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Questions and Answers of
Management Accounting
The University of Liverpool offers an extensive continuing education program in many cities throughout Britain. For the convenience of its faculty and administrative staff and to save costs, the
Algoma Metals Inc. uses a standard cost system.The month’s data regarding its cast iron vats follow:Prepare schedules of all variances, using the format of Exhibit 12-9 (thegeneral three-column
Horst Company is a chemical manufacturer that suppliesindustrial users. The company plans to introduce a new solution and needsto develop a standard product cost for this new solution.The new
Kronos Shipping Company’s general manager reportsquarterly to the company’s president on the firm’s operating performance. Thecompany has used a budget based on detailed expectations for the
Artistic Metalworks Company manufactures sculptured metal ornaments that are shaped and finished by hand. The following standards were developed for a line of lampposts:During April, 550 lampposts
The Mendoza Company is installing anabsorption standard-costing system and a flexible-overhead budget. Standardcosts have recently been developed for its only product and are as follows:Expected
The expected activity of the paper-makingplant of Leventhal Paper Company was 45,000 machine hours per month.Practical capacity was 60,000 machine hours per month. The standard machinehours allowed
Study the format of the analysis of variances in Exhibit 12-12. Supposeproduction is 156,000 units. Also assume the following:Other data are as shown in Exhibit 12-12.Prepare an analysis of variances
Precision AutoParts Company has ahighly automated manufacturing process for producing a variety of auto parts.Through the use of computer-aided manufacturing and robotics, the companyhas reduced its
The following questions are based on the datacontained in Exhibit 12-9.1. Suppose actual production and sales were 8,000 units instead of 7,000units. (a) Compute the sales-volume variance. Is the
The emergency room at UniversityHospital uses a flexible budget based on patients seen as a measure of volume.An adequate staff of attending and on-call physicians must be maintained at alltimes, so
Belfair Kayak Company makesmolded plastic kayaks. Standards costs for an entry-level whitewater kayak are: Direct materials, 60 kilograms @ $5.50 per kilogram Direct labour, 1.5 hours $16 per hour
The new printing department of Shark Advertising Inc. provides printing services to the other departments. Prior to the establishment of the in-house printing department, the departments
Shakie Sports Company made 20,000 leather basketballs in a given year.Its total manufacturing costs were $170,000 variable and $70,000 fixed. Assumethat no price changes will occur in the following
Use responsibility accounting to define an organizational subunit as a costcentre, expense centre, revenue centre, profit centre, or investment centre.
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
The city of Sydney, Nova Scotia, has a sign shop where street signs ofall kinds are manufactured and repaired. The manager of the shop uses standardsto judge performance. However, because a clerk
Materials support cost for the Industrial EquipmentManufacturing Company depends on the weight of material (plate steel, castings,etc.) moved. For the current budget period and based on scheduled
1. Information on Li Company’s direct labour and direct material costs isas follows:Complete the actual hours worked, rounded to the nearest hour.2. Information on Oseok Kwon Company’s direct
Parks Canada prepared the following budget for one of its national parksfor 2006:The fees were based on an average of 50,000 vehicle-admission days (vehiclesmultiplied by number of days in park) per
The L. MingCompany has had great difficulty controlling costs in Singapore during the pastthree years. Last month a standard cost and flexible-budget system was installed.Results for a department
Cost-behaviour analysis for the four activity centres inthe Billing Department of Great Lakes Power Company is as follows:1. Develop flexible budget formulas for each of the four activity centres.Use
The Geneva Chocolate Company uses standard costs and a flexible budgetto control its manufacture of fine chocolate. The purchasing agent is responsiblefor material price variances, and the production
Wilcox Company produced 80,000 units, 8,000 more units thanbudgeted. Production data are as follows. Except for physical units, all quantitiesare in dollars: ACTUAL RESULTS FLEXIBLE- SALES STATIC AT
Diaz Credit Services produces reports for consumersabout their credit ratings. The company’s standard contribution marginsaverage 70 percent of dollar sales and average selling prices are $50
Consider the following data regarding factory overhead: VARIABLE FIXED Budget for actual hours of input 45,000 70,000 Applied 41,000 64,800 Budget for standard hours allowed for output achieved ? ?
Consider the performance (in thousands of dollars)of Eastern Airlines for a given year in the table below.The static (master) budget had been based on a budget of $0.20 per revenue passenger
Consider these data: FACTORY OVERHEAD FIXED VARIABLE Actual incurred $14,200 $13,300 Budget for standard hours allowed for output achieved 12,500 11,000 Applied 11,600 11,000 Budget for actual hours
The Astro Co., a wholesaler of food products, budgetedthe following sales for the months shown below:All merchandise is marked up to sell at its invoice cost plus 25 percent.Merchandise inventories
All sales of Dunn’s Building Supplies (DBS) are made oncredit. Sales aré billed twice monthly, on the tenth of the month for the last halfof the prior month’s sales and on the 20th of the month
Consider the following information for the month ending June 30, 2007 for theJohnson Company:The cash balance, May 31, 2007, is $15,000. Sales proceeds are collected as follows:80 percent month of
Jane Myers is the manager of an extremely successful gift shop, Jane’s Gifts,which is operated for the benefit of local charities. From the data below, shewants a cash budget showing expected cash
Prepare a statement of estimated cash receipts and disbursements for October2007 for the Aquarius Company, which sells one product, herbal soap, by thecase. On October 1, 2007, part of the trial
Computer Superstores Inc. has a strong belief in using highly decentralizedmanagement. You are the new manager of one of its small “computer boutiques.”You know a great deal about how to buy, how
Daphne Kite Company wants a master budget for the next three months,beginning January 1, 2008. It desires an ending minimum cash balance of $5,000each month. Sales are forecasted at an average
Suppose Ritz-Carlton has a 300-room hotel in a tropical climate.Management expects occupancy rates to be 95 percent in December,January, and February, 85 percent in November, March, and April, and 70
Grace Hospital provides a widerange of health services in its community. The board of directors has authorizedthe following capital expenditures:The expenditures are planned for October 1, 2008, and
Suppose you are thecontroller of Ryerson University. The university president is preparing for herannual fundraising campaign for 2008-09. To set an appropriate target, she hasasked you to prepare a
A recent directive from Eugenia Yu, CEO of Comtel, hadinstructed each department to cut its cost by 10 percent. The traditional budgetfor the warehousing department was as follows: Salaries, 4
Study theappendix beginning on page 551. The Speedy-Mart Store has the following budgetedsales, which are uniform throughout the month:Cost of goods sold averages 70 percent of sales and is purchased
Study theappendix beginning on page 551. The CD-ROM division (CDRD) of MicroStorage, Inc. produces CD-ROM drives for personal computers. The drives areassembled from purchased components. The costs
Since Mitch Banks had become president of AlbertaMining, Ltd., budgets had become a major focus for managers. In fact, makingbudget was such an important goal that the two managers who had missed
Budgeting is useful to many different types of entities, including the individual. Consider the entity that you know best, the college or university student.Form groups of two to six students, and
Distinguish between flexible budgets and master (static) budgets.
Use flexible-budget formulas to construct a flexible budget based on thevolume of sales.
Understand the performance evaluation relationship between master (static)budgets and flexible budgets.
Compute flexible-budget variances and sales-volume variances.
Distinguish between standard costs and standard cost systems.
Compute and interpret price and usage variances for material, labour, and overheadinputs.
Compute the production-volume variance.
Identify the differences between the three alternative cost bases of anabsorption-costing system: actual, normal, and standard.
Identify the differences between the three alternative cost bases of anabsorption-costing system: actual, normal, and standard.
Distinguish between favourable and unfavourable variances.
“Managers should be rewarded for favourable variances and punishedfor unfavourable variances.” Do you agree? Explain.
“A good control system places the blame for every unfavourable varianceon someone in the organization. Without affixing blame, no onewill take responsibility for cost control.” Do you agree?
What are some common causes of usage variances?
Why is there no production-volume variance for direct labour?
“An unfavourable production-volume variance means that fixed manufacturingcosts have not been well controlled.” Do you agree? Explain.
“Production-volume variances arise with normal-absorption andstandard-absorption costing, but not with actual costing.” Explain.
Yvette Thirdgill has a small sewing and tailoringshop in the basement of her home. She uses the single telephone line into thehome for both business and personal calls. She estimates that 50 percent
South Chemicals Corporationwas adversely affected by a tax ruling that certain selling and administrativeexpenses must be treated as product costs instead of period costs for reporting tothe tax
Tsumagari Company, an electronics companyin Kobe, Japan, is planning to buy new equipment to produce a new product.Estimated data (monetary amounts are in thousands of Japanese yen) are:Assume a 60
Assume that income tax rates are 30 percent and that the asset qualifies for a 25 percent declining balance, and the required rate of return is 10 percent.1. The book value of an old machine is
The Luxon Company produces industrial and residential lighting fixtures at its manufacturing facility in Calgary. Shipment of company products to an eastern warehouse is presently handled by common
The city of Bremerton is considering thepurchase of a photocopying machine for $7,300 on December 31, 2007, usefullife five years, and no residual value. The cash operating savings are expected tobe
G. Esteban, the president of a Torontotrucking company, is considering whether to invest $410,000 in new semiautomaticloading equipment that will last five years, have zero scrap value, and
The head of the consulting division of a major firm hasproposed investing $300,000 in personal computers for the staff. The useful lifeof the computers is five years. Computers qualify for Class 10,
Western Power is considering the replacement of an old billing systemwith new software that should save $5,000 per year in net cash operatingcosts. The old system has zero disposal value, but it
Toyland Company was one of the originalproducers of “Transformers.” An especially complex part of “Sect-a-con”needs special tools that are not useful for other products. These tools were
Muriel Santelli had recently been appointed controller of the breakfast cereals division of a major food company.The division manager, Ram Krishnamurthi, was known as a hard-driving,intelligent,
Explain the major features and advantages of a master budget.
Distinguish between operating and financial budgets.
Follow the principal steps in preparing a master budget.
Prepare the operating budget, the financial budget, and the supportingschedules.
Understand the difficulties of sales forecasting and human behaviour problemsin formulating and implementing budgets.
Identify the uses of a financial planning model.
Use a spreadsheet to develop a budget.
I oppose continuous budgets because they provide a moving target.Managers never know what to aim at.” Discuss.
Why is the sales forecast the starting point for budgeting?
“Financial planning models guide managers through the budget processso that managers do not need to really understand budgeting.” Do youagree? Explain.
How do spreadsheets aid the application of sensitivity analysis?
Eckart’s Runners Inc. has the following data:Accounts receivable, May 31: (0.3 x May sales of $400,000) = $120,000.Monthly forecasted sales: June, $400,000; July, $440,000; August,$500,000;
Tokyo wholesaler was preparing its sales budget for the first quarter of 2007.Forecast sales are (in thousands of yen)Sales are 20 percent cash and 80 percent on credit. Fifty percent of thecredit
Pioneer Carpets has found that cash collections from customerstend to occur in the following pattern: Collected within cash discount period in month of sale Collected within cash discount period in
Fernandez Furniture Mart plans inventory levels (at cost) at the end ofeach month as follows: May, $250,000; June, $220,000; July, $270,000; August,$250,000.Sales are expected to be: June, $440,000;
Three years ago the TCBY at the local mall bought a frozenyogurtmachine for $8,000. A salesperson has just suggested to the manager thatshe replace the machine with a new $12,500 machine. The manager
International Hotels operates many hotelsthroughout the world. One of its hotels is facing difficult times because severalnew competing hotels are opening.To accommodate its flight personnel, Air
Assume the same facts as in the preceding problem.However, also assume that the variable costs per room per day are $10.1. Suppose the best estimate is a 53 percent general occupancy rate at
Tim Horton’s purchases and roasts highqualitywhole bean coffees and sells them, along with other coffee-related products,primarily through its company-operated retail stores. The company isknown
A growing corporation in a large city has offered a 200-room hotel a one-year contract to rent 40 rooms at reduced rates of $50 per roominstead of the regular rate of $85°per room. The corporation
The manager of operations of Air Canada is trying to decide whether toadopt a new discount fare. Focus on one 134-seat airplane now operating at a56 percent load factor. That is, on the average the
Jacques de Paris, a high-fashionwomen’s dress manufacturer, is planning to market a new cocktail dress for thecoming season. Jacques de Paris supplies retailers in Europe.Four metres of material
Magna Corporation manufactures automobile parts. It frequently subcontractswork to other manufacturers, depending on whether Magna’s facilities are fullyoccupied. Magna is about to make some final
Antonio Company’s unit costs of manufacturingand selling a given item at a planned activity level of 10,000 units per monthare as follows:Ignore income taxes in all requirements. These four parts
A new $300,000 machine is expected to have a five-year life and terminalvalue of zero. It can produce 40,000 units a year at a variable cost of $4 per unit.The variable cost is $6 per unit with an
On January 2, 2006, the S. H. Park companyinstalled a brand new $87,000 special moulding machine for producing a newproduct. The product and the machine have an expected life of three years.
Refer to the preceding problem P9-25.1. Suppose the “decision model” favoured by top management consistedof a comparison of a three-year accumulation of wealth under eachalternative. Which
Consider the following data: OLD PROPOSED NEW EQUIPMENT EQUIPMENT Original cost Useful life, in years Current age, in years Useful life remaining, in years $24,000 $12,000 8 3 5 0 3 3 Accumulated
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