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business
managerial accounting

Questions and Answers of Managerial Accounting

The Regal Cycle Company manufactures three types of bicycles—a dirt bike, a mountain bike, and a racing bike. Data on sales and expenses for the past quarter follow:Management is concerned about
Troy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has always produced all of the necessary parts for its engines, including all of the carburetors. An
Imperial Jewelers is considering a special order for 20 handcrafted gold bracelets to be given as gifts to members of a wedding party. The normal selling price of a gold bracelet is $189.95 and its
Barlow Company manufactures three products: A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow:The same raw material is used in all three
Dorsey Company manufactures three products from a common input in a joint processing operation. Joint processing costs up to the split-off point total $350,000 per quarter. The company allocates
Han Products manufactures 30,000 units of part S-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is as follows:An outside supplier has offered to
Hollings Company sells and delivers office furniture in the Rocky Mountain area. The costs associated with the acquisition and annual operation of a delivery trucks are given below:Required:1.
Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution
Bill has just returned from a duck hunting trip. He has brought home eight ducks. Bill’s friend, John, disapproves of duck hunting, and to discourage Bill from further hunting, John has presented
Wexpro, Inc., produces several products from processing 1 ton of clypton, a rare and processing costs total $60,000 per ton, one-fourth of which is allocated to product thousand units of product X15
Benoit Company produces three products, A, B, and C. Data concerning the three products follows (per unit):Demand for the company’s products is very strong, with far more orders each month than the
Delta Company produces a single product. The cost of producing and selling a single unit of this product at the company’s normal activity level of 60,000 units per year is:The normal selling price
Bed & Bath, a retailing company, has two departments, Hardware and Linens. The company’s most recent monthly contribution format income statement follows:A study indicates that $340,000 of the
For many years Futura Company has purchased the starters that it installs in its standard line of farm tractors. Due to a reduction in output, the company has idle capacity that could be used to
Kristen Lu purchased a used automobile for $8,000 at the beginning of last year and incurred the following operating costs:The variable operating cost consists of gasoline, oil, tires, maintenance,
(Prepared from a situation suggested by Professor John W. Hardy.) Lone Star Meat Packers is a major processor of beef and other meat products. The company has a large amount of T-bone steak on hand,
Profits have been decreasing for several years at Pegasus Airlines. In an effort to improve the company’s performance, consideration is being given to dropping several flights that appear to be
Birch Company normally produces and sells 30,000 units of RG-6 each month. RG-6 is a small electrical relay used as a component part in the automotive industry. The selling price is $22 per unit,
Jackson County Senior Services is a nonprofit organization devoted to providing essential services to seniors who live in their own homes within the Jackson County area. Three services are provided
Silven Industries, which manufactures and sells a highly successful line of summer lotions and insect repellents, has decided to diversify in order to stabilize sales throughout the year. A natural
Superior Markets, Inc., operates three stores in a large metropolitan area. A segmented absorption costing income statement for the company for the last quarter is given below:The North Store has
Andretti Company has a single product called a Dak. The company normally produces and sells 60.000 Daks each year at a selling price of $32 per unit. The company’s unit costs at this level of
In my opinion, we ought to stop making our own drums and accept that outside supplier’s offer:” said Wim Niewindt, managing director of Antilles Refining, N.V., of Aruba. “At a price of 18
Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 30,000 Rets per year. Costs associated with this level of production and
Come-Clean Corporation produces a variety of cleaning compounds and solutions for both industrial and household use. While most of its products are processed independently, a few are related, such as
Losses have been incurred at Millard Corporation for some time. In an effort to isolate the problem and improve the company’s performance, management has requested that the monthly income statement
Music Teachers, Inc., is an educational association for music teachers that has 20,000 members. The association operates from a central headquarters but has local membership chapters throughout the
Haglund Department Store is located in the downtown area of a small city. While the store had been profitable for many years, it is facing increasing competition from large national chains that have
The questions in this exercise are based on FedEx Corporation. To answer the questions you will need to download FedEx’s Form 10-K for the fiscal year ended May 31, 2005 at
The questions in this exercise are based on the Nordstrom, Inc., 2004 annual report at http://phx.corporate-ir.netlphoemx.zhtml?c=93295&p=irol-reportsAnnual. You do not need to print the annual
In each of the cases below, assume that Division X has a product that can be sold either to outside customers or to Division Y of the same company for use in its production process. The managers of
Sako Company’s Audio Division produces a speaker that is used by manufacturers of various audio products. Sales and cost data on the speaker follow:Sako Company has a Hi-Fi Division that could use
Division A manufactures electronic circuit boards. The boards can be sold either to Division of the same company or to outside customers. Last year, the following activity occurred Division A:Sales
Alpha and Beta are divisions within the same company. The managers of both divisions are evaluated based on their own division’s return on investment (ROI). Assume the following information
Hrubec Products, Inc., operates a Pulp Division that manufactures wood pulp for use in the production of various paper goods. Revenue and costs associated with a ton of pulp follow: Hrubec Products
Stavos Company’s Cabinet Division manufactures a standard cabinet for television sets. The cost per cabinet is:Part of the Cabinet Division’s output is sold to outside manufacturers of television
Weller Industries is a decentralized organization with six divisions. The company’s Electrical Division produces a variety of electrical items, including an X52 electrical fitting. The
Korvanis Corporation operates a Medical Services Department for its employees. Charges to the company’s operating departments for the variable costs of the Medical Services Department are based on
Hannibal Steel Company has a Transport Services Department that provides trucks to haul ore from the company’s mine to its two steel mills—the Northern Plant and the Southern Plant. Budgeted
Konig Enterprises, Ltd., owns and operates three restaurants in Vancouver, B.C. The company allocates its fixed administrative expenses to the three restaurants on the basis of sales dollars. During
What is the difference between capital budgeting screening decisions and capital budgeting preference decisions?
What is meant by the term time value of money?
What is meant by the term discounting?
Explain how the cost of capital serves as a screening tool when using(a) The net present value method and(b) The internal rate of return method.
As the discount rate increases, the present value of a given future cash flow also increases. Do you agree? Explain.
Refer to Exhibit 14—4. Is the return on this investment proposal exactly 14%, more than 14%, or less than 14%? Explain.
How is the project profitability index computed, and what does it measure?
What is meant by the term payback period? How is the payback period determined? How can the payback method be useful?
What is the major criticism of the payback and simple rate of return methods of making capital budgeting decisions?
The management of Kunkel Company is considering the purchase of a $40,000 machine that would reduce operating costs by $7,000 per year. At the end of the machine’s eight-year useful life, it will
Wendell’s Donut Shoppe is investigating the purchase of a new $18,600 donut-making machine. The new machine would permit the company to reduce the amount of part-time help needed, at a cost savings
Lukow Products is investigating the purchase of a piece of automated equipment that will save $400,000 each year in direct labor and inventory carrying costs. This equipment costs $2,500,000 and is
Information on four investment proposals is given below:Required:1. Compute the project profitability index for each investment proposal.2.
The management of Unter Corporation, an architectural design firm, is considering an investment with the following cash flows:Required:1. Determine the payback period
The management of Ballard MicroBrew is considering the purchase of an automated bottling machine for $120,000. The machine would replace art old piece of equipment that costs $30,000 per year to
A piece of laborsaving equipment has just come onto the market that Mitsui Electronics, Ltd., could use to reduce costs in one of its plants in Japan. Relevant data relating to the equipment follow
Labeau Products, Ltd., of Perth, Australia, has $35,000 to invest. The company is trying to decide between two alternative uses for the funds as follows:The company’s discount rate is
Kathy Myers frequently purchases stocks and bonds, but she is uncertain how to determine the rate of return that she is earning. For example, three years ago she paid $13,000 for 200 shares of Malti
Petit Industries has $100,000 to invest. The company is trying to decide between two alternative uses of the funds. The alternatives are:The working capital needed for project B will be released at
Consider each part below independently. Ignore income taxes.1. Preston Company’s required rate of return is 14% on all investments. The company can purchase a new
Nick’s Novelties, Inc., is considering the purchase of electronic pinball machines to place in amusement houses. The machines would cost a total of $300,000, have an eight-year useful life, and
Henrie’s Drapery Service is investigating the purchase of a new machine for cleaning and blocking drapes. The machine would cost $130,400, including freight and installation. Henrie’s has
The Matchless Dating Service has made an investment in video and recording equipment that costs $106,700. The equipment is expected to generate cash inflows of $20,000 per year.Required:How many
The Cambro Foundation, a nonprofit organization, is planning to invest $104,950 in a project that will last for three years. The project will produce net cash inflows as follows:Required:(Ignore
Oxford Company has limited funds available for investment and must ration the funds among four competing projects. Selected information on the four projects follows:The net present values above have
The management of Revco Products is exploring four different investment opportunities. Information on the four projects under study follows:The company’s required rate of return is 10%; thus, a 10%
Windhoek Mines, Ltd., of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. An engineering and cost analysis has been
The Sweetwater Candy Company would like to buy a new machine that would automatically “dip” chocolates. The dipping operation is currently done largely by hand. The machine the company is
Paul Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc., to dispense frozen yogurt products under The Yogurt Place name. Mr. Swanson has assembled the following information
“I’m not sure we should lay out $500,000 for that automated welding machine,” said Jim Alder, president of the Superior Equipment Company. “That’s a lot of money, and it would cost us
Raul Martinas, professor of languages at Eastern University, owns a small office building adjacent to the university campus. He acquired the property 10 years ago at a total cost of
Sharkey’s Fun Center contains a number of electronic games as well as a miniature golf course and various rides located outside the building. Paul Sharkey, the owner, would like to construct a
In eight years, Kent Duncan will retire. He is exploring the possibility of opening a self-service car wash. The car wash could be managed in the free time he has available from his regular
The Riteway Ad Agency provides cars for its sales staff. In the past, the company has always purchased its cars from a dealer and then sold the cars after three years of use. The company’s present
Clark received $175,000 from her mother’s estate. She placed the funds into the hands of a broker, who purchased the following securities on Linda’s behalf:(a) Common stock was purchased at
Bilboa Freightlines, S.A., of Panama, has a small truck that it uses for intracity deliveries. The truck is worn out and must be either overhauled or replaced with a new truck. The company has
Saxon Products, Inc., is investigating the purchase of a robot for use on the company’s assembly line. Selected data relating to the robot are provided below:Engineering studies suggest that use of
The Elberta Fruit Farm of Ontario has always hired transient workers to pick its annual cherry crop. Francie Wright, the farm manager, has just received information on a cherry picking machine that
“In my opinion, a tanning salon would be a natural addition to our spa and very popular with our customers,” said Stacey Winder, manager of the Lifeline Spa. “Our figures show that we could
Westwood Furniture Company is considering the purchase of two different items of equipment, as described below:Machine AA compacting machine has just come onto the market that would permit Westwood
Matheson Electronics has just developed a new electronic device which, when mounted on an automobile, will tell the driver how many miles the automobile is traveling per gallon of gasoline. The
The Fore Corporation is an integrated food processing company that has operations in over two dozen countries. Fore’s corporate headquarters is in Chicago, and the company’s executives frequently
Top-Quality Stores, Inc., owns a nationwide chain of supermarkets. The company is going to open another store soon, and a suitable building site has been located in an attractive and rapidly growing
Kingsley Products, Ltd., is using a model 400 shaping machine to make one of its products. The company is expecting to have a large increase in demand for the product and is anxious to expand its
Basic present Values Concepts In three years, when he is discharged from the Air Force, Steve wants to buy an $8,000 power boar.Required:What lump-sum amount must Steve invest now to have the $8,000
Annual cash inflows that will arise from two competing investment projects are given below:The discount rate is 18%.Required:Compute the present value of the cash inflows for each investment.
Julie has just retired. Her company’s retirement program has two options as to how retirement benefits can be received. Under the first option, Julie would receive a lump sum of $150,000
The Atlantic Medical Clinic can purchase a new computer system that will save $7,000 annually in billing costs. The computer system will last for eight years and have no salvage value.Required:Up to
The Caldwell Herald newspaper reported the following story: Frank Ormsby of Caldwell is the state’s newest millionaire. By choosing the six winning numbers on last week’s state lottery, Mr.
Fraser Company will need a new warehouse in five years. The warehouse will cost $500,000 to build.Required:What lump-sum amount should the company invest now to have the $500,000 available at the end
Solve each of the following parts independently:1. Neal company would to initiate a managements development program for its executives. The program would cost
The Midtown Cafeteria employs five people to operate antiquated dishwashing equipment. The cost of wages for these people and for maintenance of the equipment is $85,000 per year. Management is
Dwyer Company is considering two investment projects. Relevant cost and cash flow information on the two projects is given below:The trucks would have a $15,000 salvage value in nine years. For tax
The Diamond Freight Company has been offered a seven-year contract to haul munitions for the government. Since this contract would represent new business, the company would have to purchase several
Reliable Waste Systems provides a solid waste collection service in a large metropolitan area. The company is considering the purchase of several new trucks to replace an equal number of old trucks
Julia Vanfleet is professor of mathematics. She has received a $225,000 inheritance from her father’s estate, and she is anxious to invest it between now and the time she retires in 12 years.
What is the purpose of a statement of cash flows?
What are cash equivalents, and why are they included with cash on a statement of cash flows?
What are the three major sections on a statement of cash flows, and what are the general rules that determine the transactions that should be included in each section?
They is interest paid on amounts borrowed from banks and other lenders considered to be an operating activity while the amounts borrowed are financing activities?

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