Questions and Answers of Fundamentals Cost Accounting

Peta Milano made the following comment when her friend Jake Ali was made manager of the Nuclear Construction Division of General Projects: "It was like putting a new captain on the bridge of the
Describe two disclosures required by the SEC with respect to executive compensation and the change in accounting for executive stock options proposed by the FASB.
Explain the management accountant's role in helping organizations design stronger in- centive systems for their employees.
What approaches can promote consistency between the DCF model used to select capital-budgeting projects and the model used for performance evaluation?
Distinguish between measuring assets based on present value, current-cost, and historical-cost.
Give three definitions of investment used in practice when computing ROI.
"Residual income is not identical to ROI although both measures incorporate income and investment into their computations." Do you agree? Explain.
What factors affecting ROI does the duPont method highlight?
What are the five steps in designing an accounting-based performance measure?
Give two examples of financial performance measures and two examples of nonfinancial performance measures.
Describe proposed changes in the accounting for stock options and compensation disclosures required by the Securities and Exchange Commission
Describe the incentive problems that could arise when employees perform multiple tasks as part of their jobs
Describe the management ac- countant's role in helping organi- zations provide better incentives
Recognize the trade-off between providing incentives and impos- ing risk
Explain goal-congruence problems arising from accrual accounting performance measures
Distinguish between present value, current cost, and historical cost asset-measurement methods
Describe the motivation for using residual income measurement
Understand the duPont method of profitability analysis
"Under the general transfer-pricing guideline, the minimum transfer price will vary depending on whether the supplying division has idle capacity or not." Do you agree?Explain.
Give two reasons why a dual-pricing approach to transfer pricing is not widely used.
In transfer pricing, what is a common conflict between a division and the company as a whole?
What is one major limitation of full-cost-based transfer prices?
"All transfer pricing methods give the same division operating income." Do you agree?Explain.
What are the three general methods for determining transfer prices?
Describe three criteria useful in choosing a transfer-pricing method.
"Transfer pricing is confined to profit centers." Do you agTee? Why?
Distinguish between sourcing restrictions and transfer-pricing restrictions.
Give an example of each of the following four reporting units: geographic, organizational or functional, product-line, and customer.
"Organizations typically adopt a consistent decentralization or centralization philosophy across all their business functions." Do you agree? Explain.
Name two costs of decentralization.
Name three benefits of decentralization.
Present a general guideline for determining a minimum transfer price in transfer-pricing situations
Describe factors executives con- sider important when determining transfer prices
Explain why many companies use full-cost-based transfer prices although they can lead to goal-congruence problems
Understand how a transfer-pricing method can affect the operating in- come of individual subunits
Specify three criteria that can help in choosing a transfer-pricing method
Recognize that the same type of re- sponsibility center can be found in both centralized and decentralized organizations
Describe the benefits and costs of decentralization
describe key features of just-in-time (JIT) production.
What roles can the accountant play in the operation of a materials requirements planning system?
"Accountants have placed inventories on the wrong side of the balance sheet. They are a liability not an asset." Comment on this statement by a plant manager.24 -13 Give two examples of changes that
Xame two cost factors that can explain why an organization finds it cost-effective to make smaller and more frequent purchase orders.
Why might goal-congruence issues arise when an EOQ model is used to guide deci- sions on how much to order?
"The practical approach to determining economic order quantity is concerned with locating a minimum cost range rather than a minimum cost point." Explain.
Give three examples of opportunity costs that typically are not recorded in accounting svstems, although they are relevant to the EOQ model.
What assumptions are made when using the simplest version of the economic-order-quantitv (EOQ) decision model?
Name two decisions that are central to the management of goods for sale in a retail organization.
Give two examples of decisions that fall under the inventory management umbrella.
Describe measures for evaluating just-in-time (JIT) production perfor- mance
Explain the roles an accountant can play in a materials require- ments planning (MRP) system
Describe how just-in-time (JIT) purchasing reduces costs
Describe the potential conflicts that can arise between EOQ decision models and models used for performance evaluation
Explain reorder point and safety stocks
Explain why cost management of materials is pivotal in many organi- zations
"When selecting new product development projects, companies should always choose the projects that have the shortest breakeven time." Do you agree? Explain.
What is the advantage of breakeven time over new product development time?
Why is there increased interest in reducing new product development time?
Describe four steps in managing constraints
Describe customer-response time, and explain the reasons for and the costs of lines and delays
Explain breakeven time
Explain four cost categories in a costs of quality program
Give one advantage and one limitation of total factor productivity.
What information does total factor productivity provide that partial productivities do not?
Describe how an unfavorable direct manufacturing labor mix variance can arise in a manufacturing plant using two categories of direct manufacturing labor.
The manager of a highly automated plant that assembles desktop computers commented, "Yield and mix variance information is irrelevant to mv cost management decisions." Give two possible reasons for
Distinguish between a direct materials yield variance and a direct materials mix variance.
Name three sources of the standards used in the direct materials yield variance and the direct materials mix variance.
"A company can sell exactly the same number of units as specified in the static budget and still have a flexible budget with numbers that differ from those in the static budget." Do you agree?
Why might a manager not compute market-size variances and market-share variances?
Describe how a favorable sales-mix variance can arise in a company selling two prod- ucts.
Distinguish between a sales-quantity variance and a sales-mix variance.
"The sales-volume variance might be better labeled as a marketing variance." Explain why such a comment might be made.
Explain how productivity changes can help explain cost changes from one period to the next
Describe total factor productivity and its advantages and disadvan- tages
Discuss the benefits and draw- backs of partial productivity mea- sures
Describe productivity and produc- tivity measures
Explain the direct labor yield and direct labor mix variances
Understand how materials yield and materials mix variances highlight trade-offs among material inputs
Distinguish between variance analy- sis procedures when inputs cannot be substituted for one another and variance analysis procedures when inputs can be so substituted
Describe the insight gained from di- viding the sales-volume variance into the sales-quantity variance and the sales-mix variance
How do the reinvestment assumptions implicit in the use of the internal rate of return method and the net present value method differ when comparing projects with li\ es ol different lengths?
Distinguish between the nominal rate of return and the real rate of return.
What are the main depreciation methods permitted under the Modified Accelerated Cost Recovery System (MACRS)?
Give examples of three categories of cash flows considered in capital-budgeting analyses.
"Depreciation is an irrelevant factor in deciding whether to replace an existing delivery vehicle with a more energy-efficient vehicle." Do you agree? Explain.
Distinguish between the total project approach and the incremental approach to choosing between two capital-budgeting projects.
"Accelerated depreciation provides higher cash flows in the early years than does straight-line depreciation." Do you agree? Explain.
"It doesn't matter what depreciation method is used. The total dollar tax bills are the same." Do you agree? Explain.
Describe three factors that influence the amount claimed as a depreciation deduction for tax purposes.
What are the two major impacts that income taxes have on capital-budgeting deci- sions?
Demonstrate the equivalence of the nominal approach and the real approach to incorporating inflation into capital budgeting
Give examples of five categories of cash flows considered in capital- budgeting analyses
Distinguish between the total project approach and the incremental ap- proach in capital-budgeting deci- sions
Explain why depreciation deduc- tions are an important source of tax savings but are not themselves in- puts into DCF computations
Identify three factors that influence the amount of depreciation claimed as a tax deduction
Identify two major ways that income taxes affect business decisions
Bill Watts, president of Western Publications, accepts a capital-budgeting project advocated by Division X. This is the division in which the president spent his first 10 years with the company. On
What conflicts can arise in using DCF methods for capital-budgeting decisions and accrual accounting for performance evaluation?
"Let's be more practical. DCF is not the gospel. Managers should not become so enchanted with DCF that strategic considerations are overlooked." Do you agree? Ex20-12 plain. "The net present value
How is the bailout payback method different from the payback method?

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