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cost management strategic

Questions and Answers of Cost Management Strategic

Fast Track Shoe Company has two divisions, production and marketing. Production manufactures Fast Track MELCl g shoes, which it sells to both the marketing division and to other retailers (the latter
19.1 Why do transfer prices exist even in highly centralized organizations?
Describe four methods by which transfer prices can be set.
What are the advantages and disadvantages of top management’s direct intervention in a transfer-pricing dispute?
19.6 Why do companies often use prices other than market prices for interdivisional transfers?
19.7 What is the basis for choosing between actual and standard costs for cost-based transfer pricing?
19.8 Some have suggested that managers should negotiate transfer prices. What are the disadvantages of a negotiated transfer-pricing system? ;
19.10 Explain the effect of import duties, or tariffs, on the transfer-pricing policies of multinational companies.
19.11 How does the choice of a transfer price affect the operating profits of both segments involved in an intracompany transfer?
19.12 What are some goals of a transfer-pricing system in a decentralized organization?
19.13 Division A has no external markets. It produces monofilament used by division B, which cannot purchase this particular type of monofilament from any other source. What transfer-pricing system
19.14 Refer to Cost Management in Practice 19.1 on page 812.Why did the Internal Revenue Service dispute the US subsidiary’s reported profits and losses?
19.15 When setting a transfer price for goods sold across international boundaries, what factors should management consider?
19.16 Setting transfer prices by negotiation is detrimental to the company. Do you agree or disagree with this statement by the CEO of a midsize manufacturing company? Why?
19.17 Basing transfer prices on full absorption costs can really screw up decision making in a company! Explain this remark by a manufacturing vice president, and construct a simple numerical example
16.18 Explain why the quantity purchased (PQ) is used in computing the direct-material price variance, but the actual quantity consumed (AQ) is used in computing the direct-material quantity variance.
The practical capacity of National Wood Products’ Georgia mill is based on running one shift per day five days a week because of limited access to timber in that region. Negotiations to gain access
How do cost-management analysts anticipate and resolve potential conflicts between jointproduct and process decision making and external reporting?
If joint-cost allocations are arbitrary, does that mean they are meaningless
How do joint products, intermediate products, and final products differ?
What are the similarities and differences between joint costs and indirect costs?
What are the steps to follow to make decisions about producing products from joint processes?
What could cause a difference between sales revenue and net realizable value?
Why might some accountants express a preference for the net realizable value method of joint-cost allocation over the physical-measures method?
When might a physical-measures method for allocation be preferred?
What is the condition under which an item should be treated as a by-product rather than as a joint product?
Why are joint costs irrelevant in the sell-or-process-further decision? What costs are important?
Under what conditions could the method of joint-cost allocation be important to product or service decisions?
How do joint products, by-products, and scrap differ
The chapter indicated that joint costing is used to value inventory and report earnings. Explain at least two other situations when the method of joint-cost allocation could have an impact on
How is joint-cost allocation like prorating underapplied overhead?
Company A and Company B are negotiating the construction and operation of a plant that will produce joint products X and Y and by-product W, which has a positive net realizable value. Company A will
Bonzo Oil Co. and Crusty Petroleum, Inc., are entering a joint venture to construct and operate an oil refinery in a foreign country. This refinery will process crude oil in a joint process that
(continuation of 9.18) A year later, Bonzo Oil experienced a 25 percent decline in the sales of its products and no longer accepts its full shipments of the refinery outputs.Accordingly, Bonzo seeks
Assume that your company operates a joint-production process that generates three main products and one byproduct.If you allocate joint costs only for financial reporting, would you ever care whether
Top management has decided that your division, which operates a joint-production process, no longer provides a competitive return and should be shut down and all assets liquidated. Prepare an outline
Respond to this comment: “Because joint-cost allocations are arbitrary, there is no rational argument for allocating joint costs except for complying with financial or tax reporting requirements.”
Explain how production decisions based on expected gross margin per unit can be erroneous. Under what conditions could making production decisions this way be an acceptable practice?
Refer to Exhibit 9-4 as an example of the analysis of alternatives. Assume that changes in some figures cause the relative profitability of products to switch (e.g., a change in the price of Grade A
Amazon Company processes Chemical DX-1 through a joint-production process. The costs to process one batch of DX-1 are $100,000 for materials and $200,000 for conversion costs. This processing results
Cheyney Mining Corporation operates an ore-processing plant. A typical batch of ore run through the plant yields three refined products: lead, copper, and manganese. At the split-off point, the
Galway Products, Inc., manufactures Leprechauns and Shamrocks from a joint process using the raw material Green. In a recent month, Galway produced 4,000 Leprechauns having a sales value after the
Each of these following situations should be considered independently of the others.Requireda. George Company manufactures products C and R from a joint process. The total joint costs are$120,000.
The following questions are based on Costner Company, which manufactures products X, Y, and Z from a joint process. Joint-process costs were $80,000. Additional information is provided:If Processed
Friendly Fertilizer Corporation uses organic materials to produce fertilizers for home gardens. Through its production processes, the company manufactures Nitro, a high nitrogen fertilizer, and
Leather Products, Inc., processes cowhide to produce three outputs (leather, suede, dog chews). Leather and suede are considered main products, and dog chews are a by-product. During a recent month,
The following questions are based on Seinfeld Corporation, which manufactures a product that gives rise to the by-product Castanza. The only cost associated with Castanza is the additional processing
Georgia Products, Inc., operates a sawmill facility. The company accounts for the bark chips that result from the primary sawing operation as a by-product. It sells the chips to another company at a
O’Malley Corp. uses a joint process that costs $160,000 for inputs and processing per batch. Processing one batch results in the following joint outputs:Sales Price Further Sales Price after
IMAC Company produces three products by a joint-production process. Raw materials are put into production in process A, and three products appear at the end of this process. Product X is immediately
Air Extracts, Inc., manufactures nitrogen, oxygen, and hydrogen from a joint process. Data on the process are as follows:Product Nitrogen Oxygen Hydrogen Total WInitSMOROGIUICEC) tretameeee tcetesra
Exotic Aroma Company buys bulk flowers and processes them into perfumes in a two-stage process.Its highest-grade perfume, Seduction, and a residue that is processed into a medium-grade perfume,
Harrison Corporation produces two joint products from its manufacturing operation. Product J sells for$41.50 per unit, and product M sells for $12 per unit at the split-off point. In a typical month,
AMPHIB Corporation processes input Leonardo into three outputs: Michaelangelo, Raphael, and Donatello. At the split-off point, Michaelangelo results in 60 percent of the net realizable value, Raphael
Silicon Materials, Inc., processes silicon crystals into purified wafers and chips. Silicon crystals cost$60,000 per batch. The process involves slicing the crystals, which produces 45,000 wafers
Greenchem, Inc., produces chemicals used in the cleaning industry. During the previous month, it incurred $300,000 ofj oint costs in producing 60,000 units of AM-12 and 40,000 units of
The weight of used tires in Europe was expected to reach 2.5 million tons by the end of 1999. Anne Forteza of IDE Environment argued that more intense retreading and recycling must replace the
Ag-Coop is a large farm cooperative with a number of agriculture-related manufacturing and service divisions. As a cooperative, it pays no federal income taxes. It operates a fertilizer plant, which
19.18 In setting transfer prices for multinationals, tax considerations can be the tail that wags the dog. Explain.
19.19 Some observers have suggested that fairness is a criterion that a transfer price should meet. What do you think it means for a transfer price to be “fair”?
Oneida Associates is a real estate company operating in the Finger Lakes region of central New York. Its leasing division rents and manages properties for others, and its maintenance division
CompuTech’s Western Division has an opportunity to transfer component Z50 to the company’s Eastern Division. The Western Division, which offers its Z50 product to outside markets for $150, incurs
Great Lakes Metals, Inc., has two divisions. The fabrication division transfers partially completed components to the assembly division at a predetermined transfer price. The fabrication division,
Refer to the preceding exercise. The fabrication division’s full (absorption) cost of a component is $340, which includes $40 of applied fixed-overhead costs. The transfer price has been set at
Edgeworth Box Company has two decentralized divisions, X and Y. Division X always has purchased certain units from division Y at $145 per unit. Because division Y plans to raise the price to $195 per
Memphis Transit, Ltd., operates a local mass transit system. The transit authority is a governmental agency related to the state government. It has an agreement with the state government to provide
Continental Electronics, Inc., permits its decentralized units to “lease” space to one another. Division X has leased some idle warehouse space to division Y for $1.65 per square foot per month.
Outdoor Greenery, owned 60 percent by Kwasi Peterson and 40 percent by Maya Jefferies, grows specimen plants for landscape contractors. The wholesale price of each plant is $15. During the past year,
Western Lumber Corporation has two operating divisions. Its logging operation in Canada mills and ships logs to the United States where the company’s building supplies division uses them. Operating
Down Under Corporation, based in Melbourne, Australia, has two operating divisions, an amusement park in Sydney and a hotel in Brisbane. The two divisions meet the Australian requirements for segment
Universal Corporation’s division S has an investment base of $600,000. The division produces and sells 90,000 units of a product at a market price of $10 per unit. Its variable costs total $3 per
The Tallahassee Division (TD) of Gulf South Corporation, operating at capacity, has been asked by Jaydee division to supply it with electrical fitting no. 1726. TD sells this part to its regular
Worldwide Merchants Co-op (WMC) operates a fleet of container ships in international trade between | tarnational Transfer Prices Great Britain and Thailand. All of the shipping income (that is, that
Interglobal Company has two operating divisions in a semiautonomous organization structure. Division +, anster Picesanctter X, located in the United States, produces part XZ-1, which is an input to
a. Virtually all companies use financial performance measures to evaluate division and department managers.What are the advantages of focusing also on nonfinancial performance?
You are interviewing for a job. The interviewer says, “Historically, we have relied just on financial performance measures to evaluate division managers. We know the limitations of relying solely
Team Focus: You work for an internationally known consulting firm that has been asked by Singapore Airways to design and install a balanced scorecard system. You are starting to assemble a team of
Balanced scorecards present many opportunities for improved strategy formulation, communication, and evaluation. However, many unanswered questions surround using balanced scorecards. Questions
You are a consultant advising Valley Commercial Bank about its incentive systems for lower-level managers Maker and employees. Your interviews with branch and department managers inform you that they
How does a balanced scorecard differ from the measures of organizational cost and performance, which have been used for as long as organized companies have existed? What does it add that previous
Should Valley Commercial Bank design its incentive system to increase customer satisfaction? Is it possible to overstress customer satisfaction?
Howcan Valley Commercial Bank or any organization weigh the trade-offs of various incentives for improving financial performance?
20.27 A business executive says, The financial area of a balanced
Part5 Evaluating and Managing Performance scorecard indicates how the organization adds value to shareholders. I am involved with two organizations; a small business that is a partnership with no
Respond to the following statement: Most measures of performance, such as profits and product costs, are useless for management decision making because they measure what has happened, not what will
Until recently the CEO of Xerox Corporation prominently stated in his letter to the company’s annual reports that Xerox always strives to improve customer satisfaction.Xerox no longer makes this
Customers’ perceptions of value can differ across cultures. Many people believe that US-based companies are ignorant or arrogant when it comes to appreciating other cultures. Do you think this is
How can you prepare yourself to contribute value to an organization by appreciating other cultures?
Westinghouse Corporation formerly advertised that its employees are its most important assets. If that is true for Westinghouse (and presumably for other organizations, too), why does its balance
20.32 “It is a bigger mistake to develop an unreliable balanced scorecard than never to build one at all.” Do you agree with this statement? Why or why not?
20.33 (Appendix) The manager of an organization is having trouble getting employees to perform adequate work for the organization’s benefit. “I pay them a good salary,” says the manager, “and
20.34 (Appendix) Shauna Dormino is taking a job in a nonprofit organization, Freedom from Hunger. Anisa Morenez is taking a job at IBM. The women are equally qualified, each will do the same type of
20.35 You are offered an executive position at a small hightechnology company. The salary is considerably lower than your current salary, but after one year, you will be eligible for many stock
20.36 You are offered the general manager position at a large, mostly autonomous division of a very large company. The company is market driven and has 20 similar divisions in different industries.
20.37 You are the chair of the board of directors of a large regional charitable organization that has been recognized nationally for outstanding public service. It has just lost its CEO to a
Wannabe University (WU) is a medium-size public university with 15,000 students and 1,000 faculty members. The university built its national reputation on the excellence of its teaching and
Magnum Manufacturing rewards its key executives exclusively on return on investment (ROI). The vice president of administration suggests to the CEO that Magnum can increase its ROI by outsourcing
eToys, Inc., had been one of the leading Internet-based retailers of children’s toys. However, in 2001 it generated a large loss, its stock price plummeted, and it declared bankruptcy. KB Toys
As prices for many items have stabilized because of competition, some Internet-based retailers now are competing on the basis of real-time customer service provided by live company representatives.
Paragon Sports, a major sporting goods retailer, is considering upgrading its customer-support activities by improving online databases and training customer-service personnel. Consider the following

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