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management accounting
Questions and Answers of
Management Accounting
Explain what is meant by the term ‘management by exception’.
Describe how the different roles of budgets can conflict with each other.
Wollongong wishes to calculate an operating budget for the forthcoming period. Information regarding products, costs and sales levels is as follows:Closing inventory of materials and finished goods
You have recently been appointed as the management accountant to Alderley Ltd, a small company manufacturing two products, the Elgar and the Holst. Both products use the same type of material and
The management of Beck plc have been informed that the union representing the direct production workers at one of their factories, where a standard product is produced, intends to call a strike. The
Designit is a small company providing design consultancy to a limited number of large clients. The business is mature and fairly stable year on year. It has 30 employees and is privately owned by its
Budgeting has been criticized as:• a cumbersome process that occupies considerable management time• concentrating unduly on short-term financial control• having undesirable effects on the
The following data are to be used for sub-questions(i) and (ii) below:(i) Based on the data given above, what is the labour hour overhead absorption rate?A $17.50 per hour B $17.20 per hour C $18.44
A firm makes special assemblies to customers’ orders and uses job costing. The data for a period are:The budgeted overheads for the period were €126,000.(i) What overhead should be added to job
Canberra has established the following information regarding fixed overheads for the coming month:Canberra produces many different products using highly automated manufacturing processes and absorbs
Overhead analysis and calculation of product costs A furniture-making business manufactures quality furniture to customers’ orders. It has three production departments and two service departments.
Calculation of product overhead costs Bookdon plc manufactures three products in two production departments, a machine shop and a fitting section; it also has two service departments, a canteen and a
Make-or-buy decision Shown below is next year’s budget for the forming and finishing departments of Tooton Ltd. The departments manufacture three different types of component, which are
Costing and impact of denominator values A small manufacturing company operates plant which runs on a five days per week basis. It operates a single shift of 8 hours per day. The company has periods
Distinguish between compounding and discounting.
Explain what is meant by the term ‘time value of money’.
Explain what is meant by the internal rate of return(IRR).
Describe the payback method. What are its main strengths and weaknesses?
Dalby is currently considering an investment that gives a positive net present value of £3,664 at 15 per cent. At a discount rate of 20 per cent it has a negative net present value of £21,451.What
Ayr is planning on paying £300 into a fund on a monthly basis, starting 3 months from now, for 12 months. The interest earned will be at a rate of 3 per cent per month.Note that the annuity factor
Sydney is considering making a monthly investment for his son who will be 5 years old on his next birthday. He wishes to make payments until his 18th birthday and intends to pay $50 per month into an
Augustine wishes to take out a loan of €2,000. The interest rate on this loan would be 10 per cent per annum and Augustine wishes to make equal monthly repayments, comprising interest and
The following data are supplied relating to two investment projects, only one of which may be selected:1 Profit is calculated after deducting straight line depreciation.2 The cost of capital is 10
A project requires an initial investment of $150,000 and has an expected life of five years. The required rate of return on the project is 12 per cent per annum.The project’s estimated cash flows
A machine with a purchase price of £14,000 is estimated to eliminate manual operations costing £4,000 per year. The machine will last 5 years and have no residual value at the end of its life.You
This question requires a knowledge of the term ‘expected value.’ This term is explained in detail in Learning Note 4.2 that can be accessed by referring to the digital online support resources
What costs are likely to be relevant for (a) a short-run pricing decision, and (b) a long-run pricing decision?
What is meant by cost-plus pricing?
Explain what is meant by the internal rate of return (IRR).
Jewel Co. is setting up an online business importing and selling jewellery headphones. The cost of each set of headphones varies depending on the number purchased,although they can only be purchased
A small company is engaged in the production of plastic tools for the garden.Sub-totals on the spreadsheet of budgeted overheads for a year reveal:For the purposes of reallocation of general factory
DLW is a company that builds innovative, environmentally friendly housing. DLW’s houses use high quality materials and the unique patented energy saving technology used in the houses has been the
Why does the relevant cost of labour differ depending upon the circumstances?
A company requires 600kg of raw material Z for a contract it is evaluating. It has 400kg of material Z in stock which were purchased last month. Since then the purchase price of material Z has risen
Equipment owned by a company has a net book value of €1,800 and has been idle for some months. It could not be used on a 6 months contract which is being considered. If not used on this contract,
A company is considering accepting a 1-year contract that will require four skilled employees. The four skilled employees could be recruited on a 1-year contract at a cost of R40,000 per employee.
A company which manufactures four components (A, B, C and D), using the same skilled labour, aims to maximize its profits. The following information is available:As it has insufficient skilled labour
Four years ago a computer system was installed by a life assurance company. AB Ltd, to support their administrative functions. The total capital cost was £47,000. A life of nine years was estimated
Blackarm Inc. makes three products and is reviewing the profitability of its product line. You are given the following budgeted data about the firm for the coming year.The company is concerned about
Robber Co. manufactures control panels for burglar alarms, a very profitable product. Every product comes with a 1-year warranty offering free repairs if any faults arise in this period.It currently
Brown Ltd is a company that has in stock some materials of type XY that cost £75,000 but that are now obsolete and have a scrap value of only £21,000. Other than selling the material for scrap,
A market gardener is planning his production for next season, and he has asked you, as a cost accountant, to recommend the optimal mix of vegetable production for the coming year.He has given you the
Provide examples of each of the following: (a) direct labour, (b) indirect labour, (c) direct materials, (d) indirect materials and (e) indirect expenses.
Distinguish between a direct and indirect cost.
Explain the meaning of the terms: (a) prime cost,(b) overheads and (c) cost allocations.
Describe how a given direct cost item can be both a direct and indirect cost.
Explain the meaning of each of the following terms: (a)variable costs, (b) fixed costs, (c) semi-fixed costs and(d) semi-variable costs. Provide examples of costs for each of the four categories.
What is an opportunity cost? Give some examples.
Explain responsibility accounting.
Classify each of the following as being usually fixed (F), variable (V), semi-fixed (SF) or semi-variable (SV):(a) Direct labour(b) Depreciation of machinery(c) Factory rental(d) Supplies and other
Which of the following costs are likely to be controllable by the head of the production department?(a) Price paid for materials(b) Charge for floor space(c) Raw materials used(d) Electricity used
A direct cost is a cost that:(a) is incurred as a direct consequence of a decision(b) can be economically identified with the item being costed(c) cannot be economically identified with the item
Which of the following would be classed as indirect labour?(a) Assembly workers in a company manufacturing televisions(b) A stores assistant in a factory store(c) Plasterers in a construction
A manufacturing company has four types of cost(identified as T1, T2, T3 and T4). The total cost for each type at two different production levels is:Calculate the costs per unit. Which cost types
Sunk and opportunity costs for decision-making Mrs Johnston has taken out a lease on a shop for a down payment of €5,000. Additionally, the rent under the lease amounts to €5,000 per annum. If
Explain what is meant by the term ‘relevant range’.
Define the term contribution margin ratio and explain how it can be used for cost–volume–profit analysis.
Describe the assumptions underlying cost–volume–profit analysis.
How can sensitivity analysis be used in conjunction with cost–volume–profit analysis?
The following information is required for sub-questions(a) and (b): The company expects to sell h units in the next accounting period.(a) The margin of safety is shown on the diagram by:(i) k(ii)
The diagram shows the profit–volume chart of Z Ltd for its last accounting period. The company made a profit of $w during the period.(a) An increase in the fixed costs per period (assuming the
The following details relate to product R: Level of activity 1,000 2,000 (units) (/unit) (/unit) Direct materials 4.00 4.00 Direct labour 3.00 3.00 Production overhead 3.50 2.50 Selling overhead 1.00
A Ltd has fixed costs of €60,000 per annum. It manufactures a single product which it sells for €20 per unit.Its contribution to sales ratio is 40 per cent.A Ltd’s break-even point in units
A company manufactures a single product which it sells for £15 per unit. The product has a contribution to sales ratio of 40 per cent. The company’s weekly break-even point is sales of
An organization manufactures and sells a single product which has a variable cost of £24 per unit and a contribution to sales ratio of 40 per cent. Total monthly fixed costs are £720,000.What is
The summarized profit and loss statement for Exewye plc for the last year is as follows:At a recent board meeting the directors discussed the year’s results, following which the chairman asked for
A company manufactures a single product. Budget and standard cost details for next year include:Required:(i) Calculate the break-even point in units.(ii) Calculate the percentage by which the
XYZ Ltd produces two products and the following budget applies for the next year:You are required to calculate the break-even points for each product and the company as a whole and comment on your
Cardio Co. manufactures three types of fitness equipment: treadmills(T), cross-trainers (C) and rowing machines (R). The budgeted sales prices and volumes for the next year are as follows:Labour
The profit statements for two different companies in the same industry are as follows:Required:(a) Compute the degree of operating leverage for each company.(b) Compute the break-even point for each
Tweed Ltd is a company engaged solely in the manufacture of jumpers, which are bought mainly for sporting activities.Present sales are direct to retailers, but in recent years there has been a steady
XYZ Ltd retails a product range which can conveniently be divided into three distinct lines X, Y and Z. Based on sales forecasts provided by the marketing department and costs prepared by various
Form groups of two to six persons each. The groups should each selecta simple product or service. Be creative, but do not pick a product or service thatis too complex. For those having difficulty
Understand a management control system and how it relates toorganizational goals.
Use responsibility accounting to define an organizational subunit as a costcentre, expense centre, revenue centre, profit centre, or investment centre.
Explain how corporate performance is affected by employee motivation and goalcongruence.
Compare financial and non-financial performance, and explain why managementcontrol systems should consider both.
Prepare segment income statements using the contribution margin approach forevaluating profit and investment centres.
Measure performance against quality, cycle time, and productivity objectives.
Describe the difficulties of management control in service and not-for-profit organizations.
Explain how management control systems must evolve with changing times.
How does management determine its critical (key) success factors?
“Performance evaluation seeks to achieve goal congruence and managerialeffort.” Describe what is meant by this statement.
Why do accountants need to consider behavioural factors when designinga management control system?
Managers of profit centres should be held responsible for the centre’sentire profit. They are responsible for profit even if they cannot controlall factors affecting it.” Discuss.
What are four non-financial measures of performance that managersfind useful?
Control systems in not-for-profit organizations will never be as highlydeveloped as in profit-seeking organizations.” Do you agree? Explain.
The president of a fast-growinghigh-tech firm remarked, “Developing budgets and comparing performancewith the budgets may be fine for some firms. But we want to encourage innovationsand
The following multiple goals were identified by theGeneral Electric company:General Electric is a huge, highly decentralized corporation. It has approximately170 responsibility centres called
The Sargent Metal Fabricators hasbeen manufacturing machine tools for a number of years and has an industrywidereputation for high-quality work. The company has been faced with irregularityof output
GL Interiors, Inc., a privately-held enterprise, hasa subcontract to produce overhead storage bins for a Boeing airplane. AlthoughGL was a low bidder, Boeing was reluctant to award the business to
Lynch, Barney, and Schwab is a stock brokerage firm thatevaluates its employees on sales activity generated. Recently the firm also beganevaluating its stockbrokers on the number of new accounts
In early 2006, Global Telecom, a telephone communications company, purchasedthe controlling interest in Eurotel in an eastern European country. A keyproductivity measure monitored by Global Telecom
Digital Processors Ltd. monitors its cycle time closely in order to prevent schedule delays and excessive costs. The standard cycle time for the manufacture of printed circuit boards for one of its
Officials in Russia had been rewarding managersfor exceeding a five-year-plan target for production quantities. But a problemarose because managers naturally tended to predict low volumes so that
Consider the following data for the year’s operations of an automobile dealer:The president of the dealership has long regarded the markup on materialand labour for the parts and service activity
Crystal Cleaners had the following results in 2003 and 2006:Crystal used the same facilities in 2006 as in 2003. However, over the past fouryears the company put more effort into training its
Computer Data Services (CDS) performs routine and custom information systems services for many companies in a large metropolitan area.CDS has built a reputation for high-quality customer service and
Suppose a McDonald’s franchise in Bangkok had budgeted sales for 2006 of B7.5 million (where B stands for baht, the Thai unit of currency). Cost of goods sold and other variable costs were expected
Beta Alpha Psi, the accounting fraternity, recently held a dinner dance. The original (static) budget and actual results were as follows:1. Subdivide each variance into a sales-volume variance
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