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Questions and Answers of
Management Accounting
A law firm is considering the dismissal of one of its junior lawyers. The law firm presently has enough space for more lawyers and a growing legal practice but considers this junior lawyer to be a
Mr. Wang intends to retire in 20 years at the age of 65. As yet he has not provided for retirement income and he wants to set up a periodic savings plan to do this.If he makes equal annual payments
You are thinking about borrowing \($100,000\) for 10 years at 12 percent. Annual interest payments are required at the end of each year and the principal (\($100,000)\) is to be repaid at the end of
A manufacturer of recordable DVDs is concerned about the quality of a recent production run. It ships a complete batch of DVDs to the same retailer to monitor quality. In a recent batch, a retailer
Spectra Company is examining its quality spending for the current year. It has summarized its spending as follows: prevention, \($150,000;\) appraisal, \($50,000;\) internal failure, \($100,000;\)
For the last five years, a firm has measured (in euros) the following quality costs by categories:a. Given these costs, is it likely that the company’s defective rate has gone up or down?
A company is considering additional final inspection costs of £1 per unit before delivery to customers. The additional inspection should reduce the defective rate from 3 percent to 1 percent. If a
A company has a throughput time of 32 days. It wants to reduce this time to eight days.To do so, it will need to change its layout at a cost of $150,000. It believes that its inventory level will
Solarcom uses a JIT production system to manufacture its solar-powered DVD players.Solarcom has adopted backflushing to streamline its accounting system. It accumulates all conversion costs for the
Avon manufactures and sells cosmetics primarily to women using a sales force consisting of part-time sales representatives offering the products through in-home sales parties. Sales representatives
In the US, historically there have been many banks, each with multiple branches. Since the 1990s, numerous bank mergers occurred and branch banks have been consolidated.Discuss the factors driving US
Wonderful Toy Company (WTC) is celebrating its hundredth anniversary this year. The company has been successful in designing and making educational toys for department stores and smaller specialty
The president of Kelly Windows is an avid believer in JIT. Kelly Windows manufactures bay windows. The president wants no inventory or work-in-process on the floor at the end of each day. Windows are
The president of Precision Machines wants to convert to TQM. The industrial machinery produced by Precision Machines is critical to customers. If defective machinery is sold to a client, the customer
James Industries is considering a shift to JIT. The president insists that reducing inventory can save considerable costs. The marketing manager is worried, however. She recognizes that the inventory
What tell-tale signs suggest that the management accounting process requires change?
An investment opportunity that costs $40,000 generates $20,000 in cash inflows each of the next four years.What is the payback period for the investment?
What is the net present value of cash inflows of €30,000 in one year, €40,000 in two years, and €80,000 in three years if the opportunity cost of capital is 8 percent?
A company buys a machine for £60,000 that is fully depreciated over three years using the straight-line method.What is the value of the depreciation tax shield if the tax rate is 40 percent?
What is the IRR for an investment of \($1,000\) that yields \($1,300\) in one year?
What is the IRR of an investment of \($1,000\) that yields cash flows of \($600\) in each of the first two years?
What is the value of a 10-year annuity in 10 years if the interest rate is 6 percent and each annuity payment is €100?
A mother wants to put sufficient money in the bank to cover university expenses for her daughter in 15 years. She estimates that in 15 years $100,000 will be necessary to pay for university. The bank
Your grandfather put $1,000 in the bank for you 48 years ago. The bank paid 6 percent interest compounded annually during this time period.How much is your grandfather’s deposit worth today?
A taxi driver must pay \($100\) per day for taxi rental, insurance, and licenses. The taxi driver charges \($0.50\) per kilometer. The gasoline and maintenance costs are \($0.15\) per mile. The taxi
Alpha manufactures a product that has a fixed cost of \($400,000\) and a variable cost of \($100\) per unit. The company has been making 10,000 units and selling them for \($200\) per unit. There is
Alpha makes a product with a fixed cost of \($400,000\) and a variable cost of \($100\) per unit. The sales price is \($200\) per unit.What is the break-even point for the product? How many units
What is the break-even price when a company expects to sell 5,000 units, the fixed costs are \($50,000,\) and the variable costs are \($30\) per unit?
Multiplex store sells televisions for \($2,000\) and home theater systems for \($5,000.\) The variable costs of televisions and home theater systems are \($1,200\) and \($3,000,\) respectively. The
A hair salon currently provides haircuts for women. It is considering the possibility of offering manicures as an additional service. The salon plans to charge £10 for a manicure with half the
Marine Company has \($600,000\) in fixed costs. A product that sells for \($50\) is a candidate for being dropped from the product mix. The variable cost of the product is \($40.\) The company
A lawn and garden store has two types of lawn tractors for sale. Tractor A sells for€5,000 and costs €3,000 to purchase. Tractor B sells for €4,000 and costs €1,500 to purchase. The fixed
Products A, B, and C have contribution margins per unit of $10, $8, and $6, respectively.Each product is processed by the same machine, which has a capacity of 100 hours per week. The processing
The Finlandia Paper Company presently sells large rolls of paper weighing 2,000 kilograms to wholesalers for €1,000 apiece. The wholesalers cut the paper into letterset paper and package the paper
You are considering starting a business selling inexpensive inline skates. You assume that you will charge a price of \($100\) per pair. You can purchase inline skates from a manufacturer in China
A candy shop sells three types of candy: chocolate-filled, cream-filled, and caramel filled. The candy shop manager is analyzing its product mix through the following product prices and costs:The
Due to sudden interest in its product, a local widget company is considering an expansion of its facilities. The company believes that it can sell widgets for \($0.18\) each.The tax rate for the
Annick Lemarchand is considering the wholesaling of a leather handbag from Kenya.She must travel to Kenya to check on quality and transportation. The trip will cost€3,000. The cost of the handbag
The Euro Stade sells tickets for €100 per person and has a capacity of 100,000 people.Each person buys on average €20 of food and miscellaneous souvenirs. The cost of providing the food,
A firm makes iPad cases that sell for \($50/unit\) and iPhone cases that sell for \($30.\) The variable cost of making an iPad case is \($40/unit\) and the variable cost of making an iPhone case is
You are considering the purchase of a hotel with 20 rooms. If you buy the hotel, the fixed costs are expected to be \($200,000\) per year. The variable costs of renting a room for one night include
Arrow Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Arrow has established the following standards for the direct costs of one unit of
A company purchased 36,000 kilograms of plastic pellets for \($8,640.\) These pellets are used in injection molding machines to produce plastic parts. The pellets have a standard cost of \($0.25\)
Center Hospitalier is a large hospital system in the French department of Gironde that offers both hospitalization (in-patient) and clinic (out-patient) services. It has a centralized admissions
A webpage consultant estimates the following hours to create a webpage for a small European retail store:The actual hours and costs were as follows:Calculate the direct labor, labor rate, and labor
Muffin Mania Bakery has a standard quantity of 1 kilogram of flour for one batch of muffins. The standard price is \($0.50\) per kilogram. During the month, the bakery manager bought 3,000 kilograms
Microchip makes two types of microchips for mobile telephones, Supra and Magna.Microchip allocates overhead to these two products based on the number of direct labor hours. The direct labor hours per
A company makes two types of pasta sauce, Primavera and Bolognese. Overhead is based on kilograms of tomatoes in the sauce. The standards for the two types of sauce are as shown on the next page.The
Medical Instruments produces a variety of electronic medical devices. Medical Instruments uses a standard cost system and computes price variances at the time of purchase. One product, a digital
During November, Todco planned to produce 3,000 units of its single product, Teragram. The standard specifications for one unit of Teragram include 6 kilograms of material at \($0.30\) per kilogram.
An ice cream producer manufactures 10,000 liters of strawberry ice cream in a month.The standard number of hours of direct labor per 1,000 liters is 40 hours at a standard labor rate of \($10\) per
To manufacture its main product, a firm requires a standard of 10 direct labor hours per unit. The standard labor rate is \($20\) per hour. The product requires a standard of 25 kilograms of
At the beginning of the year, a university sets standards for processing 1,000 admissions applications with 10,000 direct labor hours. The application rate for overhead is £40 per standard direct
A company uses machine hours to apply both variable and fixed overhead. Budgeted variable overhead is \($100,000.\) Budgeted fixed overhead is \($200,000.\) The budgeted machine hours are 1,000.
The Scantron Company makes bar-code scanners for major supermarkets. The sales staff estimates that the company will sell 500 units next year for £10,000 each. The production manager estimates that
An insurance company has the following profitability analysis of its services: The fixed costs are distributed equally among the services and are not avoidable if one of the services is dropped.
The Medford Mug Company is an old-line maker of ceramic coffee mugs. It imprints company logos and other sayings on mugs for both commercial and wholesale markets. The firm has the capacity to
Smidt & Sons produces a single product and has the following operating data: The firm uses FIFO inventory costing, and there was no beginning inventory in 2013.a. Calculate net profit in each
The manager of the manufacturing unit of a company is responsible for the costs of the manufacturing unit. The president is in the process of deciding whether to evaluate the manufacturing manager
The president of Celestial Printing has decided to use the practical capacity of the firm’s printers to determine the application rates per machine hour for overhead. She believes that the cost of
The Green Packing Company has discovered an increasing demand for frozen boneless chicken breasts. The frozen chicken breasts can be thawed and cooked quickly. This product is becoming very popular
National Mixing is a division of National Chemicals, a large diversified chemical company. National Mixing (NM) provides mixing services for both outside customers and other National divisions. NM
A firm makes a product with variable manufacturing costs equal to \($3\) per unit and fixed manufacturing costs of \($10,000.\) The product cost is based on an average cost per unit. The company
A production department is allocated costs from the maintenance department based on the number of maintenance hours used. The maintenance costs are allocated at a rate of€20 per hour, which
Central administration allocates its costs of £1 million to the two operating divisions (A and B) of the company. These costs are not avoidable if one division is dropped. With an equal allocation
Computer Shack makes two types of laptop computers: slim-line and palm-size. Excess capacity exists for which no alternative use exists. Fixed overhead costs are allocated based on direct material
A company uses machine hours to allocate overhead. The company has the practical capacity to use 100,000 machine hours. The fixed overhead is expected to be $1 million and the expected usage of
A company makes a product that has a variable manufacturing cost of \($4\) per unit and fixed manufacturing costs of \($50,000.\) The product sells for \($10\) per unit.Using variable and absorption
A manufacturer of ergonomically designed computer keyboards has actual and estimated fixed costs of €1 million. Variable costs per unit are €18. The allocation base is the number of units
The cost of rental space is the major fixed cost at Mattress Mart, a discount mattress store in a warehouse mall. The annual rental cost (actual and expected) is $360,000. The store occupies 60,000
Refina divides petroleum into three types of fuel (A, B, and C) and tar. Tar is considered a by-product. The joint cost of processing 1,000 barrels is \($35,000.\) The joint products have the
The Talbott Company has received an order (324) for 100 electronic widgets. On January 20, the shop foreman requisitioned 100 units of part 503 at a cost of \($5\) per unit and 500 units of part 456
Mevellec Company uses a job-order cost system to track its production costs. The following activities have been performed for Job number 515:• Requisition of three units of part 34 at €40 per
The job-order cost sheet for 1,000 units of toy trucks is:Job number: 555 Date started: 04/13 Date completed: 06/18All of the materials for the job were purchased on April 10. The batch of 1,000 toy
The Tip Tap Company receives an order for 10,000 units of taps (a tool used to make threads in a block of steel). The taps require considerable machining on a blank (Part 14) to make. Blanks are
A computer manufacturer has the following account balances at the end of the year.These accounts contain €800,000 of allocated overhead. Actual overhead, however, is €1,000,000.a. What are the
A custom furniture manufacturer uses direct labor to allocate overhead. At the end of the year, the company had the following account balances with and without allocated overhead.Actual overhead
A house-building contractor has the following three overhead cost pools:Costs from each of these cost pools then are allocated to housing contracts using the following allocation bases:How much
The Old Masters Puzzle Company makes jigsaw puzzles primarily sold in museum gift shops. The manufacturing process includes using the departments related to gluing, cutting, and boxing. Each type of
Bella Cucina is considering outsourcing the production of a steel chassis that is used in a kitchen appliance. Two thousand chassis are produced per month. An outside vendor will supply an identical
Avion Industries makes an assortment of aircraft parts. The company allocates overhead based on direct labor costs in euros (DL€). At the beginning of the year, the company estimated that overhead
The Rosen Company has two manufacturing departments, production and assembly.Each department has separate application rates. The Rosen Company made the following estimates for its production and
The following figures were taken from the records of Wellington Co. for the year 2016.At the end of the year, two jobs were still in process. Details about the two jobs are given as
Beaver Company has the following account balances after allocating overhead based on the pre-determined application rate of €10 per machine hour:The work-in-process used 1,000 machine hours. The
A specialty ice cream company has identified the following overhead activities and calculated the following application rates:a. What level of overhead is each of these overhead activities?b. How
Frames, Inc. manufactures two types of metal frames, large and small. Steel angle iron is first cut to the appropriate sizes and the pieces are then welded together to form the frames. The process
MumsDay Corporation manufactures a complete line of fiberglass attaché cases and suitcases. MumsDay has three manufacturing departments (Molding, Component, and Assembly) and two service departments
Marion Company had the following bi-monthly output:The beginning inventory had 100 units at a cost of $18 per unit or a total cost of $1,800.The ending inventory had 300 units.a. What is the cost of
The Williams Company manufactures automatic garage-door openers. At the beginning of November, the company had the following inventory accounts:During the month of November, the company made
The McIvor Company has the following inventory balances at the beginning of 2016:At the end of 2016, the controller calculates the Cost of Goods Sold to be \($700,000\) and the Cost of Goods
Marlborough Accounting is performing an audit for the Chandra Company.Marlborough Accounting uses a cost sheet to record the cost of each audit. Only professional services (by associates, managers,
The Philbrick Company makes recreational equipment. Overhead is allocated to the different products based on machine hours. At the beginning of the year, the company estimates that overhead will be
The Dunrobin law firm allocates overhead to different clients based on hours of work performed by Mr. Dunrobin. At the start of the year, Mr. Dunrobin estimates that the total overhead of the coming
The Alphonse Company allocates fixed overhead costs by machine hours and variable overhead costs by direct labor hours. At the beginning of the year, the company expects fixed overhead costs to be
The White Flour Company mills wheat into flour. The equivalent units are measured in terms of tons of flour produced. At the beginning of the year, the mill contained 20 tons of flour that was 30
An appliance manufacturer has an assembly line for making refrigerators. At the beginning of the year, the company had 300 refrigerators on the assembly line that were 40 percent complete on average.
A company allocates overhead using direct labor hours. The expected number of direct labor hours is 4,000 for the coming year and the expected overhead is \($80,000.\) During the year, the company
Anacom Company has expected overhead fixed costs of \($100,000.\) The estimated variable overhead costs are \($400,000,\) assuming the allocation base is 50,000 machine hours. Anacom has one overhead
Multifirm has three different types of production departments: A, B, and C. Each department allocates overhead costs to products based on direct labor cost. The production departments had the
A company has no beginning work-in-process. During the year, the company starts and completes 1,000 units and has 100 units in ending inventory that are 60 percent complete. The costs related to this
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