000 per year.
Use the chart to answer questions 4a–4c:a. Set up the schedule of relevant cash flows. Remember: Relevant items are those that differ between alternatives and occur in the future. Calculate the NPV
Windy Company invested in a 2-year project with an expected internal rate of return of 10%. The machine is expected to produce cash flows from operations of $50,000 in the first year and $45,000 in
Give several capital budgeting decisions for an electric company.
Assume that the amounts in Problem 4 are before taxes and the tax rate is 30%. As a result, the analysis would differ as follows:● The after-tax cash cost savings net only 70% of the amounts.●
What are the main categories of capital projects?
The Amber Company expects a 16% accounting rate of return on an investment that cost $30,000 and has an expected 8-year life and no salvage value.a. What is depreciation expense?b. What are the
Discuss how capital budgeting is linked to an enterprise’s vision, mission statement, and strategic plan.
Expo is considering buying a new truck costing $32,000, which should generate after-tax cost savings of $10,000 for each of the first 3 years and $9,000 in each of the last 3 years. The salvage value
On December 31, 2022, CC is considering launching a new product line and entering a new market.● The new product line would require an infrastructure cost today of $240,000.● The anticipated
Capital budgeting decisions are difficult because of increased uncertainty of risks due to changing technology, security, global pressures, competition, and regulations. Do you agree? Discuss.
Mr. Ambitious is considering purchasing a new machine to be used in his dry-cleaning business. The following cash savings are expected from the $40,000 investment over the next 5 years: years 1 and
Some intangible benefits are difficult to estimate and quantify. Give some intangible benefits of setting up an “online store” in addition to having a physical store location.
At the beginning of 2022, Auner Company is considering whether to continue to make a product or to buy the finished product from a supplier. The following data have been gathered:● Expected sales
Mr. Ambitious is considering the purchase of a new machine to be used in his dry-cleaning business. The following after-tax cash savings are expected from the $40,000 investment over the next 5
The following facts are known about an investment for Amol Company: The payback period is 4 years, the expected after-tax cash flows per year are $8,000, and the life of the project is 6 years.a.
Cool for School Corporation is a manufacturer of smart boards and plans to purchase new equipment for its manufacturing process. After contacting the appropriate vendors, the purchasing department
If management is not committed to funding a project or does not believe that the project is a strategic fit for the organization, the potential for not approving the project is high, even if the
Morales Company is planning to invest in high-tech equipment costing $580,000, which has a useful life of 6 years and a $40,000 salvage value. The investment is expected to produce net cash (after
“The effectiveness of the capital budgeting methodology is questionable because predicting future cash inflows is often difficult and full of uncertainties.” Do you agree with this statement?
Cristina Company is considering investing in a new electronic data interchange (EDI) integrated system. The expected data follow. The cost savings are already after taxes, so taxes can be ignored.a.
Sporty is interested in expanding its operations. A new facility will provide cash savings. Additionally, the company can sublease space and realize cash lease revenues. The current facility was
The following information is known about Premiere Suits, which sells tailored, hand-detailed suits and provides alteration and tailoring services:● The cash balance on November 1, 2022, is
Match the following terms with the descriptions provided below by placing the letter of the term in front of the description:a. Manufacturing overhead budgetb. Budgetary slackc. Budget committeed.
Custom Windows has budgeted annual unit quarterly sales and production data as follows:● Each unit requires 2 pounds of direct materials at a standard cost of $10 per pound.● Payments for
Fancy Runners manufactures and sells table runners for an average price of $18.00. Other facts are as follows:● Materials cost $12 per runner.● The company projects 16,000 runners to be sold in
Distinguish between short-term and long-term objectives. Provide two examples of each for a car manufacturer.
Explain why objectives need to be quantifiable to provide value to management in the budgeting process.
Identify how prescriptive and descriptive analytics can be used in the capital budgeting process.
True or False: For each of the following statements, identify whether the statement is true (T) or false (F).a. The internal rate of return assumes that funds are reinvested at the company’s cost
Find an article that discusses a capital investment decision. Write a one-page summary of the article that includes discussion of the relevant internal and external factors and risks. Make sure to
Companies today face many uncertainties that make predicting future cash flows difficult for major projects. Several such risks are data security breaches (hacking, stealing of data), terrorist
For each of the statements, indicate which capital budgeting accounting method applies. More than one method may be used for a given item.P = PaybackARR = Accounting rate of returnIRR = Internal rate
For each of the following scenarios that involve significant investments in technology, provide examples of one tangible benefit and one intangible benefit.a. Wearable technology such as uniforms,
Describe the major benefits and weaknesses of the payback period and accounting rate of return methods.
MOP factors were described as important considerations for the success of projects. For each of the items described, select the appropriate category. Choose from:M = Management view, including
If the net present value is zero, the project has no value in the present and should be rejected. Do you agree with this statement? Explain why or why not.
If the future cash flows are different in various years, only payback period and accounting rate of return models should be used. Do you agree with this statement? Explain why or why not.
You are reviewing a capital budgeting analysis that was prepared by your boss (the controller) at the request of the director of marketing. The director wants to purchase new software to manage all
Cash flows for capital budgeting projects should be estimated solely by accountants since they would have the most expertise and objectivity in the company. Do you agree with this statement? Explain
You are the outside accountant for ABC Company. During your audit, you learn that the controller is planning to purchase a new piece of equipment for the company. You have also heard that the
Companies may choose to use both a nondiscounted cash flow model, such as payback period, and a discounted cash flow model, such as net present value, to get a more complete picture of a capital
The following articles provide some insight into the current and emerging trends and considerations in capital investment decisions. Select one of the articles from the list below.●“Tervis
Modern Notes, Inc. had a $47,000 cash balance on May 1. The following information was also gathered:● Half of all sales are on credit. Of the credit sales, 80% are collected in the same month, 10%
Verde is a retailer whose fiscal year ends on June 30. The following data are provided for Verde’s operations:Other Information: ● Credit sales are collected as follows: 60% during
The accounts receivable balance on June 30 is $12,000. Total sales for July are estimated to be $90,000. Sales are typically 10% cash and 90% credit sales. Of the credit sales, 40% is collected in
For each of the following items, select for the current period only one financial document that best describes where the item would appear:a. Budgeted statement of cash receipts and cash
Describe the role and responsibilities of the budget committee and the budget director.
Identify each of the following statements as either T (True) or F (False).a. Objectives can be either measurable with a deadline for achievement or long-term subjective ideals that other companies in
Most companies do not view “participatory budgeting” as a positive and feasible concept. Do you agree? If you do not agree, explain the benefits offered by participatory budgeting. Be specific.
The following information has been compiled for Quilliam Company. The company is in the office paper products industry.● Projected cash and credit sales schedule:● Collection policy for credit
You have been given the following annual 2023 cash flow projections for Expert House Cleaners:Other information:● The company charges an average fee of $2,000 per customer (house)
If the direct labor budget is combined with the manufacturing overhead budget, the result is the same as the cost of goods sold budget. Do you agree? If you do not agree, explain why not. Be specific.
Refer to the data provided in Problem 6, but assume that the number of units expected to be sold will equal the number of units expected to be produced. Also assume that Quality Cases manufactures
Pine Company manufactures end tables that sell for $125 per table. Budgeted unit sales for the next six months are as follows:a. Prepare a sales budget for the third quarter of the calendar year
The following sales budget information is known for East Company, which sells wall hangings for $20 per unit:Also known:● 30% of the sales are cash sales.● Credit sales are collected as follows:
Beisswanger Company is preparing a master budget for 2023. Relevant data pertaining to its sales and production budgets are as follows:● Sales for the year are expected to total $1,200,000.
Manufacturers often set production budgets as follows: expected costs of producing the estimated units to be sold plus desired ending inventory less beginning inventory of finished units. Extra
Denisco Doughnuts has applied for a loan with a local bank. The bank has requested a budgeted balance sheet as of May 31, 2023. The controller of Denisco has assembled the following information:●
If a company has clear measurable short-term objectives, then it can ignore long-term objectives because the future is so unpredictable. Do you agree? If you do not agree, explain why not. Be
Identify which items you would include in a budgeted cash flow statement and budgeted income statement for yourself for the next month. Be sure to consider cash receipts from your salary,
The sales budget is the cornerstone of the master budget. What are some of the factors that a software developer considers in a sales budget for the year?
Select a small business or service line that you would like to own and operate. Research what the annual operating, investing, and finance inflows and outflows would be if you operated such a
If a college dean overestimates enrollment so as to have more resources allocated to that particular college, are his or her actions unethical? Discuss.
The following information is known for Eskew Company:● A four-month insurance policy will be purchased on October 1 for $800.● Salaries of $5,000 will be paid on October 1 for the period from
The following articles provide some insight into the macro-level factors affecting organizations as the result of the COVID-19 pandemic. Select one of the articles from the list below.●“As
Manufacturers often budget to have extra direct materials in an effort to protect against unexpected delays in production from equipment downtime, defective materials or delays in materials arriving,
Review the Statement of Ethical Professional Practice Standards promulgated by the Institute of Management Accounting (IMA): competence, confidentiality, credibility, and integrity. Now consider
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