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management and cost accounting
Questions and Answers of
Management And Cost Accounting
Teresa Company has recently launched a product quality improvement program. For the current year 20X5, its goal is to reduce quality costs to \(10 \%\) of sales revenues. The company's actual and
Anderson Company reported sales of \(\$ 5,000,000\) in \(20 X 5\). During the year, Anderson included the following quality costs:Required:1. Compute the quality cost as a percentage of total quality
Calco Electronics Company's quality improvement program requires a trend analysis of its quality costs every year. At the end of \(20 \mathrm{X} 4\), Calco's records show the following quality costs
Terry Taylor's quality improvement program includes a pareto analysis each period to identify key quality cost components for management attention and action. For the past accounting period,
During November and December 20X7, Watella Company incurred the following costs of quality:{Required:}1. Calculate the following quality costs for each month:2. Total prevention costs.3. Total
Acadia Company manufactures and sells a special product. Based on the marketing manager's past experience, the target value of product quality characteristic is 0.10 and the average cost for warranty
Define capital budgeting.
What major factors must be considered in evaluating capital investment projects?
Why is one dollar today worth more than one dollar to be received a year from now?
Discuss the major advantage of the discounted cash flow method in evaluating capital investment projects.
Explain why depreciation is a tax shield against taxes.
How does depreciation affect capital investment decisions?
Explain how income taxes affect capital investment decisions.
Explain how inflation affects capital investment decisions.
Under what conditions can the payback reciprocal be used to approximate the internal rate of return?
Discuss how uncertainty affects capital budgeting analysis.
Why are accelerated methods of depreciation more desirable than the straight-line depreciation method? Discuss your answer from an income tax point of view.
Discuss the effect of each of the following cases on a capital investment proposed for a new machine. Consider each case separately.(1) An expected increase in interest rate on long-term debt.(2) A
Posa Co. is planning to invest \(\$ 40,000\) in a three-year project. Posa's expected rate of return is 10 percent. The present value of \(\$ 1\) at 10 percent for one year is .909 , for two years is
The Herb Company acquired a new machine for \(\$ 16,000\) which it will depreciate on a straight-line basis over a ten year period. A full year's depreciation was taken in the year of acquisition.
Freedom Corporation acquired a fixed asset at a cost of \(\$ 100,000\). The estimated life was four years, and there was no estimated salvage value. Assume a relevant interest rate of 8 percent and
Ranking Alternatives with NPV and IRR Given below is cash flow information pertaining to three alternative investment projects. The cost of capital is 12 percent.{Required:}(1) Rank these projects
A Company bought Machine M on March 5, 20X4 for \(\$ 5,000\) cash. The estimated salvage was \(\$ 200\) and the estimated life was eleven years. On March 5, 20X5, the company learned that it could
The Happy Valley Company is planning to purchase a new machine. The payback period is estimated to be six years. The cash flow from operations, net of income taxes, is estimated to be \(\$ 2,000\) a
A new machine costing \(\$ 60,000\) will result in the following net cash inflows. The desired rate of return on investment is 10 percent.{Required:}1) Compute the payback period for the investment
Two investment projects are being considered by the Gem Company. Project A, costing \(\$ 16,000\) with an estimated useful life of three years, will earn a net cash inflow of \(\$ 8,000\) per year.
Computing Payback Period, Net Present Value, Internal Rate of Return, and Accounting Rate of Return A machine costing \(\$ 50,000\) is expected to provide the following net cash flows:The expected
Jack, Jones, and Johnson, three franchised home appliance dealers, have requested short-term financing from their company. The dealers have agreed to repay the loans within three years, and to pay
The Aloha Company is considering the purchase of a piece of equipment. The following information is available:{Required:}(1) If the net present value method is used to evaluate the project, should
The Aloha Company is considering the purchase of a machine costing \(\$ 200,000\). The estimated net incomes from the machine are:The machine is to be depreciated on the sum-of-the-years'-digits
Vernon Enterprises designs and manufactures toys. Past experience indicates that the product life cycle of a toy is three years. Promotional advertising produces large sales in the early years, but
The Baxter Company manufactures short-lived fad-type items. The R \& D Department has developed an item that would be an interesting promotional gift for office equipment dealers. Aggressive and
Drexel Company is considering the purchase of a new machine costing \(\$ 15,000\). The new machine is to be depreciated on the sum-of-the-years'-digits method. The salvage value at the end of 5 years
Madisons, Inc. has decided to acquire a new machine either by an outright cash purchase at \(\$ 25,000\) or by leasing alternative of \(\$ 6,000\) per year for the life of the machine. Other relevant
Bart Mover, CPA, has been asked for advice by a client wishing to sell her home. The client has found a buyer who has agreed to the following terms of sale:However, the client's attorney has advised
The management of Essen Manufacturing Company is currently evaluating a proposal to purchase a new and innovative drill press as a replacement for a less efficient piece of similar equipment which
Amex Company is considering the introduction of a new product which will be manufactured in an existing plant; however, new equipment costing \(\$ 150,000\) with a useful life of five years (no
The Morton Company is planning to invest \(\$ 10,000,000\) in an expansion program which is expected to increase earnings before interest and taxes by \(\$ 2,500,000\). The company currently is
Thorne Transit, Inc. has decided to inaugurate express bus service between its headquarters city and a nearby suburb (one-way fare of \(\$ .50\) ) and is considering the purchase of either 32- or
The Gercken Corporation sells computer services to its clients. The company completed a feasibility study and decided to acquire an additional computer on January 2, 20X5. Information regarding the
Purchase, Lease, or Build Equipment The Edwards Corporation is considering adding a new stapler to one of its product lines. More equipment will be required to produce the new stapler. There are
The following transactions occurred during the month of January, 20X5:{Required}Prepare the journal entries for January, 20X5. 1. Raw materials costing $40,000 were purchased on account. 2. Raw
The president of Beth Corporation, which manufactures tape decks and sells them to producers of sound reproduction systems, anticipates a \(10 \%\) wage increase on January 1 of next year to the
Breakeven Point and Sales Needed for a Desired Profit All-Day Candy Company is a wholesale distributor of candy. The company services grocery, convenience and drug stores in a large metropolitan
What are the advantages of standard costs over historical costs for planning and control?
Distinguish between three approaches to setting standards. Which approach is preferable for control?
Describe the role of the cost accountant in the process of setting material and labor standards.
How do standard costs aid in assigning responsibility for variances disclosed in a responsibility accounting system?
What is meant by "standard hours allowed?" How is it used?
Who in an organization may be held responsible for a labor rate variance? A materials price variance?
Who in an organization may be held responsible for a labor usage variance? A materials quantity variance?
What is the significance of mix and yield variances for purposes of control?
Why is a cost flow assumption for work-in-process inventories (weighted average or FIFO) not required in a standard costing system?
What are two ways of recording raw materials inventory costs in a standard costing system? Which method is preferable for purposes of control? Why?
Excessive direct labor wages resulting from overtime premiums will be disclosed in what type of variance?
What is the significance of a debit balance in a labor efficiency variance account?
Information on Westcott Company's direct labor costs is as follows: Standard direct labor rate. ..$3.75 Actual direct labor rate. .$3.50 Standard direct labor hours.......... .10,000 Actual direct
Matt Company uses a standard cost system. Information for raw materials for Product RBI for the month of October is as follows:Calculate the following:(a) Material quantity variance, (b) Material
Home Company manufactures tables with vinyl tops. The standard material cost for the vinyl user per Type-R table is \(\$ 7.80\) based on six square feet of vinyl at a cost of \(\$ 1.30\) per square
Lion Company's direct labor costs for the month of January 20XX were as follows:Compute the labor usage (efficiency) variance. Actual direct labor hours... Standard hours allowed......... Labor rate
Information on Kennedy Company's direct material costs is as follows:Compute the actual purchase price per unit. Standard unit price......... Actual quantity purchased... Standard quantity allowed
Lab Corp. uses a standard cost system. Direct labor information for Product CER for the month of October is as follows:9,000 units of Bevo which were \(100 \%\) complete as to items A and B, \(50
Data on Goodman Company's direct labor costs is given below: Standard hours allowed...... Actual direct labor hours... Labor usage variance, favorable.. Labor rate variance, favorable. Total payrol
Miraclean Corp. produces a chemical cleaner which is sold in one-gallon containers.It is manufactured from two ingredients, Material \(\mathrm{X}\) and Material Y. The materials standards for one
On May 1, 20XX, Bovar Company began the manufacture of a new mechanical device known as "Dandy." The company installed a standard cost system in accounting for manufacturing costs. The standard costs
Sure-Gro Company is a manufacturer of fertilizer which is sold in \(40 \mathrm{lb}\). bags. Its major product, Sure-Gro I, is composed of three active chemicals and an inert filler (which has no
Wurstenheimer Company is a small manufacturer of specialty meat products which utilizes a standard cost system. The following standards have been developed for one pound of smoked German sausage.(a)
Analyzing the Materials Quantity Variance Alternative Energies, Inc., a subsidiary of a large oil company, manufactures and distributes gasohol. Gasoline is purchased from the parent company at a
The Alton Company is going to expand its punch press department. It is about to purchase three new punch presses from Equipment Manufacturers, Inc. Equipment Manufacturers' engineers report that
The Molding Department of the Western Corp. produces molded brass belt buckles for later use in assembling leather belts. The buckles are produced in two sizes, small and large. Small Material
Tolbert Manufacturing Company uses a standard cost system in accounting for the cost of production of its only product, Product A. The standards for the production of one unit of Product
Hideaway Distillery manufactures a pleasant-tasting beverage known in its local vicinity as Georgia Mountain Nectar. Because its production facilities must be moved from time to time, its productive
Finley Foundry Corp. manufactures iron castings to order for other manufacturing companies. A standard costing system is used in which raw materials inventories are carried at actual costs. The
Wearight Shoe Corp. utilizes a standard process cost system in the manufacture of heavy duty work shoes. The production process is carried out in two processes. In the cutting department, leather is
Steel Slitting Company divides 24 " widths of rolled sheet steel into 2" and 4" widths. The 24 " widths are delivered to Steel Slitting Company by its customers and the new widths are picked up by
The Bayou Manufacturing Corporation produces only one product, Bevo, and accounts for the production of Bevo using a standard cost system.Following are the standards for the production of one unit of
Energy Products Company produces a gasoline additive, Gas Gain. This product increases engine efficiency and improves gasoline mileage by creating a more complete burn in the combustion
Maidwell Company manufactures washers and dryers on a single assembly line in its main factory. The market has deteriorated over the last five years and competition has made cost control very
Why is the control of factory overhead costs a particularly useful application for flexible budgets?
What are the assumptions underlying the flexible budget formula? Are these assumptions always valid when flexible budgets are used?
Describe the advantages of flexible budgets over static budgets for planning.
Describe the advantages of flexible budgets over static budgets for control.
What are the advantages of departmental factory overhead rates? the disadvantages?
At what level in an organization is a factory overhead volume variance controllable? Who should be held responsible for it?
Intuitively, what is the significance of the factory overhead budget variance? Why is it sometimes called the controllable variance?
How may the factory overhead efficiency variance be interpreted? Is it useful for control?
What are the sources of the factory overhead spending variance?
Describe the methods for disposing of standard cost variances at year-end. When is each method appropriate?
Distinguish between random and nonrandom variances or deviations.
Describe four possible sources of nonrandom variances or deviations.
Do you agree with the following statement: "When a process has a favorable variance, it requires no investigation"?
If a cost variance is not investigated, will the variance continue in the future?
Describe how control charts are set up and used in cost control.
Explain why both the \(\mathrm{X}\) chart and the \(\mathrm{R}\) chart are needed in the use of control charts for cost control.
What is the advantage and the disadvantage of using the control chart approach in cost control?
Describe how the cost-benefit approach can be used in determining whether or not to investigate a variance.
If a cost variance is investigated, will the cause of the variance always be found?
When would an out-of-control process be allowed to continue?
What are the major assumptions underlying the cost-benefit approach to the variance investigation decision?
The following relationships pertain to a year's budgeted activity for Smythe Company: Direct labor hours................. 300,000 400,000 Total costs................ ..$129,000 $154,000 What are the
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