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business
management cost accounting

Questions and Answers of Management Cost Accounting

Management of Nan Mischke Company wishes to earn a 25 percent return on assets employed by all segments. Assets employed by the Northern Territory amount to $500,000, while fixed costs directly
Luther, Inc.’s controller advocates segment reporting and argues the merits of management identifying and reporting significant aspects of the organization’s operations. Other members of the
Management of Herbert, Inc., set an objective of a 20 percent return on assets employed by all segments. The XRX product line employed assets totaling $800,000, while $75,000 fixed costs relate
Within a company, decentralization exists in various degrees, often reflecting the scope of the decision-making authority given to a particular segment manager. Under this classification scheme, the
Thompson Corporation has divided its organization into autonomous divisions. Each division is an investment center since it has responsibility and authority for purchases of assets as well as
Define transfer pricing and indicate when it is necessary to establish transfer prices.
Discuss three transfer pricing methods, indicating under what conditions each would be appropriate. State any variations of these methods.
Indicate the relationship between the degree of interdependence and diversification among company segments and the significance of the transfer pricing problem.
What effect does the use of transfer pricing information have on the pricing basis chosen?
With regard to both the segment and the overall company, how should the transfer pricing system motivate segment managers?
What is the impact of product life cycles on transfer prices?
Discuss some advantages and limitations of using full cost as the transfer price.
How can opportunity cost be used as the basis on which transfer prices are established?
Discuss several arguments supporting the use of market transfer pricing.
What important requirement is necessary for market transfer pricing to be successfully applied?
Discuss how a service company uses transfer prices.
In a company in which income responsibility is centralized, managers are evaluated on their ability to control cost. However, as businesses grow and become decentralized, evaluating managerial
Multidivisional corporations benefit by establishing independent and autonomous profit centers.Each division manager’s nearness to the marketplace provides relevant information regarding the price
The cost accountant for the Mischke Company provides you with the following data for the Tire Division:She also informs you that 5,000 of the 40,000 tires usually are sold to the Motorcycle Division
The Assembly Division of Waltz Company produces components that the Finishing Division incorporates into a final product. Components from the Assembly Division also can be sold to outsiders. Each
Division A of the Diamond Company manufactures motors used by other divisions of the company and sold to outside customers. Division B of Diamond Company has requested that Division A supply a
At practical capacity, the Fabricating Division of Crossville Company has facilities to produce 8,000 units per month. Each unit requires five direct labor-hours. The Assembly Division of the company
What one weakness do all the capital budgeting methods discussed in the chapter share?
How does depreciation affect capital asset decisions?
Define sunk cost and indicate the role this cost plays in replacement decisions.
As the cost accountant of a company requesting a loan for the purchase of expensive robots, what is your reaction when the banker says, “I will not lend money for new equipment unless your company
How can the probability of occurrence be given consideration in the net present value approach to evaluating plant asset proposals?
How does use of the profitability index overcome a weakness of the net present value method in ranking projects in order of contribution to income or desirability when comparing investment projects
a. Which capital budgeting method assumes that funds are reinvested at the company’s cost of capital?b. Which capital budgeting methods require use of present value tables?
Discuss the strengths and weaknesses of these capital budgeting methods:. Net present value method.Internal rate of return.Unadjusted return on investment.Payback.
Assume proposed Project A has a profitability index greater than 1.00 while proposed Project B has a profitability index of less than 1.00. What does this mean and how do these indexes affect their
How is the tax shield computed and how is it used in capital expenditure analysis?
Discuss the concept underlying the present value method. What strengths does this evaluation method have over the payback method or the unadjusted rate of return?
Bellview Company uses three types of financing: debt, preferred stock, and common equity(the sum of retained earnings and common stock), with aftertax costs of 6 percent, 12 percent, and 16 percent,
An investment of $100,000 is planned by Tanglewood, Inc., for a three-year project. Cash flow, net of income taxes, will be $37,756, having a present value of $34,320, for the first year and $40,000,
Ryan, Inc., purchased equipment at a cost of $67,000. The equipment is estimated to yield$12,000 for each of its eight years of life. Use the following data in answering the
Beal, Inc., a large construction firm is interested in replacing a mainframe computer with a new model. The cost of the new equipment is $1,000,000 and has an expected useful life of 10 years. The
Hodges Company is planning to purchase a machine costing $117,000 to use in their Mixing Department. Management determined that this machine has a 10-year life with an estimated salvage value of
Contrast the hard automation used traditionally with flexible automation; include a definition of flexible manufacturing systems.
Discuss the impact of inflation on capital budgeting.
When comparing plant asset proposals, suggest guidelines to follow about the use of the various evaluation techniques.
How can two projects with different lives be compared in a plant asset expenditure program?
How can sensitivity analysis be used in capital budgeting?
Discuss why some accountants believe conventional capital budgeting uses too high a hurdle rate.
Why is the required rate of return used in the present value method usually above the general level of interest rates at which banks and lending institutions are loaning money?
Discuss the ideal conditions under which to introduce automation.
Name some benefits of automated equipment that are difficult to quantify.
In justifying the purchase of new capital equipment, explain why reliance on labor or energy savings may not be adequate for management’s evaluation process.
Discuss the reasons why a manager might make the following comment: “My company needs to evaluate very carefully not only the impact of purchasing a robot but also the impact of not acquiring the
PDB Company has purchased a new machine for $71,830. It has an estimated life of six years.Annual aftertax cash benefits are estimated to be $20,000.Required:Determine the maximum interest rate that
Management of Winters Company is planning to purchase a new tooling machine with a payback period estimated to be eight years. Straight-line depreciation of $2,500 will be expensed each year of the
With the automation of factories, cost accountants and production managers are changing their views regarding repair costs. As a result of this change in approach, more organizations are using the
Gonld Company is considering the purchase of a new machine, whose initial outlay would be $110,000. Its expected useful life is estimated to be five years, with no salvage value.Variable operating
Short Company is planning to purchase equipment costing $70,000 to use in their Cooking Department. Management estimates that the life of the machine will be 10 years, and depreciation for tax
Why are marketing costs presented on a per production unit basis not as meaningful as production costs presented on the same basis?
a. Why is the selection of the ABC cost drivers for marketing costs so important?b. What basic criteria should be considered in choosing an appropriate unit of variability?
Discuss the various segments that can be used to analyze marketing costs.a . Should direct selling standards be expressed as a percentage of gross margin or as a percentage of gross sales?
Why are cost standards most difficult to develop for advertising and sales promotion?
What type of variance analyses can be used for variable and fixed marketing costs?
Discuss the factors that can cause future costs to be different from historical costs.
Discuss the role of cost in pricing decisions.
When would a company establish a sales price less than variable cost?
Describe several cost-plus pricing methods.
Explain why you agree or disagree with the following: Managers should ask themselves, “Do I really know what my products cost?”
Indirect costs of a product manufactured by Worth Company amount to 75 percent of direct costs. Direct costs of the product are $45. Management wishes to add a 20 percent markup on the cost basis
Sales of a diet drink have not been as high as expected. To combat this, the marketing manager of Opaque, Inc., is planning an extensive advertising campaign costing $60,000. The president is
How does a variable costing structure facilitate the calculation of breakeven point and contribution margin analysis?
Can variable costing be used in a strictly actual cost system as well as in a standard cost system? How can it be implemented?
Discuss the development of variable costing and why there was a need for this concept.
A company produced 1,000 units having costs as follows: direct materials—$32,000;direct labor—$45,000; variable overhead—$62,000; and fixed overhead—$70,000.What is the product unit cost
Contrast and explain the difference in income using absorption and variable costing if:a. Production volume exceeds sales volume.b. Sales volume exceeds production volume.c. Sales volume equals
Why is the unit cost assigned to inventory using variable costing generally considered to be uniform?
What is the future of variable costing with the current emphasis on robots and automated manufacturing?
Why may an income statement prepared using absorption costing continue to show a profit even if sales decline?
What factor related to manufacturing costs causes the difference in net income computed using absorption costing and using variable costing?
Which features associated with variable costing income measurement should marketing managers find attractive?
Why are inventory valuations smaller with variable costing than with absorption costing?Baddour, Inc., manufactures a product whose unit variable and fixed production costs are $5 and $3,
Jumbo Jet Company manufactures a product that employs expensive automated machinery in its processing. Jumbo Jet uses straight-line depreciation for this automated machinery. Because of a lag in the
The following information is for the Rue Company’s first year of operation when it produced 20,000 units:Required:a. Determine income without preparing a formal income statement, using:(1)
Normal capacity of the Benn Company is 80,000 units per quarter, or 320,000 units per year.Standard variable cost per unit is materials, $4; labor, $2.50; and overhead, $0.90; or a total of $7.40 per
Why is breakeven analysis more accurate for one segment rather than for the overall company?
List five limitations of breakeven analysis in managerial decision making.
How does increased automation affect: (a) a company’s breakeven point and (b) the importance of cost accountants fully understanding a company’s cost behavior?
Discuss the relationship between contribution margin ratios and variable cost ratios.
(a) Assume the president of a company wishes to earn a 10 percent profit on sales.How can breakeven analysis be used to determine the unit sales to earn this desired profit percentage? (b) Discuss
What is the relationship between a company’s product mix and its breakeven point?Does a change in the assumed product mix affect the breakeven point previously determined?
What should management do when a low margin of safety is accompanied by (a) a high contribution margin and high fixed costs or (b) a low contribution margin ratio?
The budget formula for the Brown Company is $200,000 plus $0.75 per machine-hour.It takes four hours to manufacture a unit before it can be sold for $7. Based on the overhead budget formula, how many
Assume the market saturation point for a product is almost met and management does not believe it can increase present sales volume; in fact, they would not be surprised if there is a decrease in
A company sells its product for $45 per unit. Fixed costs amount to $600,000 per year.Variable expenses amount to $1,120,000 if 40,000 units are sold. Management anticipates that variable expenses
A Japanese computer manufacturing company has contacted Babbage Products with an offer to purchase 50,000 daisy wheels at a price of $4.25 each. Babbage’s full cost of producing a daisy wheel is
Michael Antonucci, Inc., owns a movie theater that has a seating capacity of 400.The price of one ticket is $3. The theater is open 52 weeks a year, and attendance averages 4,200 a week.Variable
Gold Company has fixed expenses of $325,000, variable expenses of $5.60 per unit, and a selling price of $12 per unit. A 15 percent return on invested capital of $500,000 is desired.Required:a.
Benjamin Company has determined the number of units of Product AA that it must sell to break even. However, Benjamin Company would like to attain a 15 percent profit on sales of Product
Each unit produced by Delman Company is sold for $8.40. Analysis of the cost records reveals the following costs at various capacity levels:Required:Calculate the breakeven point in dollars. Months
What are the implications of an approach that does not attempt to minimize inventory |ordering or carrying costs, but rather has as its goal to change the costs and parameters of a production process
At what point should cost information be accumulated under JIT manufacturing?
In what ways can scrap be recorded on the books? Discuss the theoretical basis and practical limitations of each.
(a) Discuss the lack of theoretical merit of crediting the sale of scrap to an other income account. When is this method justified? (b) To what account should the cost of reworking defective goods be
Discuss three ways of estimating safety stock.

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