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business
introduction to managerial accounting

Questions and Answers of Introduction To Managerial Accounting

Rates of Return and Liquidity. Pam Ferrerio, vice-president of finance of Pacific Trade Company, is concerned that the company is growing too rapidly and is unable to support further growth by debt
Inventory and Accounts Receivable Turnovers. The president of Oberlin Stores, Charles Gaa, notes that collection of accounts receivable should be improved. He proposes that inducements be given to
Measures of Liquidity. Denny Fink, a member of the board of directors of Egerdal Products, states that the company is becoming overextended in attempting to support a larger operation with
Prepare a statement of cash flows for a firm from its balance sheet, income statement, and additional key data.
Identify cash flows by operating, investing, and financing activities.
Explain why cash flow from operations is different than net income.
Understand the relationship between historical cash-flow reporting and forecasting.
Assess a firm's ability to generate cash flows and how its cash is used.
Measure cash flows for use in many managerial decisions.
How should the balance sheet accounts be grouped for reporting cash flows?
Is the change in the cash balance important to financial reporting and managerial analysis? Explain.
Explain why historical cash-flow reports are similar to cash-flow forecasts.
Statements of cash flows report changes in balance sheet accounts. Does the statement of cash flows explain all the changes? Comment.
Explain how the cash balance is increased or decreased by income statement transactions.
Name the common inflows of cash in each activity area: operations, investing, and financing.
Name the common outflows of cash in each activity area: operations, investing, and financing.
In using the indirect method, explain why losses are added to net income and gains are subtracted from net income.
If the cash balance increases by \(\$ 10,000\), does this mean that liabilities plus equity minus noncash assets decrease by \(\$ 10,000\) ? Explain.
Peter Leong operates a very successful and expanding party store. He received his yearly financial statements and tax return. He sees that profits are up, but he doesn't have enough cash to pay his
Ralph heard someone say, "Depreciation is a source of cash." He needs more cash! He thinks he'll buy more equipment and get more depreciation expense. Comment.
This chapter suggests a seven-step approach to preparing a statement of cash flows. What are the steps?
In a normal growing firm, should we expect to see net cash inflows or outflows from operating activities? Investing activities? Financing activities?
"Accumulated depreciation creates a cash reserve for replacement of assets." Do you agree or disagree with the statement? Why?
Explain why a decrease in an accrued liability account indicates that the cash disbursement was greater than the related expense on the income statement.
The Hopp Company paid high dividends, had zero profits, and had an unchanging cash balance for the past few years. The company probably did which of the following:(a) Sold assets to get cash to pay
The manager of Best Fixtures Company states that cash dividends in the amount of \(\$ 85,000\) were declared but not paid this year. The manager sees that retained earnings decreased and insists that
Identify four categories of costs of quality. Give an example of each.
Production Manager Tim Battle asks Quality Manager John Bertin, "Isn't a failure cost a failure cost? Why break them into two components?" Respond to Tim.
Greg Chun, controller of Christoff Electronics, sees the four categories of costs of quality as substitutions for each other. Explain why he might believe this.
This chapter suggests that a total quality management program may cause the portions of total quality costs to shift over time as quality efforts take hold within an organization. Explain this
What important cost of quality is missing from most cost accounting systems when these costs are being monitored? Why?
Why might the task of measuring, reporting, and analyzing costs of quality be difficult? Can these costs be easily benchmarked across firms? Explain.
Discuss the possible linkage between monitoring quality by measuring quality costs and by using nonfinancial measures of quality performance. Comment on which is most important.
Explain why minimizing the costs of quality in one time period may not be the optimal spending level for long-run quality improvement.
For most firms, is it possible to eliminate failures and, therefore, failure costs? Is it possible to push total quality costs to zero? Explain.
Comment on the importance of costs of quality in service organizations. Among the four categories, where might the major emphasis be placed?
How is target costing different from the traditional approach of setting costs and prices?
During which stages in a product's life cycle do target costing and kaizen costing apply?
What is meant by the term "nonvalue-added costs?" Provide three examples.
List and describe the five ways that time is spent in a manufacturing process. Which of these activities are likely candidates for nonvalue-added activities? Explain.
Define the term "manufacturing cycle efficiency." What does it represent?
Explain the value-added labor ratio.
Why are nonfinancial measures of quality needed in addition to costs of quality?
Describe the four types of nonfinancial measures related to product quality.
Provide two examples of nonfinancial measures that assess a firm's capability to keep equipment operating and to produce goods quickly.
Which measure of poor delivery performance is often impossible to determine?
What are the common external sources for obtaining performance benchmarks?
What forms can downsizing take?
Explain business process reengineering.
Using internal rate of return, a project is rejected if the internal rate of returna. is less than the required rate of return.b. is equal to the required rate of return.c. is greater than the cost
Assume that there are two competing projects: \(\mathrm{A}\) and \(\mathrm{B}\). Project \(\mathrm{A}\) has a net present value of \(\$ 1,000\) and an internal rate of return of 15 percent; Project
Gains and Losses on Disposal. A company is considering the purchase of a new machine for \(\$ 200,000\) which would have a 5 -year life. The company would sell for \(\$ 50,000\) its old machine which
Net Investment. The management of Westport Metal Fabricators plans to replace a forming machine that was acquired several years ago at a cost of \(\$ 45,000\). The machine has been depreciated to its
Working Capital. Kim Andrews sells a very successful line of skin protection creams to Scottish golfers. She can spend \(£ 100,000\) now on additional inventory. The added inventory will increase
Incremental Investment and Discounted Rate of Return. A manufacturer of equipment quotes a price of \(¥ 1,300,000\) for a unit of equipment that is being considered by Tatso Products, Inc. This
MACRS Depreciation. The Buccalo Company will buy tooling equipment for research purposes for \(\$ 800,000\). No salvage value is expected at the end of the 5 year life. The equipment qualifies as a
Basic MACRS Application. Sizemore Company is considering an investment opportunity involving a cash outlay of \(\$ 120,000\) for new office building machinery that would last about ten years and have
Environmental Costs and Ethical Issues. Mark Johnson, controller of St. Johns Hospital, is reviewing capital proposals for next year's capital budget. The proposals have been put together by the
Net Investment and Discounted Rate of Return. A unit of equipment used in research and development can be acquired from a manufacturer at a \(\$ 200,000\) cost. If this equipment is acquired, an old
Ethics of Financing. Jane Outslay, a community activist, has just opened the first community development credit union in the Overton section of Metro City. Its goal is to provide credit to low-income
MACRS and the Replacement Decision. You are given the following data:\section*{Required:}Determine the NPV of the replacement decision assuming a desired ROR of 16 percent and a 40 percent income tax
Lease Versus Purchase. Zalka and Daughters, a Finnish publisher, is considering the purchase of a photocopy machine. The dealer has offered a sale or a lease contract. Maintenance and supplies costs
Inflation and Investment Analysis. Sittin'-in-the-Sun Health Spas is evaluating an expansion of its existing facilities this fall. The proposal calls for a 6-year building rental contract at \(\$
Community Service. Jon Jensen, president of Jensen Groceries, is evaluating several marketing and community charitable activities. The activities include:Jensen's 10K Run for Food: This popular event
Lease Versus Purchase Alternatives. Al Williams in Freeport, Bahamas, is evaluating two similar machines. Both machines do the same tasks and generate the same revenues. Cash operating costs,
Lease Financing. Vehicle A can be leased under a 4 -year contract for \(\$ 16,000\) per year or purchased with cash for \(\$ 54,400\). Vehicle B can be leased on a 6 -year contract for \(\$ 15,000\)
Unequal Lives. Having given the matter some thought, you decide that you would be equally happy buying and driving any of the following cars:(a) A Supreme Deluxe and trading every sixth year.(b) A
Net Present Value and Expected Values. Two competing investment alternatives are being considered by the Mills Company. One alternative costs \(\$ 130,000\). The other alternative costs \(\$
Sensitivity Analysis of Future Estimates. Yen Industries estimated the following figures on a bid for a 10 -year government contract:\section*{Required:}Ignoring taxes, what impacts (amount and
Value of MACRS. Fletch Company plans to buy a piece of equipment that will cost \(\$ 120,000\) and have a useful life of ten years with no salvage value. The expected incremental annual cash inflows
Equipment Replacement. Dodd Company owns a truck with the following attributes:The firm's cost of capital is 14 percent, and a 40 percent tax rate is applicable to all taxation items The firm plans
Mutually Exclusive Alternatives. The Jason Company has \(\$ 50,000\) to invest in either of two alternatives. Investment I yields \(\$ 12,000\) a year in aftertax annual cash flows for ten years.
Incremental Investment. Welton Company is introducing a product that will sell for \(\$ 10\) per unit. Annual volume for the next four years should be about 200,000 units. The company can use either
Comparing Unequals. Data relating to three possible investments are as follows:\section*{Required:}1. Ignoring taxes, rank the investments according to their desirability using the payback period,
Sell or Use Equipment. An offer of \(\$ 130,000\) has been received for equipment that Herrera Products has been using to make certain parts. The equipment is fully depreciated but can be used for
Sensitivity of Key Variables. The Richmond Company owns a machine that cost \(\$ 50,000\) five years ago, has a book value of \(\$ 20,000\), and has a current market value of \(\$ 14,000\). The
Required Investment in Current Assets. An interesting project is being considered by Deer Creek, Inc. The project will require an investment of \(\$ 300,000\) in equipment that is expected to have a
Equipment Replacement. Guarantee Insurance Company has been operating a cafeteria for its employees at its headquarters, but it is considering a conversion to a completely automated set of coin
Life-Cycle Budgeting. Will O'Connell, product development director of WM Labs, is meeting with the research, marketing, and finance directors tomorrow. His staff has brought together pieces of a
Acquisition of Equipment Using Expected Values. A new product line is being considered by the Engram Company. Special equipment will be required for the manufacturing process. To handle the expected
Purchase vs. Lease Decision. Cittin Farms is considering replacing a technologically obsolete and fully depreciated tractor currently used in farming operations. The tractor is in good working order
Financing Alternatives. Martin Hospital Corporation is a for-profit health care provider. The hospital's Capital Needs Committee has approved the acquisition of new magnetic resonance imaging (MRI)
Inflation Impacts. Goslin Company designs and makes lighting fixtures. The sales manager is deciding whether to introduce a new line of lights. The lights will sell for $100 and have variable costs
Sensitivity Analysis. Hillkirk-Lurie Corporation wants to expand a production facility because of increasing demand for its specialty line of cycling shorts. The following information is available
Define the components of division net income, division direct profit, division controllable profit, and division contribution margin.
Describe the problems of selecting an investment base for evaluating performance.
Evaluate a division manager's performance using return on investment and residual income.
Identify the criteria for developing and evaluating transfer pricing policies.
Discuss the advantages and disadvantages of alternative transfer pricing methods.
Explain how the importance of intracompany dealings, the existence of external markets, the relative power positions of the divisions, the intent of managers, and other factors affect transfer
What are the advantages of decentralization? What are the primary problems of decentralization?
Distinguish among a cost center, a profit center, and an investment center.
How is performance generally measured in a cost center? In a profit center? In an investment center?
Why is a cost budget not a good control measure in evaluating a division manager who has decision power on prices and marketing products?
What are some problems in using division profit as an evaluation measure?
Explain the difference between division controllable profit and division direct profit.
Identify and explain allocation problems involved in determining a profit measure and the investment base for calculating ROI.
When comparing various divisions, why is it important that the divisions have the same or similar accounting methods? Cite three examples of accounting methods that could cause divisions' profits to
List the components of the ROI equation, tell how they are related, and identify an action a manager can take regarding each component to improve ROI.
How is residual income defined? What is the major advantage of using residual income versus ROI in performance evaluation?

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