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Questions and Answers of
Management Accounting
Baffin Manufacturing Company was concerned about a growing number of defective units being produced. At one time the company had the percentage of defective units down to less than fifty per
As you are about to depart on a business trip, your accountant hands you the followinginformation about your Thailand division:1. Master budget for the fiscal year just ended on June 30, 20069.
There is increasing pressure on colleges and universities to develop measures of accountability. The objective is to specify goals and objectives and to develop measures to assess the achievement of
Define decentralization and identify its expected benefits and costs.
Explain how linking rewards to responsibility centre results affectsincentives and risk.
Compute return on investment (ROI), residual income (RI), and economicvalue added (EVA) and contrast them as criteria for judging theperformance of organization segments.
Compare the advantages and disadvantages of various bases for measuring theinvested capital used by organization segments.
Define transfer prices and state their purpose.
Identify the relative advantages and disadvantages of basing transfer prices ontotal costs, variable costs, and market prices.
Identify the factors affecting multinational transfer prices.
Why is decentralization more popular in profit-seeking organizationsthan in not-for-profit organizations?
Why are transfer-pricing systems needed?
Why does top management sometimes accept division managers’ judgments,even if the division manager appears to be wrong?
Northland Company makes bicycles.Components are made in various divisions and transferred to the Western Division for assembly into final products. The Western Division can also buy components from
Given the following data, compute1. Turnover of capital2. Net income3. Net income as a percentage of sales Sales $140,000 Invested capital $50,000 Return on investment 10%
Consider the following data: X DIVISION $2,000,000 $ $ $4,000,000 2.5% Y Z $1,250,000 $ 182,000 $ 125,000 $3,640,000 -% $ -% Invested capital Income Revenue Income percentage of revenue Capital
Consider the following data: Invested capital Income Revenue Income percentage of revenue Capital turnover Rate of return on invested capital X DIVISION Y Z $2,000,000 $1,250,000 $ $4,000,000 2.5% $
European Footwear has assets of $2 million and a long-term 10 percent debt of $800,000. Canadian Shoes has assets of $2 million and no long-term debt. The annual operating income (before interest) of
Consider the following data regarding budgeted operations of the Regina Division of Yoshita Custom Signs: Average available assets Receivables Inventories $200,000 250,000 Plant and equipment, net
The Propellers Division of Monte Carlo Sports Company produces propellers for outboard motors. It has been the sole supplier of propellers to the Outboard Motor Division and charges $32 per
The Furniture Division of Woodcraft Ltd. purchases lumber, which it uses to fabricate tables, chairs, and other wood furniture. Most of the lumber is purchased from the Southshore Mill, also a
The Seoul division of Global Toy Company manufactures chess boards and sells them in the Korean market for KRW30,000 each. (KRW is the Korean won.) The following data are from the Seoul Division’s
A consulting firm, TAC, is decentralized with 25 offices around the country. The headquarters is based in Vancouver, British Columbia.Another operating division is located in Calgary. A subsidiary
Medical Instruments, Inc., produces a variety of medical products at its plant in Halifax, Nova Scotia. The company has sales divisions worldwide. One of these sales divisions is located in Oslo,
Return on investment is often expressed as the product of two components: capital turnover and margin on sales. You are considering investing in one of three companies, all in the same industry, and
Krikos Inc. does business in three different business segments:(1) Entertainment, (2) Publishing/Information, and (3) Consumer/Commercial Finance. Results for a recent year were (in millions):1.
Global Enterprises, Inc. has production and marketing divisions throughout the world. One particular product is produced in Japan,where the income tax rate is 30 percent, and transferred to a
As the chief executive officer of Shoe Unlimited Company, you examined the following measures of the performance of three divisions (in thousands of dollars):1. Calculate for each division the rate
Assume that a particular plant acquires $800,000 of fixed assets with a useful life of four years and no residual value. Straight-line amortization will be used. The plant manager is judged on income
The Assembly Division of Office Furniture, Inc. needs 1,200 units of a subassembly from the Fabricating Division. The company has a policy of negotiated transfer prices. The Fabricating Division has
The Coca-Cola Company uses economic value added (EVA) to evaluate top management performance. In 1996 Coca-Cola had net operating income of $3,915 million, income taxes of $1,104 million, and
A transportation equipment manufacturer, Mason Corporation,is heavily decentralized. Each division head has full authority on all decisions regarding sales to internal or external customers. The
Burger-Rama Enterprises runs a chain of drive-in hamburger stands at a tourist attraction during the ten-week summer season. Managers of all stands are told to act as if they owned the stand and are
Tom Torres is the chief executive officer of MayberryCompany. Torres has a financial management background and is knownthroughout the organization as a “no-nonsense” executive. When Torresbecame
The Antonio Company uses the decentralized form of organizational structure and considers each of its divisions as an investment centre. Division L is currently selling 15,000 air filters annually,
Form groups of three to six students. Each student should select a Canadian company. Coordinate the selection of companies so that each group has companies from a wide variety of industries. For
Effect of budget participation The following statements relate to the participation of junior management in setting budgets:(1) It speeds up the setting of budgets.(2) It increases the motivation of
Flexed budget values ABC Co. has a manufacturing capacity of 10,000 units. The flexed production cost budget of the company is as follows:Capacity 60% 100%Total production costs $11,280 $15,120 What
External factors A profit centre manager claims that the poor performance of her division is entirely due to factors outside her control. She has submitted the following table along with notes from a
Preparation of a flexible budget performance report The Viking Smelting Company established a division, called the reclamation division, 2 years ago, to extract silver from jewellers’ waste
Comments on a performance report The Victorial Hospital is located in a holiday resort that attracts visitors to such an extent that the population of the area is trebled for the summer months of
Flexible budgets and the motivational role of budgets Club Atlantic is an all-weather holiday complex providing holidays throughout the year. The fee charged to guests is fully inclusive of
Recommendations for improvements to a performance report and a review of the management control system Your firm has been consulted by the managing director of Inzone Inc., which owns a chain of
You are required to:(i) discuss the factors that are likely to cause managers to submit budget estimates of sales and costs that do not represent their best estimates or expectations of what will
(a) Explain the ways in which the attitudes and behaviour of managers in a company are liable to pose more threat to the success of its budgetary control system than are minor technical inadequacies
Explain how low-volume products can be undercosted and high-volume products overcosted when traditional costing systems are used.
Explain the circumstances when ABC is likely to be preferred to traditional costing systems.
MS manufactures three types of skincare product for sale to retailers. MS currently operates a standard absorption costing system. Budgeted information for next year is given below:Fixed production
The following budgeted information relates to Brunti Inc. for the forthcoming period:Overheads allocated and apportioned to production departments (including service cost centre costs) were to be
HiTech plc (HT) supplies electronic components to small computer stores. The directors are concerned that some orders are profitable and others are not. Each customer order is charged as follows:
FG specializes in the manufacture of tablets, laptops and desktop PCs. FG currently operates a standard absorption costing system. Budgeted information for next year is given below:Required:(a)
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.
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