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business
accounting for business

Questions and Answers of Accounting for Business

In what way is the use of the residual income (RI)concept superior to the use of ROI? mk41
How is residual income ( RI) determined? mk
If the RI for segment manager A is $50,000 while the RI for segment manager B is $100,000. does this necessarily mean that B is a better manager than A?Explain. mk74
Real World Question Refer to the annual report booklet. Which of Coca-Cola's geographic areas had the highest ROI in 1996? To compute the answer, use"Operating Income" for the income measure and
(Based on Appendix) Briefly discuss the two methods of allocating service department costs. n45
Define capital budgeting and explain the effects of making poor capital- budgeting decisions.
Determine the net cash inflows, after taxes, for both an asset addition and an asset replacement.
Evaluate projects using the payback period.
Evaluate projects using the unadjusted rate of return.
Evaluate projects using the net present value.
Evaluate projects using the profitability index.
Evaluate projects using the time-adjusted rate of return.
Determine, for project evaluation, the effect of an investment in working capital7. Evaluate projects using the time-adjusted rate of return.
Depreciation does not involve a cash outflow; it is deductible in arriving at federal taxable income. mk5
The price a company is going to pay for a machine is an out-of-pocket cost. mk4
Sunk costs and out-of-pocket costs are relevant to capital-budgeting decisions. n5
A formula for unadjusted rate of return is as follows: mk41 Average annual Unadjusted income after taxes rate of return Average amount of investment
When investment projects costing different amounts are being compared, the net present value does not provide a valid means by which to rank projects in order of contribution to income or
Which of the following is incorrect regarding the payback period method?a. The payback period ignores the time period beyond the payback period.b. When using payback analysis for investment deci-
When using time value of money concepts, all aspects of the investment should be considered including which of the following?a. Employee morale.b. No single time value of money method should be used
Which of the following best describes the limitations when using the unadjusted rate of return.a. Timing of cash flows is not considered.b. It allows a sunk cost, depreciation, to enter into the
Which of the following statements is (are) true regarding the profitability index?a. Only proposals with profitability indexes greater than 1.00 should be considered.b. Only proposals with
Which of the following statements is (are) true regarding net present value?a. When determining an appropriate discount rate, management uses net cash outflow.b. With projects that require an
Which of the following statements is (are) true regarding the time-adjusted rate of return?a. The first step in computing the rate of return is determining the payback period.b. The annual after-tax
How do capital expenditures differ from ordinary expenditures? nj52
What effects can capital-budgeting decisions have on a company? mk74
What effect does depreciation have on cash flow? m41
Give an example of an out-of-pocket cost and a sunk cost by describing a situation in which both are encountered. mk41
A machine is being considered for purchase. The salesperson attempting to sell the machine says that it will pay for itself in five years. What is meant by this statement? mn4
Discuss the limitations of the payback period method. mk41
What is the profitability index, and of what value is it? nmj5
What is the time-adjusted rate of return on a capital investment? mki5
What role does the cost of capital play in the timeadjusted rate of return method and in the net present value method? mk5
What is the purpose of a postaudif.' When should a postaudil he performed? mk5
A friend who knows nothing about the concepts in this chapter is considering purchasing a house for rental to students. In just a few words, what would you tell your friend to think about in making
Diane Manufacturing Company is considering investing $600,000 in new equipment with an estimated useful life of 10 years and no salvage value. The equipment is expected to produce$240,000 in cash
Zen Manufacturing Company is considering replacing a four-year-old machine with a new, advanced model. The old machine was purchased for $60,000. has an estimated useful life of 10 >ears with no
Given the following annual costs, compute the payback period for the new machine if its initial cost is $420,000. nji8 Depreciation. Labor Repairs Other costs Old Machine $18,000 72,000 New Machine $
Jefferson Company is considering investing $33,000 in a new machine. The machine is expected to last five years and to have a salvage value of $8,000. Annual before-tax net cash inflow from the
Compute the profitability index for each of the following two proposals assuming the desired minimum rate of return is 20%. Based on the profitability indexes, which proposal is better? lop75
Ross Company is considering three alternative investment proposals. Using the following information, rank the proposals in order of desirability using the payback period method. lop5 Proposal C
Simone Company is considering the purchase of a new machine costing $50,000. It is expected to save $9,000 cash per year for 10 years, has an estimated useful life of 10 years, and no salvage value.
Refer to the data in Exercise 26-7. Calculate the time-adjusted rate of return. mk4
Rank the following investments for Renate Company in order of their desirability using the(a) payback period method, (h) net present value method, and (r) time-adjusted rate of return method.
Hamlet Company is considering the purchase of a new machine that would cost $300,000 and would have an estimated useful life of 10 years with no salvage value. The new machine is expected to have
Graham Company currently uses four machines to produce 400,000 units annually. The machines were bought three years ago for $50,000 each and have an expected useful life of 10 years with no salvage
Macro Company owns five machines that it uses in its manufacturing operations. Each of the machines was purchased four years ago at a cost of $120,000. Each machine has an estimated life of 10 years
Span Fruit Compain has used a particular canning machine for several years. The machine has a zero salvage value. The company is considering buying a technologically improved machine at a cost of
Merryll. Inc., is considering three different investments involving depreciable assets with no salvage value. The following data relate to these investments: mk6 Expected Before-Tax Net Expected
Differential analysis is best described by which of the following statements :a. Determines only the difference in revenues between two alternatives.b. Analyzes opportunity costs.c. Determines only
In selecting a price for a product using differential analysis, which of the following decisions should be made?a. The highest price should always be selected.b. The price that will result in the
Which of the following decisions involve differential analysis?a. The decision to close a segment of a business.b. The decision by a record store to add videotapes to its product line.c. The decision
Assume Mikey Shoe Company is considering making special shoes just for Olympic athletes. In making this decision, how would you categorize the salary of the president of Mikey?a. Differential
Identify types of decisions that can be made using differential analysis. ku69
What is a committed fixed cost? Give some examples. ku69
What is a discretionary fixed cost? Give some examples. ku69
Give an example of a fixed cost that might be consid- ered committed for one company and discretionary for another. ku69
What is the disadvantage of a company having all committed fixed costs? Explain. ku69
What is an opportunity cost? Give some examples. ku69
What essential feature distinguishes the contribution margin income statement from the traditional income statement? ku69
Real World Question Give an example of a make-orbuy decision that you have made or someone you know has made. ku69
Real World Question Give an example in which your campus bookstore replaces one of its departments with another it currently does not have. (For example, it ku69
Real World Question Assume that McDonald's, of McDonald's fast-food restaurants, currently buys its french fries from agricultural growers and food pro- cessors. In doing so, McDonald's has decided
Real World Question Refer to The Coca-Cola Company's financial statements in the annual report booklet. Does Coca-Cola use the traditional or contribution margin format in its income statement? ku69
Real World Question Suppose that Wal-Mart, one of the fastest growing companies in the world, were to close one of its stores. Which differential revenues and costs would be affected by that
Define a budget and name several kinds of budgets.
List several benefits of a budget.
List five general princi- ples of budgeting.
Prepare a planned operating budget and its supporting budgets, such as the sales budget. production and pur- chases budgets, and other expense budgets.
Prepare flexible operat- ing budgets.
Prepare a financial budget and its support. ing budgets.
Budgets are based on more than past results. ki4
Cash budgets may cover a week or a month, sales and production budgets a month, a quarter, or a year, and general operating budgets may cover a quarter or a year. k52
The planned operating budget is developed first in units and then in dollars. k5
Planned operating budgets based on planned activity levels and flexible budgets are the same if planned activity levels and actual activity levels are not the same. ki4
Which of the following best describes some of the benefits related to the preparation and use of budgets:a. Business activities are better coordinated.b. Managers become aware of other managers'
When preparing a projected income statement, which of the following budgets is prepared first?a. Projected cost of goods sold budget.b. Selling and administrative budget.c. Sales budget.d. Financial
Fixed costs are $60,000, variable cost per unit is $1.20, and budgeted units of output are 200,000 units. Deter- mine the budgeted production costs.a. $300,000.b. $360,000.c. $240,000.d. $276,000. ki4
Production costs (including $30,000 of fixed costs) are budgeted at $150,000 for an expected output of 100,000 units. Actual output was 90,000 units, while actual costs were $142,500. What is the
What are three purposes of budgeting? ki63
What are the purposes of a master, planned operating, and financial budget? ko9
How does the management by exception concept relate to budgeting? mk6
What are five basic principles which, if followed, should improve the probability of preparing a meaning- ful budget? Why is each important? k5
What is the difference between an imposed budget and a participatory budget? iuj52
Define and explain a budget variance. mk85
What are the two major budgets in the master budget?Which should be prepared first? Why? mki52
Distinguish between a master budget and a responsi- bility budget. nj5
The budget established at the beginning of a given period carried an item for supplies expense in the amount of $40,000. At the end of the period, the supplies used amounted to $44,000. Can it be
Management must make certain assumptions about the business environment when preparing a budget. What areas should be considered? mk5
Why is budgeted performance better than past per- formance as a basis for judging actual results? m5
Describe the concepts of just-in-time inventory systems and zero-base budgeting. mk5
Real World Question Refer to the financial statements for The Limited in the annual report booklet. An industry analyst has asked you to forecast sales for each of the years 1997, 1998, 1999, 2000,
Real World Question Refer to your forecasts of sales for The Limited in question. nh5
Evaluate the simple forecasting method you were asked to use in that ques-ticin. VVIial ;uliiilion;il tacUMs sIkuiUI he uscii in t'ore- casiiiig sales? mk63
Real Uorlcl Qui'stion Do you iliiiik the sales lor a parlieular grocery store in your neighhorhooil will go up. go down, or stay the same next year eonipared to this year? Give your answer in sales
Hike n' Run Company has decided to produce 288,000 pairs of socks at a uniform rate throughout 1999. The sales department of Hike n' Run has estimated sales for 1999 according to the following
DePaul Company projects sales of 25,000 units during May at $6 per unit. Production costs are$1.80 per unit. Variable selling and administrative expenses are $0.60 per unit: fixed selling and
Skaters Plus Company plans to sell 90,000 skateboards next quarter at a price of $36 per unit.Production costs are $14.40 per unit. Selling and administrative expenses are: variable, $7.20 per unit:
Duke Corporation considers materials and labor to be completely variable costs. Expected production for the year is 50,000 units. At that level of production, direct materials cost is budgeted at
Assume that in Exerci.se 23^ actual production was 60,000 units, materials cost was$247,000. and labor cost was $5 10,000. What are the budget variances? mk5

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