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introduction to managerial accounting

Questions and Answers of Introduction To Managerial Accounting

15–27. Briefly explain the potential negative consequences in pricing decisions from using a traditional, volumebased product-costing system.
Spectrum Sound, Inc. manufactures compact disc players with unusual features in its St. Louis Division.The divisional sales manager has estimated the following demand-curve data.Required:1. Prepare a
Refer to the preceding exercise. The divisional controller at Spectrum Sound’s St. Louis Division has estimated the following cost data for the division’s CD players. (Assume there are no fixed
Refer to the data given in the preceding two exercises.Required:1. Prepare a table of Spectrum Sound’s revenue, cost, and profit relationships. For guidance, refer to panel C of Exhibit 15–3.2.
The marginal cost, marginal revenue, and demand curves for Houston Home and Garden’s deluxe wheelbarrow are shown in the graph below.Required: Before completing any of the following requirements,
Refer to the cost and production data for the Wave Darter in Exhibit 15–5. The target profit is $60,000.Required: Use the general formula for determining a markup percentage to compute the required
Badger Valve and Fitting Company, located in southern Wisconsin, manufactures a variety of industrial valves and pipe fittings that are sold to customers in nearby states. Currently, the company is
Graydon, Inc. manufactures food blending machinery according to customer specifications. The companyoperated at 75 percent of practical capacity during the year just ended, with the following
Sounds Fine, Inc. manufactures two models of stereo speakers. Cost estimates for the two models for the coming year are as follows:Each stereo speaker requires 10 hours of direct labor. Each Basic
Gargantuan Industries is a multiproduct company with several manufacturing plants. The Boise Plant manufactures and distributes two household cleaning and polishing compounds, standard and
16-1 Use the net-present-value method and the internal-rate-of-return method to evaluate an investment proposal.
16-2 Compare the net-present-value and internal-rate-of-return methods, and state the assumptions underlying each method.
16-3 Use both the total-cost approach and the incremental-cost approach to evaluate an investment proposal.
16-4 Determine the after-tax cash flows in an investment analysis.
16-5 Use the Modified Accelerated Cost Recovery System to determine an asset’s depreciation schedule for tax purposes.
16-6 Evaluate an investment proposal using a discounted-cash-flow analysis, giving full consideration to income-tax issues.
16-7 Discuss the difficulty of ranking investment proposals, and use the profitability index.
16-8 Use the payback method and accounting-rate-of-return method to evaluate capital investment projects.
16-9 Describe the impact of activity-based costing and advanced manufacturing technology on capital-budgeting decisions.
16-10 Explain the impact of inflation on a capital-budgeting analysis (Appendix B).
Bay City’s Department of Public Works (DPW) is considering the replacement of some machinery. This machinery has zero book value but its current market value is $960. One possible alternative is to
River City Pool Company recently purchased a truck for $40,000. The first year’s depreciation was$8,000. The truck driver’s salary in the first year of operation was $42,000.Required: Show how
16–1. “Time is money!” is an old saying. Relate this statement to the evaluation of capital-investment projects.
16–2. Distinguish between the following two types of capitalbudgeting decisions: acceptance-or-rejection decisions and capital-rationing decisions.
16–3. “The greater the discount rate, the greater the present value of a future cash flow.” True or false? Explain your answer.
16–4. Briefly explain the concept of discounted-cash-flow analysis. What are the two common methods of discounted-cash-flow analysis?
16–5. State the decision rule used to accept or reject an investment proposal under each of these methods of analysis:(1) net-present-value method and (2) internal-rate-ofreturn method.
16–6. Explain the following terms: recovery of investment versus return on investment.
16–7. List and briefly explain two advantages that the netpresent-value method has over the internal-rate- ofreturn method.
16–8. List and briefly explain four assumptions underlying discounted-cash-flow analysis
16–9. Distinguish between the following approaches to discounted-cash-flow analysis: total-cost approach versus incremental-cost approach.
16–10. What is meant by a postaudit of an investment project?
16–11. Give an example of a noncash expense. What impact does such an expense have in a capital-budgeting analysis? Explain how to compute the after-tax impact of a noncash expense.
16–12. Explain how to compute the after-tax amount of a cash revenue or expense.
16–13. What is a depreciation tax shield? Explain the effect of a depreciation tax shield in a capital-budgeting analysis.
16–14. Give an example of a cash flow that is not on the income statement. How do you determine the after-tax amount of such a cash flow?
16–15. Why is accelerated depreciation advantageous to a business?
16–16. Explain how a gain or loss on disposal is handled in a capital-budgeting analysis.
16–17. Why may the net-present-value and internal-rate-ofreturn methods yield different rankings for investments with different lives?
16–18. Define the term profitability index. How is it used in ranking investment proposals?
16–19. What is meant by the term payback period? How is this criterion sometimes used in capital budgeting?
16–20. What are the two main drawbacks of the payback method?
16–21. How is an investment project’s accounting rate of return defined? Why do the accounting rate of return and internal rate of return on a capital project generally differ?
16–22. Discuss the pros and cons of the accounting rate of return as an investment criterion.
16–23. (Appendix B) Briefly describe two correct methods of net-present-value analysis in an inflationary period.
Internal Rate of Return(Section 1)(LO 16-1)Refer to the data given in the preceding exercise.Required: Compute the internal rate of return on the new well. Should the governing board approve the new
The trustees of the Danube School of Art and Music, located in Tuttlingen, Germany, are considering a major overhaul of the school’s audio system. With or without the overhaul, the system will be
Use the Internet to access the home page for the City of Chicago, www.cityofchicago.org. Use one of the links there to access the home page for one of Chicago’s sister organizations, such as the
Vancouver Shakespearean Theater’s board of directors is considering the replacement of the theater’s lighting system. The old system requires two people to operate it, but the new system would
Refer to the data given in the preceding exercise. Suppose the Vancouver Shakespearean Theater’s board is uncertain about the cost savings with the new lighting system.Required: How low could the
Refer to the data in the preceding exercise.Required:1. Compute the nominal interest rate.2. Prepare a schedule of cash flows measured in nominal dollars.3. Using cash flows measured in nominal
Net Present Value; Incremental-Cost Approach (Section 1)(LO 16-1, 16-3)Net present value of excess cash outflows with interior stations: $(2,270,200)Refer to the data in the preceding
Allegheny Community Hospital is a nonprofit hospital operated by the county. The hospital’s administrator is considering a proposal to open a new outpatient clinic in the nearby city of New Castle.
Washington County’s Board of Representatives is considering the construction of a longer runway at the county airport. Currently, the airport can handle only private aircraft and small commuter
Refer to the data given in the preceding problem.Required:1. Prepare a net-present-value analysis of the proposed long runway.2. Should the County Board of Representatives approve the runway?3. Which
Refer to the data given in Problem 16–45. The County Board of Representatives believes that if the county conducts a promotional effort costing $20,000 per year, the proposed long runway will
Refer to the data given in the preceding problem.Required: Compute the net present value of Scientific Frontiers Corporation’s proposed acquisition of robotic equipment.
The owner of Waco Waffle House is considering an expansion of the business. He has identified two alternatives, as follows:• Build a new restaurant near the mall.• Buy and renovate an old
Refer to the data given in the preceding problem. The owner of Waco Waffle House will consider capital projects only if they have a payback period of six years or less. The owner also favors projects
Winner’s Circle, Inc. manufactures medals for winners of athletic events and other contests. Its manufacturing plant has the capacity to produce 10,000 medals each month. Current monthly production
Fusion Metals Company needs a new manager for its Cutting Department. It is considering closing its Packaging Department, and if it does the Packaging Department manager will be appointed manager of
Redo Exhibit 14–4 without the irrelevant data.
Choose an organization and a particular decision situation. Then give examples, using that decision context, of each step illustrated in Exhibit 14–1. For example, you could choose a decision that
14–28. List five ways that management can seek to relax a constraint by expanding the capacity of a bottleneck operation.
14–27. Are the concepts underlying a relevant-cost analysis still valid in an advanced manufacturing environment?Are these concepts valid when activity-based costing is used? Explain.
14–26. “Accounting systems should produce only relevant data and forget about the irrelevant data. Then I’d know what was relevant and what wasn’t!” Comment on this remark by a company
14–25. Give two examples of sunk costs, and explain why they are irrelevant in decision making.
14–24. Why can unitized fixed costs cause errors in decision making?
Refer to the data given in the preceding problem for Pensacola Cablevision Company.Required:1. Compute the price index for each year from 20x1 through 20x7, using 1.0000 as the index for 20x0.2.
14–23. List four potential pitfalls in decision making, which represent common errors.
14–22. There is an important link between decision making and managerial performance evaluation. Explain.
14–21. How is sensitivity analysis used to cope with uncertainty in decision making?
14–20. What is meant by the term contribution margin per unit of scarce resource?
14–19. Briefly describe the proper approach to making a production decision when limited resources are involved.
14–18. Are allocated joint processing costs relevant when making a decision to sell a joint product at the split-off point or process it further? Why?
14–17. What is a joint production process? Describe a special decision that commonly arises in the context of a joint production process. Briefly describe the proper approach for making this type
14–16. Briefly describe the proper approach for making a decision about adding or dropping a product line.
14–15. What is meant by the term differential cost analysis?
14–14. How does the existence of excess production capacity affect the decision to accept or reject a special order?
14–13. What behavioral tendency do people often exhibit with regard to opportunity costs?
14–12. Define the term opportunity cost, and give an example of one.
14–11. Give an example of an irrelevant future cost. Why is it irrelevant?
14–10. Why might a manager exhibit a behavioral tendency to inappropriately consider sunk costs in making a decision?
14–9. Is the book value of inventory on hand a relevant cost? Why?
14–8. Explain why the book value of equipment is not a relevant cost.
14–7. List and explain two important criteria that must be satisfied in order for information to be relevant.
14–6. What is meant by each of the following potential characteristics of information: relevant, accurate, and timely? Is objective information always relevant? Accurate?
14–4. Explain what is meant by the term decision model.
14–3. Distinguish between qualitative and quantitative decision analyses.
14–2. Describe the managerial accountant’s role in the decision-making process.
14–1. List the seven steps in the decision-making process.
Lansing Camera Company has received a special order for photographic equipment it does not normally produce. The company has excess capacity, and the order could be manufactured without reducing
14-8 Formulate a linear program to solve a product-mix problem with multiple constraints(appendix).
14-7 Explain the impact of an advanced manufacturing environment and activity-based costing on a relevant-cost analysis.
14-6 Analyze manufacturing decisions involving joint products and limited resources.
14-5 Prepare analyses of various special decisions, properly identifying the relevant costs and benefits.
14-4 Identify relevant costs and benefits, giving proper treatment to sunk costs, opportunity costs, and unit costs.
14-3 List and explain two criteria that must be satisfied by relevant information.
14-2 Explain the relationship between quantitative and qualitative analyses in decision making.
Alpha Communications, Inc., which produces telecommunications equipment in the United States, has a very strong local market for its circuit board. The variable production cost is $130, and the

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