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management accounting

Questions and Answers of Management Accounting

Chinn Wong wishes to purchase a $600,000 house. She has accumulated a $120,000 down payment, but she wishes to borrow $480,000 on a 30-year mortgage. For simplicity, assume annual mortgage payments
Name three ways to recognize risk in capital budgeting.
“We can’t use sensitivity analysis because our cash-flow predictions are too inaccurate." Comment.
Capital investments are always more profitable in inflationary times because the cash inflows from operations generally increase with inflation. Comment on this statement.
How much CCA is taken in the first year if a $10,000 asset is depreciated on a 20 percent declining-balance schedule? How much in the second year?
What are the major influences on the present value of a tax deduction?
Distinguish between average and marginal tax rates
What is the basic flaw in the payback model?
"The higher the interest rate, the less I worry about errors in predicting terminal values." Do you agree? Explain.
Why should the differential approach to alternatives always lead to the same decision as the total project approach?
"Not-for-profit organizations do not use DCF because their cost of capital is zero." Do you agree? Explain.
"The higher the minimum rate of return desired, the higher the price that a company will be willing to pay for cost-saving equipment." Do you agree? Explain.
Can net present value ever be negative? Why?
Why is discounted cash flow a superior method for capital budgeting?
The president of E-Games, an online gaming company, is considering the purchase of some equipment used for the development of new games. The cost is $400,000 and the economic life is five years.
A manager of Olympic Mutual Funds is contemplating acquiring servers to operate its Web site. The servers will cost $660,000 cash and will have zero terminal salvage value. The useful life will be
Panadagan Vacuums Limited (PVL) is a worldwide leader in the manufacturing of industrial vacuums. The company is located in Thorold, Ontario. PVL sells vacuums to distributors in North America,
Maxim Auto Parts Ltd. has operated three automobile parts manufacturing plants in Ontario for many years. Two produce engine parts, and the third makes seats (“the seat division”). In recent
“I will give you my decision in about a week,” said Georges Villedary, director-general of the Le Centre Sheraton, Montreal, as he put down the phone and looked pensively at the letter before
JOB, PROCESS, AND HYBRID COSTING Form groups of three to six students. For each of the following production processes, assess whether a job-cost, process-cost, or hybrid cost system is most likely to
Sonor Instruments Co. uses three operations in sequence to make two models of its depth finders for sport fishing. Consider the following:1. Operation 2 was highly automated. Product costs depended
Oak Furniture Co. manufactures a variety of wooden chairs. The company’s manufacturing operations and costs applied to products for June wereThree styles of chairs were produced in June. The
A Birmingham, UK, company manufactures and sells digital voice recorders. Business is booming. Various materials are added at various stages in the assembly department. Costs are accounted for on a
The following data pertain to the Blending Department at Fasten Chemicals for April:Units:Work-in-process, March 31
Given the following information, compute the unit conversion cost for the month of February for the Benjamin Company, using the FIFO process-costing method. Show details of your calculations.Units
The Fujita Company uses the FIFO process-costing method. Consider the following for July:Beginning inventory, 15,000 units, 70 percent completed regarding direct materials, which cost
Ajax Meter Company manufactures a variety of measuring instruments. One product is an altimeter used by hikers and mountain climbers. Ajax adopted a JIT viewpoint with an automated,
Canada Revenue Agency (CRA) must process millions of income tax returns yearly. When the taxpayer sends in a return, documents such as withholding statements and cheques are matched against the data
Consider the potato chip production process at a company such as Old Dutch Foods. Old Dutch uses a continuous flow technology that is suited for high volumes of product. The Calgary plant uses
Management of Consolidated Industries Inc. is considering closing its Oilfield Supply Manufacturing Division due to unfavourable and uncertain conditions in the oil markets. Each of the following
A cable television network is considering cancelling the program Toronto Lawyer because it is watched by only 2.3 percent of the audience in its Monday evening time slot. It would be replaced by
A large automobile-parts plant was constructed four years ago in an Ontario city served by two railroads. The PC Railroad purchased 40 specialized 20-metre freight cars as a direct result of the
A new $300,000 machine is expected to have a five-year life and terminal value of zero. It can produce 40,000 units a year at a variable cost of $4 per unit. The variable cost is $6 per unit with an
A petrochemical factory produces two products, L and M, as a result of a joint process. Both products are sold to manufacturers as ingredients for assorted chemical products. Product L sells at
Assume that a division of Sony Inc. makes an electronic component for its speakers. Its manufacturing process for the component is a highly automated part of a just-intime production system. All
Starbucks purchases and roasts high-quality, whole-bean coffees, its hallmark, and sells them, along with other coffee-related products, primarily through its company-operated retail stores. Suppose
Tempor Corp. estimates it will produce 30,000 units of a part that goes into its final product. It currently produces this part internally, but is considering outsourcing this activity. Current
Refer to 9-A3. 1. Suppose the “decision model favoured by top management consisted of a comparison of a three-year accumulation of wealth under each alternative. Which alternative would you
Consider the following data: 1. Prepare a cost comparison of all relevant items for the next three years together. Ignore taxes. 2. Prepare a cost comparison that includes both relevant and
Debraceny Company’s unit costs of manufacturing and selling a given item at the planned activity level of 10,000 units per month are Ignore income taxes in all requirements. These four parts
The manager of operations of Air Canada is trying to decide whether to adopt a new discount fare. Focus on one 134-seat airplane now operating at a 56 percent load factor. That is, on average the
A growing corporation in a large city has offered a 200-room hotel a one-year contract to rent 40 rooms at reduced rates of $50 per room instead of the regular rate of $86 per room. The corporation
Magna International Inc., based in Aurora, Ontario, is a global engineer and manufacturer of highly advanced vehicles and automotive parts. Magna’s 2009 sales were US$23.7 billion. It frequently
Assume the same facts as in the preceding problem. However, also assume that the variable costs per room, per day, are $10. 1. Suppose the best estimate is a 62 percent general occupancy rate
Hotels operates many hotels throughout the world. Suppose one of its Calgary hotels is facing difficult times because of the opening of several new competing hotels. To accommodate its flight
An administrator at Sacred Heart Hospital is considering how to use some space made available when the outpatient clinic moved to a new building. She has narrowed her choices as follows: 1. Use
Brandon Company produces and sells a product that has variable costs of $9 per unit and fixed costs of $110,000 per year. 1. Compute the unit cost at a production and sales level of 10,000 units
Dr. Renee Behr is a psychiatrist who is in heavy demand. Even though she has raised her fees considerably during the past five years, Dr. Behr still cannot accommodate all the patients who wish to
Thomas bought a new truck in Calgary with a list price, including options, of $21,000. The dealer had given her a “generous trade-in allowance ?of $5,000 on her old truck that had a wholesale price
Three years ago, the Oak Street TCBY bought a frozen yogurt machine for $8,000. A salesman has just suggested to the TCBY manager that she replace the machine with a new, $12,500 machine. The manager
A local bookstore bought more “NHL Stars ?calendars than it could sell. It was nearly April and 200 calendars remained in stock. The store paid $4.50 each for the calendars and normally sold them
From a particular joint process, Edgerton company produces three products, A, B, and C. Each product may be sold at the point of split-off or processed further. Additional processing requires no
Refer to the preceding exercise. Suppose Vernon Nectars can use the released facilities in another manufacturing activity that makes a contribution to profits of $75,000 or can rent them out for
Assume that Vernon Nectars reports the following costs to make 500-ml bottles for its Juice Cocktails: Another manufacturer offers to sell Vernon Nectars the bottles for $0.25. The capacity now
Oliver Kamp has just made the final payment on his mortgage. He could continue to live in the home; cash expenses for repairs and maintenance (after any tax effects) would be $500 monthly.
Martina Bridgeman is a lawyer employed by a large law firm at a salary of $110,000 per year. She is considering whether to become a sole practitioner, which would probably generate $350,000 in
Give an example of a situation where the performance evaluation model is not consistent with the decision model.
"Machinery sales personnel sometimes erroneously brag about the low unit costs of using their machines." Identify one source of an error concerning the estimation of unit costs.
"Variable costs are irrelevant whenever they do not differ among the alternatives at hand." Do you agree? Explain.
"Some expected future costs may be irrelevant." Do you agree? Explain.
"Recovering sunk costs is a major objective when replacing equipment." Do you agree? Explain.
“Choices are often mislabelled as simply make or buy." Do you agree? Explain.
The differential costs or incremental costs of increasing production from 1,000 automobiles to 1,200 automobiles per week would be the additional costs of producing the additional 200 automobiles. If
"Accountants do not ordinarily record opportunity costs in the formal accounting records." Why?
"I had a chance to rent my summer home for two weeks for $800. But I chose to leave it empty. I didn’t want strangers living in my summer house." What term in this chapter describes the $800? Why?
Distinguish between an opportunity cost and an outlay cost.
On January 2, 2010, the S.H. Park Company installed a brand-new $90,000 special moulding machine for producing a new product. The product and the machine have an expected life of three years. The
The Mussina Chemical Company produced three joint products at a joint cost of $117,000. These products were processed further and sold as follows. The company has had an opportunity to sell at
Sunshine State Fruit Company sells premium-quality oranges and other citrus fruits by mail order. Protecting the fruit during shipping is important, so the company has designed and produces shipping
Shepton Specialty Products Ltd. is a manufacturer of surgical instruments. Given the changes in surgical technology, Shepton has had to invest heavily in maintaining and upgrading its
Fence Company Ltd. (FC) was incorporated in March 2011, and is equally owned by Robert and Morris Wood. The company constructs residential wood fences. FC’s first year was a difficult one. It
Milt Pearson, the president of Supergrip Corporation Limited (SCL), is concerned with the results achieved by SCL for the fiscal year ended May 31, 2010, and has called a meeting of the Executive
Banyan Industries Limited (Banyan) manufactures various models of alternators, mainly for the North American automobile industry. The company, located in Canada, has grown steadily over the past 15
The Home Appliance Company manufactures small appliances, such as electric can openers, toasters, food mixers, and irons. The peak season is at hand, and the president is trying to decide whether to
Zimmerman Manufacturing Limited produces and sells flags. During 2009, the company manufactured and sold 50,000 flags at $25 each. Existing production capacity is 60,000 flags per year. In
Many automobile dealers have an operating pattern similar to that of City Motors. Each month, City initially aims at a unit volume quota that approximates a break-even point. Until the break-even
Zurich Day School is a private elementary school. In addition to regular classes, after-school care is provided between 3:00 p.m. and 6:00 p.m. at 12 Swiss francs (CHF) per child per hour. Financial
Fargo Manufacturing Company produces two industrial solvents for which the following data have been tabulated. Fixed manufacturing cost is applied to product at a rate of $1 per
Mastercraft Inc. makes a variety of motor-driven products for homes and small businesses. The market research department recently identified power lawn mowers as a potentially lucrative market. As a
SaskPlastics makes plastic parts for other manufacturing companies. SaskPlastics has an ABC system for its production, marketing, and customer service functions. The company uses target costing as a
Belleville Electrical makes small electric motors for a variety of home appliances. Belleville sells the motors to appliance makers, who assemble and sell the appliances to retail outlets. Although
Goldwyn Electronics had a fixed factory overhead budget for 2010 of $10 million. The company planned to make and sell 2 million units of a particular communications device. All variable manufacturing
The Wittred division of Melbourne Sports Company manufactures boomerangs, which are sold to wholesalers and retailers. The division manager has set a target of 250,000 boomerangs for next month’s
In a recent year Continental Airlines filled about 50 percent of the available seats on its flights, a record about 15 percent below the national average. Continental could have eliminated about 4
Is it more profitable to sell your product for $50 or $15? This is a difficult question for many movie studio executives. Consider a movie that cost $60 million to produce and required another $40
The budget for the Oxford University Printing Company for 2011 follows: The company typically uses a so-called cost-plus pricing system. Direct materials and direct labour costs are computed,
The following data have been condensed from LaGrande Corporation’s report of 2011 operations (in millions of euros): 1. Prepare the 2011 income statement in contribution form, ignoring income
Suppose the historical costs for the manufacture of a calculator were as follows: direct materials, $5 per unit; direct labour, $3 per unit. Management is trying to decide whether to replace some
The Ibunez Tool Company has two products: a plain circular saw and a fancy circular saw. The plain circular saw sells for $66 and has a variable cost of $50. The fancy circular saw sells for $100 and
1. Several successful chains of warehouse stores such as Costco have merchandising policies that differ considerably from those of traditional department stores. Name some characteristics of these
Quality Corporation believes that there is a market for a portable electronic toothbrush that can be easily carried by business travellers. Quality’s market research department has surveyed the
Griffy, Li, and Bernard, a CA firm, is preparing to bid for a consulting job. Although Alicia Bernard will use her judgment about the market in finalizing the bid, she has asked you to prepare a cost
Consider the following data from Blackmar Company’s budgeted income statement. Compute the markup percentages that would be used for obtaining the same target sales as a percentage of (1)
Consider the following data: Compute the following per unit of product: (a) total variable costs, (b) full manufacturing cost, (c) full cost. Variable selling and administrative costs per unit $
Athletic Supply (VAS) makes game jerseys for athletic teams. The F.C. Oak Bay soccer club has offered to buy 100 jerseys for the teams in its league for $15 per jersey. The team price for such
Jackson Company had the following data (in thousands) for a given period. Assume there are no inventories. Compute (a) the variable manufacturing cost of goods sold, (b) the variable selling and
Stein Jewellery had the following data (in thousands of South African rands, ZAR) for a given period. Assume there are no inventories. Fill in the blanks. Sales ZAR 370 Direct materials Direct
Anzola Company had the following data (in millions) for a recent period. Fill in the blanks. There were no beginning or ending inventories. $920 a. Sales b. Direct materials used c. Direct
Paul and Paula Petrocelli were trying to decide whether to go to the symphony or to the baseball game. They already have two nonrefundable tickets to “Pops Night at the Symphony? that cost $40
Today you are planning to see a movie, and you can attend either of two theatres. You have only a small budget for entertainment, so prices are important. You have attended both theatres recently.

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