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horngrens cost accounting a managerial emphasis

Questions and Answers of Horngrens Cost Accounting A Managerial Emphasis

=+3 Assume that there are no alternative uses for Division A’s internal facilities and that the price from outsiders drops $20. Should Division C purchase from external suppliers? What should the
=+2 Assume that internal facilities of Division A would not otherwise be idle. By not producing the 1000 units for Division C, Division A’s equipment and other facilities would be used for other
=+19-25 K Transfer-pricing dispute OBJECTIVES 7, 8 Mammoth Ltd, a manufacturer of tractors and other heavy farm equipment, is a decentralised organisation, with each manufacturing division operating
=+3 What is the minimum transfer price that the Australian division manager would agree to? Does this transfer price result in Derwent Ltd as a whole paying more import duty and taxes than in the
=+2 Suppose division managers act autonomously to maximise their division’s after-tax operating profit. Will the transfer price calculated in requirement 2 of Exercise 19-23 result in the
=+19-24 KK Multinational transfer pricing, goal congruence (continuation of 19-23)OBJECTIVES 3, 4, 8, 9 Suppose that the Australian division could sell as many units of product B12 as it makes at
=+2 Which transfer price should Derwent Ltd select to minimise the total of company import duties and income taxes? Remember that the transfer price must be between the full manufacturing cost per
=+calculation of the cost-based transfer prices.)Chapter 19: Management control systems, transfer pricing and multinational considerations 751 M19_HORN3377_02_LT_C19.indd 751 2/09/13 4:05 PM
=+19-23 KK Multinational transfer pricing, global tax minimisation OBJECTIVES 3, 4, 8, 9 Derwent Ltd manufactures telecommunications equipment at its plant in Geelong. The company has marketing
=+4 Instead of allowing negotiation, suppose that Alfriston specifies a hybrid transfer price that ‘splits the difference’ between the minimum and maximum prices from the divisions’ standpoint.
=+3 If the two divisions were to negotiate a transfer price, what is the range of possible transfer prices? Evaluate this negotiated transfer-pricing policy using the criteria of goal congruence,
=+2 Suppose that Alfriston Motors requires that, whenever divisions with unused capacity sell products internally, they must do so at the incremental cost. Evaluate this transfer-pricing policy using
=+19-22 KK Transfer pricing, general guideline, goal congruence (CMA, adapted) OBJECTIVES 3, 7, 8 Alfriston Motors Ltd operates as a decentralised multidivision company. The Opal Division of
=+3 What arguments would Scott Devon, manager of the Mining Division, make to support the transfer-pricing method that he prefers?
=+2 Suppose Sampson Ltd rewards each division manager with a bonus, calculated as 1% of division operating profit (if positive).What is the amount of bonus that will be paid to each division manager
=+19-21 KK Effect of different transfer-pricing methods on division operating profit (CMA, adapted)OBJECTIVES 3, 4 Sampson Ltd has two divisions. The Mining Division makes tolidine, which is then
=+3 Assume that internal transfers are made at market prices. Will each division maximise its division’s operating profit contribution by adopting the action that is in the best interest of
=+2 Assume that internal transfers are made at 110% of variable cost. Will each division maximise its division’s operating profit contribution by adopting the action that is in the best interest of
=+◗ Raw Timber Division: $330 per 100 board metres of raw timber◗ Finished Timber Division: $412.50 per 100 board metres of finished timber Assume that there is no loss in board metres in
=+19-20 KK Transfer-pricing methods, goal congruence OBJECTIVES 3, 4 Marshall’s Timber Ltd has a Raw Timber Division and a Finished Timber Division. The variable costs are:
=+2 Which transfer-pricing method(s) will maximise the after-tax operating profit per unit of User Friendly Computer?
=+Both the China and the South Korea divisions sell part of their production under a private label. The China Division sells the comparable memory/keyboard package used in each User Friendly Computer
=+Each desktop computer is sold to retail outlets in Australia for $3800. Assume that the current foreign exchange rates are:A$1 = 5.75 yuan A$1 = 971.13 won
=+◗ Chinese income tax rate on China Division’s operating profit: 40%◗ South Korean income tax rate on South Korea Division’s operating profit: 20%◗ Australian income tax rate on Australia
=+c Australia Division packages and distributes desktop computers.Each division is run as a profit centre. The costs for the work done in each division for a single desktop computer are as
=+b South Korea Division assembles desktop computers using internally manufactured parts and memory devices and keyboards from the China Division.
=+a China Division manufactures memory devices and keyboards.
=+19-19 KK Multinational transfer pricing, effect of different transfer-pricing methods, global income tax minimisation OBJECTIVES 3, 4 User Friendly Computer Ltd, with headquarters in Sydney,
=+3 What benefits and problems do you see in structuring the environmental management group in this way? Does it lead to goal congruence and motivation? Explain.
=+2 What type of responsibility centre is the environmental management group?
=+19-18 K Decentralisation, goal congruence, responsibility centres OBJECTIVES 1, 2 Hexton Chemicals consists of seven independent operating divisions. The operating divisions are assisted by a
=+b How would you recommend upper management evaluate the three departments if this change is made?M19_HORN3377_02_LT_C19.indd 749 2/09/13 4:05 PM
=+a Will this change your answers to requirements 1 and 2?
=+4 Suppose the upper management of Clearview Ltd decides to let the three departments set their own production schedules, buy and sell products in the external market, and have Wood and Metal
=+3 Can a centralised department be a profit centre? Why or why not?
=+2 Are the three departments centralised or decentralised?
=+19-17 K Cost centres, profit centres, decentralisation, transfer prices OBJECTIVES 1, 2 Clearview Ltd manufactures windows with wood and metal frames. Clearview Ltd has three departments: Glass,
=+19-16 K Management control systems, balanced scorecard OBJECTIVE 1 Checkers Ltd manufactures stone tiles for kitchen benches and floors. Its strategy is to manufacture high-quality products at
=+19-15 How should managers consider income tax issues when choosing a transfer-pricing method?
=+19-14 ‘Under the general guideline for transfer pricing, the minimum transfer price will vary depending on whether the supplying division has unused capacity or not.’ Do you agree? Explain.
=+19-13 ‘Cost and price information play no role in negotiated transfer prices.’ Do you agree? Explain.
=+19-12 Give two reasons why the dual-pricing system of transfer pricing is not widely used.
=+19-11 What is one potential limitation of full-cost-based transfer prices?
=+19-10 Under what conditions is a market-based transfer price optimal?
=+19-9 ‘All transfer-pricing methods give the same division operating profit.’ Do you agree? Explain.
=+19-8 What properties should transfer-pricing systems have?
=+19-7 What are the three methods for determining transfer prices?
=+19-6 ‘Transfer pricing is confined to profit centres.’ Do you agree? Explain.
=+19-5 ‘Organisations typically adopt a consistent decentralisation or centralisation philosophy across all their business functions.’Do you agree? Explain.
=+19-4 Name three benefits and two costs of decentralisation.
=+19-3 What is the relationship between motivation, goal congruence and effort?
=+19-2 Describe three criteria you would use to evaluate whether a management control system is effective.
=+19-1 What is a management control system?
=+ Would your response differ according to the three cases described in requirement 1? Explain.
=+2 As the CEO of Pillercat Ltd, how would you respond to Peter Wei’s request that you force the Tractor Division to purchase all of its crankshafts from the Machining Division?
=+c The Machining Division has no alternative use for its facilities, and the external supplier drops the price to $185 per crankshaft.
=+b The Machining Division can use the facilities for other production operations, which will result in annual cash operating savings of $29000.
=+a The Machining Division has no alternative use for the facilities used to manufacture crankshafts.
=+Peter Wei, manager of the Machining Division, feels that the 10% price increase is justified. The need for the increase arises from a higher depreciation charge on some new specialised equipment
=+Pillercat Ltd is a highly decentralised company. Each division manager has full authority for sourcing decisions and selling decisions. The Machining Division of Pillercat Ltd has been the major
=+What are the income tax considerations when determining transfer prices?
=+What is the range over which two divisions will negotiate a transfer price when there is unused capacity?
=+What problems can arise when full cost plus a mark-up is used as a transfer price?
=+What transfer price should be used if the market for the product to be transferred is perfectly competitive?
=+What methods can be used to calculate transfer prices?
=+What is a transfer price and what is it intended to achieve?
=+What are the benefits and costs of decentralisation?
=+9 Describe the impact of income tax factors on multinational transfer pricing
=+8 Apply a general guideline for determining a minimum transfer price
=+7 Evaluate hybrid transfer pricing
=+6 Evaluate cost-based transfer pricing
=+5 Evaluate market-based transfer pricing
=+4 Calculate transfer prices using market-based, cost-based and hybrid methods
=+3 Explain the nature of, and rationale for, transfer prices and four criteria by which to evaluate transfer-pricing methods
=+2 Explain the benefits and costs of decentralisation
=+1 Evaluate a management control system
=+b a change in the tax rate from 30% to 40%.
=+a a decrease in the estimated salvage value from $400000 to $100000
=+7 Without doing any calculations, comment on the effect on the payback period and the NPV of:
=+6 Comment on the impact that the investment will have on the manager’s bonus over the course of the seven years.
=+5 Calculate the overall AARR (based on average investment) of the new technology.
=+4 What is the payback period on this expansion?
=+3 Calculate the NPV and IRR of the expansion project and comment on your analysis.
=+2 Separate the cash flows into four groups: (a) net initial investment cash flows; (b) cash flows from operations; (c) cash flows from terminal disposal of investment; and (d) cash flows not
=+1 Describe the five stages of the capital budgeting process for this expansion project.
=+The management accountant of Parsons determines the company’s cost of capital as 6%. The management accountant’s salary is $160000 per year; the expansion will not change that. The CEO asks for
=+18-38 KKK Recognising cash flows for capital investment projects, NPV OBJECTIVES 2, 3, 4, 5, 6, 7, 8 Parsons Ltd manufactures watertight metal cases for electronic equipment used on ships. Parsons
=+2 Calculate the NPV of the project assuming depreciation is calculated using reducing balance at 89.28%. Should Aldo purchase the new cash registers?
=+18-37 KKK NPV taxes and accelerated depreciation (continuation of 18-36) OBJECTIVE 3 Refer to the information in the preceding problem but now assume that the tax rate is 30% and that you are not
=+2 Should Aldo buy the new cash registers?
=+18-36 K NPV and inflation OBJECTIVE 3 Aldo is considering replacing all of its old cash registers with new ones. The old registers are fully depreciated and have no disposal value. The new
=+2 Assuming a tax rate of 30%, a required rate of return of 12% and straight-line depreciation over the remaining useful life of the machines, should Trinh buy the new X-ray machine?
=+1 Trinh wants to evaluate the new X-ray machine using capital budgeting techniques, but does not know how to begin. To help her, read through the problem and separate the cash flows into four
=+A new X-ray machine would reduce the utilities costs by 25% and cut the maintenance cost in half. The new X-ray machine costs$95000, has a five-year life and an expected disposal value of $20000 at
=+18-35 KK Recognising cash flows for capital investment projects OBJECTIVES 3, 8 Trinh Tran is a dentist and is thinking of replacing the X-ray machine. The X-ray machine has a historical cost of
=+3 Should Joshua accept the project? Will Joshua accept the project if his bonus depends on achieving an accrual accounting rate of return (based on initial investment) of 10%? How can this conflict
=+2 Calculate the accrual accounting rate of return for this investment.
=+18-34 KK NPV and AARR, goal-congruence issues OBJECTIVES 3, 6, 7 Joshua Roberts, a manager of the Ceramic Tiles Division for Benson’s Flooring, has the opportunity to expand the division by
=+3 How much more or less would the recurring after-tax cash operating savings of the new machine need to be for Kingaroy’s Nuttery to earn exactly 14% after tax? Assume that all other data about
=+2 Use your calculations in requirement 1 and the net present value method to determine whether Kingaroy’s Nuttery should use the old machine or acquire the new machine.

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