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business
managerial accounting decision making

Questions and Answers of Managerial Accounting Decision Making

In reviewing divisional budgets for next year, the president of a firm noted that both of the firm's divisions project a satisfactory return on investment. However, the margin of safety is 10 percent
The fact that a sumber of assumptions must be valid in order for CVP analysis to be valid reduces the usefulness of the analysis." Do you agree with this statement? Why or why not?
Single Product: Break-Even Point: Desired Profit. Timothy Company sells its product for $6.00 per unit. Variable costs are $4.75 per unit, and fixed costs total $40,000 per year. Determine how many
Single Product: Break-Even Point; Desired Profit. Bixley Company sells its product for $8 per unit. Variable costs are $6 per unit, and fixed costs total $12,000 per year.a. Determine the break-even
Single Product; Break-Even Point: Desired Profit. Laura's Clothing Store sells dresses at an average price of S60 each, with a variable cost of $45 cach. Fixed costs are $60,000 per year. Determine
Single Product; Required Selling Price. John Baker is planning to sell a product with a variable cost of $5.50 per unit. Fixed costs are expected to be $50,000 per year. John estimates that he can
a. A net income of $30,000.b. A 15 percent return on sales.c. A 10 percent return on his $150,000 investment. Single Product: Required Selling Price. Janice Tyler opened a candy shop. The variable
Single Product; Increased Selling Price. Region Company sells a product for $35 per unit. The variable production and sales costs are $21 per unit. If Region adopts a 40 percent increase in the
Single Product; Change in Relevant Range: Desired Profit. Dallas Corporation wishes to market a new product for $1.50 per unit. Fixed costs to manufacture this product are $100,000 for less than
Multiple Products; Break-Even Point; Desired Profit. Ace Company incurs fixed costs of $60,000 per year. Its variable costs average 75 percent of sales. Calculate:a. Break-even sales.b. Sales
Multiple Products; Break-Even Point. Walter Company's income statement for last year is as follows: Sales Fixed costs Net income $400,000 $240,000 100,000 40.000 $60,000 What was the company's
Determining Sales from Break-Even Point Tice Company is a medium-sized manufacturer of lamps. During the year, a new line called "Horalin" was made available to Tice's customers. The break-even point
Operating Leverage. Last year, Bakely Company had sales of $600,000. Variable costs totalled $400,000, and fixed costs were $150,000 Management projects a 20 percent increase in sales for the current
Break-Even Point: Sales Mix. Jarvis Company has fixed costs of $200,000. It has two products that it can sell, Tetra and Min. Jarvis sells these products at a rate of two units of Tetra to one unit
Profit Change: Sales Mix. Kary Company sells two products-Kary Sauce and Kary Juice. The contribution margin ratio is 40 percent for sauce and 25 percent for juice. In 20x1, sales of sauce were
b. How much was the increase or decrease in profit in 20x2 compared with 20x1?c. Explain the reason for the change in profit.
Single Product; Break-Even Point: Margin of Safety: Operating Leverage. Battle Company sells its product, Battlem, for $30 per unit. Variable costs are $18 per unit, and fixed costs are $120,000 per
Projecting Sales from Margin of Safery. The Black Company manufactures and sells a specialty perfume. The company budgets a margin of safety of 20 percent for next year. Fixed costs are budgeted at
Why is there a difference between cost considerations in long-run and short-run decisions!
What is the difference between quantitative factors and qualitative factors? Which is more important?
List three qualitative factors that may be important in decision-making
Since product quality ultimately affects sales, should quality be classified as a quantitative factor?
Define relevant cost.
What is a sank cost? Why is it considered irrelevant to decisions about the future?
How does the inclusion of data that are the same between alternatives affect relevant cost analysis?
A manager was heard to say, "I don't understand these accountants. They tell us how important it is to make a profit, and then they say that disposing of an asset at a loss is irrelevant." How would
Appleton Appliances is planning a big refrigerator sale. The first 100 customers who buy refrigerates will receive kitchen step stools free. The store has 200 stools in stock. One hundred stools were
"A product should never be dropped as long as it is providing a segment margin." Do you agree with this statement? Explain.
What is ment by joint product cost? Give an example. What is the accounting problem associated with joint product cost?
What is the primary criterion used to determine whether a product should be sold at the split-off point or processed further?
What is meant by opportunity cost? Why is it not accounted for in the formal accounting system?
Vivian Paterson plans to buy a new car for $30,000. If she pays cash, she must use her savings, which have beca carning 8 percent interest per year. If she borrows money to buy the car, she will pay
What is the difference between incremental cost pricing and full cost pricing? Which is better? Explain.
Equipment Replacement. Rodney Company purchased a machine five years ago for $30,000. It had an estimated useful life of ten years with no salvage value. Operating costs are $12,000 per year. The
Equipment Replacement. Maxwell Company has an opportunity to acquire a new machine to replace one of its present machines. The new machine would cost $95,000, have a five-year life, and have no
Segment Operations. Colson Manufacturing Company produces a variety of products. Sales of "Zlone." one of its products, total $500,000 per year; variable costs, $350,000 per year, and separable fixed
Segment Operations. Operating results for the Westmeyer Writing Company were disappointing last year as shown below: Sales Variable costs Contribution margin Fixed costs: Separable Pins Pencils
Relative Sales Valar. Paulson Products Company manufactures three products: A, B, and C. Final sales are $100,000 for A. $60,000 for B. and $40,000 for C. Joint product costs total $75,000. Separable
Relate Sales Value. Helen Corporation manufactures products W. X, Y, and Z through a joint process. Additional information is as follows: Processed Further Lines Product Produced Sp-Off Additional
Make or Buy Decision. Reggie's Restaurant serves delicious pies made by Reggie's own cooks. The cost of each pie has been calculated as follows: Ingredients Electricity Labor Total $1.00 50 200 $450
Make or Buy Decision; Opportunity Cost. Golden, Inc., has been manufacturing 5,000 units of Part 10541 per year. It is used in the manufacture of one of its products. At this level of production, the
Limiting Factors. Twin Company has been producing two popular products, Twink and Twank. It has been able to keep up with the demand for these products. Twink sells for $4.00 per unit, has a variable
Limiting Factors. E-Z Chair Manufacturing Company produces two types of chairs, both of which are much in demand. The firm uses a special type direct material that results in a very comfortable
Obsolete laventory. The Lantern Corporation has 1800 ebsolete lanterns in inventory that had a manufacturing cost of $20,000. If the lanterns are remachined at a cost of $5,000. they can be sold for
Define capital project and capital budgeting.
How does capital budgeting help management to select capital projects for approval?
What is the effect of qualitative factors on capital budgeting?
Describe the advantages and disadvantages of the payback method.
Since the unadjusted rate of return method measures profitability, why is it not considered one of the better capital budgeting techniques?
Drole Company has used the unadjusted rate of return method in evaluating capital projects for several years. In the past, the firm used the initial investment to determine the rate of return.
What is meant by the statement. "Money has value in relation to time? How does the statement affect capital budgeting?
Would you rather receive $2.000 per year for three years or $3.000 per year for two years? Does it make any difference? Explain. (Appendix) (Note: Do not use present value tables to answer the
When the net present value method is used, a project with a negative net present value should be rejected. Do you agree? Explain.
Three projects under evaluation have net present values of $1,200, $5,000, and $25,000. Which project is best? Explair
How does the time-adjusted rate of return method differ from the unadjusted rate of return method and from the net present value method? Which technique is best? Why?
A salesperson, when questioned about the apparently high maintenance cost of a machine that he was selling, replied. "Don't worry about it. It's deductible." What did he mean by that? Do you agree
If reducing expenses increases taxes, how can it be an advantage?
Since depreciation does not involve a cash flow, why is it considered in capital budgeting
For tax purposes, accelerated depreciation under MACRS generally is considered more favorable than the optional straight-line method. Why do you think this is so?
Under what circumstances might a firm prefer to use the straight-line method of depreciation rather than accelerated depreciation for tax purposes?
Payback Method. Determine the payback period in each of the following situations: incremental Nor Cash allows $4,000 $1,500b. 8,000 2,500 12,000 2,000d. 40,000 7.000
125,000 28,000
Payback Method; Uneven Cash Flows. Determine the payback period in the situations shown below. Incremental investment was: (a) $35.000, (b) $60,000, and (c) $180,000. Annual net cash inflows were as
Payback Method: Unadjusted Rate of Return. Barney Company may purchase a new machine a a cost of $30,000. Its expected life is five years, with no salvage value. Operating costs will be reduced by
Payback Method: Unadjusted Rate of Return. Plastics, Inc., is considering the purchase of a $40.000 machine, which will be depreciated on a straight-line basis over an eight-year period, with no
Net Present Value: Profitability Index. Determine the net present value and the profitability index in each of the following situations. Investment Annual net cash inflows Salvage value lat end of
Net Present Value: Profitability Index: Tax Effect. Determine the net prevent value in each situation below. Assume a 40 percent income tax rate: round straight-line rutes to the nearest percent.
Present Value of After-Tax Cash Flows; Independent Situations. Determine the present value of the after-tax cash flows in each of the situations below. The tax rate is 40 percent in all cases. Use
Net Present Value: Time-Adjusted Rate of Return; Independent Situations. Determine the net present value and the time-adjusted rate of return in each situation below. (Note: Estimate the rate of
Time-Adjusted Rate of Return. Yamamoto Corporation will invest in the project below that provides the highest time-adjusted rate of return, provided it exceeds the firm's cost of capital of 10
Net Present Value: Tax Effect. D.R. Williams Sales Company would like to hire another salesperson in order to expand sales. Estimates show that the addition of one person could result in increased
Time-Adjusted Rate of Return: Ethics. In preparing capital budgeting analysis to purchase new equipment for his department, Jim Atkins calculates that the time-adjusted rate of return will be 18
Purchase of Computers. BCB Company plans to buy ten new computers at a cost of $2,000 each. The old computers can be disposed of for a total of 5500 for all of them. The new computers are expected to
Purchase of Machine Yahoo Corporation is considering the purchase of a new machine. Two alternatives are available. Machine A costs $30,000 and would reduce operating costs by $8.000 per year. Its
Purchase of Machine. Blue Ridge Spring Water Company sells clear, clean, bottled spring water to both business and residential customers. The current demand for the product exceeds the firm's ability
Alternative Projects. Bell Company is considering two alternative projects. Project A requires a $40,000 investment and would provide annual net cash inflows of $12,000 per year. Project B requires a
Single Project: Tax Effect. Mama Miya Pizza Company is considering investing in a project at acost uf S80,000. The project is expected to provide annual incremental cash inflows of $30,000 per year
How is probability theory helpful in management decision-making?
Define conditional value and expected value. Describe the difference between the two terms.
A firm has an investment opportunity with conditional values of annual profits for three possible events of $30,000, $50,000, and $80,000. By applying the expected probabilities to each event, it has
What is meant by the value of perfect information? How is it helpful in management decision- making?
How can profitability theory be applied to capital budgeting?
In what type of situations is linear programming normaily used?
Since linear programming is a mathematical technique, why should a manager be familiar with its use?
Why must the optimal solution to a linear programming problem always he at a corner?
How does a stockout affect profitability?
EOQ calculation includes elements that, as a practical matter, are difficult to determine with the precision implied in the calculation. Carrying cost per unit is an example. Therefore, how is EOQ
Expected value. Wistful Company is considering a project that will result in possible annual net cash inflows as follows Not Cash Probability $15,000 05 30.000 25 50,000 40 70.000 30 Determine the
Expected Value. Benny Company anticipates introducing a new product. The annual profits that it might eam, along with the probabilities are as follows: Probability ($25,000 5.000 .10 10,000 25.000
Expected Value Allison Corporation has plans for a new product, with the fallowing possible profit- and their probabilities: Prost Probsty ($20.000 15 20.000 30 50.000 80.000 40 15 The reason for the
Expected Value. Thoran Electronics Company began to produce pacemakers last year. At that time. the company forecast the need for 10.000 integrated circuits per year. During the first year, the
Linear Programming: Raw Materials Constraint. A to Z Manufacturing Company manufactures two products: Bee and Cee. Each unit of Bee requires two units of raw material Jay and four units of raw
Linear Programming: Machine-Hour Constraint. Combo Company produces two products: Algon and Grine, which provide contribution margins of $5 and $8 per unit, respectively. Each product goes through
Linear Programming: Minimizing Materials Cost. Beauty Company produces a cosmetic product in 60-gallon batches. The basic ingredients used are Material X, costing $7 per gallon, and Material Y.
Linear Programming: Machine-Hour Constraint. Milligan Company manufactures two models Small and Large. The models are processed as follows: Machining Department Polishing Department Smal Large 2
Determining EOQ by Formula. Rainey Company uses 10,000 units of X-lon per year at a purchase price of $30 per unit. The order cost is 515 per order, and inventory carrying cost is $3 per unit.a. Use
Determining Optimum Lot Size by Formula. Kelley Corporation expects to manufacture 100.000 units next year. Its setup costs are $3,000 per production run, and inventory carrying costs average $15 per
Determining EOQ by Formula. Brady Sporting Goods, Incorporated, buys baseballs at $20 per diven from its wholesaler. Brady will sell 36,000 haschalls evenly throughout the year. Bradly desires a 10
Reorder Point. Belmont Corporation has determined FAQ on one of its major products to be 2.500 units. It uses forty units per day and has established a safety stock of 200 units. The lead time is
Determining EOQ by Formula: Safety Stock: Reorder Point. Brandun Company uses 24,000 units of Part 67K annually. In the past, it has ordered 2.000 units per month. Now, however, the inventory manager

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