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business
management accounting

Questions and Answers of Management Accounting

Why are post-implementation audits useful? (LO 8)
Appendix What is the difference between the nominal and effective rate of interest? (LO 4)
Explaining capital budgeting How would you describe capital budgeting to someone who is intelligent but knows nothing about the time value of money or the concept of a required return on an
Quantifying intangible benefits in capital budgeting Suppose that you work for a bank and are proposing a system that customers can access from their home computers to do their banking. Only about
Evaluating payment alternatives Which is a better deal: $1000 at the end of one year or $500 at the end of six months and another $500 at the end of 12 months? Why?(LO 1)
Explain compounding Explain the notion of compounding interest using an ex- ample.(LO 1)
Effect of compounding Quintin is now 22 years old and has just started a new job. He is trying to decide whether to start investing for retirement now or to wait several years. Verify that investing
The rule of 72 The "rule of 72" is that the number of periods n that it will take to double an investment whose rate of return is r percent is approximately 72/r. That is, nr is approximately equal
Valuing an annuity You have won a lottery with an advertised prize of $1,000,000. The prize is to be paid in installments of $100,000 per year for the next 10 years. Is this prize really worth
Choosing an annuity You have been offered the following two annuities for the same price. Annuity 1 pays $50,000 per year for 10 years. Annuity 2 pays $40,000 per year for 20 years. If your cost of
Cost of capital determinants Would you expect the cost of capital to be higher for an electric utility or a genetics laboratory? Explain.(LO 1)
Weighted average cost of capital McDonough Corporation is financed 25% by debt with a pretax cost of 8%, 20% by preferred shares with a pretax cost of 12%, 35% by common equity with a pretax cost of
Net present value and profitability index Lebar Company is considering two mutually exclusive investment alternatives. Lebar has a 10% cost of capital. Cash flow information for the two alternatives
Taxes and capital budgeting Describe the effect of taxes in capital budgeting.(LO 1)
Branson Manufacturing is considering purchasing a piece of equipment costing$45,000. The new equipment would create a new cash inflow of $20,000 for five years. At the end of the five years, the
Simpson Corporation has taxable income of $300,000 and an income tax rate of 34%. Simpson is considering selling an asset whose original cost is $20,000, with $12,000 of it depreciated. How much
Sensitivity analysis and capital budgeting Suppose that you are advising some¬one who is using capital budgeting to evaluate the purchase of a clothing store. What role might sensitivity analysis
Capital budgeting and risk Suppose that you are using capital budgeting to evaluate two alternative business opportunities. Both require comparable invest¬ ments and have comparable average cash
Valuing a bond A company issues a bond with the following characteristics:(a) Semiannual interest payments of $45 for 10 years(b) A lump-sum repayment of the $1000 face value of the bond after 10
Valuing zero coupon bonds A government issues a savings bond that will pay the holder $1000 in 10 years. (This is called a zero coupon bond.) If the bond market is now requiring 5% annual interest on
Revaluing a bond Review the data in question 8-50. Suppose that you purchase that bond. It is now one year later and the bond market now requires 7% interest on government debt. What will you receive
Capital budgeting and sensitivity analysis Ritchie's Trucking hauls logs from wood lots to pulp mills and saw mills. Ritchie now operates a single truck and is considering buying a second truck. The
Capital budgeting with taxes and strategic consideration Ronnie's Welding uses welding equipment mounted in the bed of a pickup truck to provide on-site welding services. The expected life of his
Net present value, payback, internal rate of return, and accounting rate of re¬turn Consider the following two mutually exclusive projects, each of which re¬ quires an initial investment of
Capital budgeting and sensitivity analysis Magic Mountain Enterprises runs a ski center. Its 14 downhill runs vary in difficulty from beginner to expert. To at¬ tract more customers, Maria Jasper,
Allocating capital funds and post-implementation audit You are the general LO 8 manager of a consumer products company. One of your major tasks is to ap¬ prove new product proposals brought to you
Effective rate of interest Compute the effective annual rate of interest in each LO 3 of the following cases:(a) A bank promises 8% interest compounded annually.(b) A bank promises 8% interest
Finding the interest rate You want to borrow $10,000 and repay the loan with LO 3 equal monthly payments for five years. The bank has advised you that the re¬ quired monthly payment will be $222.45.
Accumulating a target level of wealth Carolyn Martin, who is now 30, wants LO 3 to retire at age 60 with $2.5 million in an investment account. If funds can be in¬ vested to earn 12% per year
Accumulating a retirement fund Review the data in question 8-59. Suppose LO 3 that Carolyn decides that it is unrealistic to invest an equal annual amount in her retirement fund. Instead she decides
Value in the face of risk Return to the data in question 8-39. Suppose that you are 65 years old and are deciding which of these two annuities to buy. The pro¬ posal is that the annuity will cease
Capital budgeting and sensitivity analysis You work for an automobile com¬pany that is considering developing a new car. The product development costs for this new car will be $500 million per year
Capital budgeting and uncertainty Jane Eby, the chief financial officer of Baden Discount Enterprises, is faced with choosing between two machines. A new machine is needed to replace an existing
Capital budgeting and inflation Inflation is a general increase in the price level. For example, if the annual cash flows and salvage value in Exhibit 8-17 were subject to inflation at the annual
Changing the payment frequency Suppose that you are buying a house and re- LO 3 quire a $200,000 mortgage. You have told the bank that you want to repay your mortgage over 30 years. The bank has
Sensitivity and what-if analysis Your instructor has an Excel spreadsheet for LO 4, 6 the Shirley's Doughnut Hole example used in the chapter. You will need it to answer this question. The file shows
Evaluating an investment proposal under uncertainty Serge Martin, general 7 manager of the hapless Hogtown Flyers, is considering the acquisition of Mario Flanagan to bolster his team's sagging
Evaluating a new technology National Courier Company picks up and deliv- LO 3, 4, 5, ers packages across the country and, through its relationships with couriers in 6, 7 other countries, provides
apply the concept of control LO1
identify the characteristics of well-designed management accounting and control systems (MACS)LO1
describe the total-life-cycle costing approach to managing product costs over the value chain LO1
explain target costing LO1
explain Kaizen costing LO1
identify environmental costing issues LO1
apply the process of benchmarking the best practices of other organizations LO1
What does "control" refer to in the context of a management accounting and control system? (LOI)
What are the five steps involved in keeping an organization in control? (LO 1)
What two broad technical considerations must designers of management and control systems address? (LO 2)
What four components should management ac¬ counting and control systems designers con¬ sider when addressing the relevancy of the system's information? (LO 2)
What is the total-life-cycle costing approach? Why is it important? (LO 3)
What are the three major cycles of the total- life-cycle costing approach in a manufacturing situation? (LO 3)
What is the difference between committed costs and incurred costs? (LO 3)
What are the three stages of the research devel¬ opment and engineering cycle? (LO 3)
What is the post-sale service and disposal cycle? (LO 3)
What is target costing? (LO 4)
What are the two essential elements needed to arrive at a target cost? (LO 4)
What is value engineering? (LO 4)
In which stage of the total life cycle of a prod¬ uct is target costing most applicable? (LO 4)
What roles do cross-functional teams and sup¬ ply chain management play in target costing? (LO 4)
What is Kaizen costing? (LO 5)
When is a cost-variance investigation under¬ taken under Kaizen costing? (LO 5)
Why is it said that a Kaizen costing system op¬ erates "outside of the standard costing system"? (LO 5)
What are some examples of explicit and im¬ plicit environmental costs? (LO 6)
What is benchmarking and why is it used? (LO 7)
What are the five stages of the benchmarking process? (LO 7)
What are the three broad classes of information on which firms interested in benchmarking can focus? Describe each. (LO 7)
What stage of the benchmarking process is the most important for benchmarking management accounting methods? Why? (LO 7)
What are the two general methods of informa¬ tion gathering and sharing when undertaking a benchmarking exercise? (LO 7)
What are the three types of sharing and gather¬ ing information under the cooperative form of benchmarking? (LO 7)
Achieving relevancy in MACS design Identify the four components that MACS LO 2 designers should consider when addressing the relevancy of the system's infor¬ mation, and explain why each component
Total life cycle in service firm Refer to the In Practice entitled "Aligning IT with LO 3 the Value Chain in Financial Services" on p. 370. Explain how information tech¬ nology personnel can play an
Total-life-cycle costing Explain how the total-life-cycle costing approach differs LO 3 from traditional product costing.
Benefits of total-life-cycle costing Explain the benefits of using a total-life- LO 3 cycle costing approach to product costing.
Problems with traditional accounting focus What is the traditional accounting LO 3 focus in managing costs over the total life cycle of a product? What is the prob¬ lem with this focus?
Costs committed versus costs incurred Review Exhibit 9-2 showing the rela- LO 3 tionship between committed costs and incurred costs over the total life cycle of a product. Explain what the diagram
Post-sale and disposal cycle When does the disposal phase of the post-sale and LO 3 disposal cycle of a product begin and end?
Target costing Explain how target costing differs from traditional cost-reduction LO 4 methods.
Target costing equation Express the target costing relationship in equation LO 4 form. How does this equation differ from the other two types of traditional equa¬ tions relating to cost reduction?
Value engineering What is the relationship between value engineering and tar¬get costing?LO 3
Target costing profitability measure What is the most widely used profitability measure to develop the target profit margin under target costing?LO 3
Implementing target costing What are potential problems in implementing a target costing system from a behavioral point of view?LO 3
Kaizen versus standard costing What factors differentiate Kaizen costing from standard costing?LO 3
Target costing versus Kaizen costing What is the major difference between tar¬get costing and Kaizen costing?LO 3
Kaizen costing: knowledge According to the Kaizen costing approach, who has the best knowledge to reduce costs? Why is this so?LO 3
Kaizen meaning What do the terms "Kaizen" and "Kaizen costing" mean? In which stage of the total life cycle of a product is Kaizen costing most applicable? Why?LO 3
Kaizen costing Under what condition will the cost savings due to Kaizen cost¬ing not be applied to production?LO 3
Activity-based costing for environmental costs How can a firm use activity-based costing to help control and reduce environmental costs?LO 3
Benchmarking partners What are the key factors in identifying benchmarking partners? Explain why these factors are important.LO 3
Benchmarking a target costing system As a manager asked to benchmark an¬other organization's target costing system, on what factors would you gather in¬ formation? Why?LO 3
Total-life-cycle costing Consider the following situation: Your manager comes to you and says, "I don't understand why everyone is talking about the total-life¬ cycle costing approach to product
Total-life-cycle costing versus traditional methods Deron Grimes is a tradi¬tional manufacturing manager who is only concerned with managing costs over the manufacturing cycle of the product.
Target costing: unit cost Calcutron Company is contemplating introducing a new type of calculator to complement its existing line of scientific calculators. The target price of the calculator is $75,
Target costing: return on sales Stacy Yoo, president of Caremore, lncv an appli¬ ance manufacturer in Seattle, Washington, has been trying to decide whether one of her product line managers, Bill
Target costing: implementation issues Pierre LeBlanc, manager of Centaur Cor¬ poration, is thinking about implementing a target costing system in his organiza¬ tion. Several managers have taken him
Kaizen costing: behavior issues Kaizen costing is a method that many Japanese companies have found effective in reducing costs.REQUIRED From a behavioral point of view, answer these questions:(a)
Benchmarking As a manager interested in learning more about target costing, you are contemplating three approaches to obtaining the best information possi¬ ble. The first is to bring in an outside
Target costing versus transitional cost-reduction methods According to the chapter, the target costing and traditional cost-reduction methods approach the relationships among cost, selling price, and
Target costing and service organization Imagine that you are the manager of a large bank. Having heard about a management accounting method called target costing, you are wondering whether it can be
Standard costing versus Kaizen costing Many companies are interested in adopting a Kaizen costing approach to reducing costs. However, they are not sure how their current standard costing system will
Kaizen costing versus standard costing Your organization, located in Worthing¬ton, Ohio, is contemplating introducing Kaizen costing to help with cost reduc¬ tion. As someone who has an

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