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managerial accounting tools for business decision making

Questions and Answers of Managerial Accounting Tools For Business Decision Making

Describe the cash payback technique.AppendixLO1
Explain the net present value method.AppendixLO1
Identify the challenges presented by intangible benefi ts in capital budgeting.AppendixLO1
Describe the profi tability index.AppendixLO1
Indicate the benefi ts of performing a post-audit.AppendixLO1
Explain the internal rate of return method.AppendixLO1
Describe the annual rate of return method.AppendixLO1
Which of the following is not an example of a capital budgeting decision?(a) Decision to build a new plant.(b) Decision to renovate an existing facility.(c) Decision to buy a piece of machinery.(d)
What is the order of involvement of the following parties in the capital budgeting authorization process?(a) Plant managers, officers, capital budget committee, board of directors.(b) Board of
What is a weakness of the cash payback approach?(a) It uses accrual-based accounting numbers.(b) It ignores the time value of money.(c) It ignores the useful life of alternative projects.(d) Both (b)
Siegel Industries is considering two capital budgeting projects. Project A requires an initial investment of $48,000. It is expected to produce net annual cash flows of $7,000. Project B requires an
Which is a true statement regarding using a higher discount rate to calculate the net present value of a project?(a) It will make it less likely that the project will be accepted.(b) It will make it
A positive net present value means that the:(a) project’s rate of return is less than the cutoff rate.(b) project’s rate of return exceeds the required rate of return.(c) project’s rate of
Which of the following is not an alternative name for the discount rate?(a) Hurdle rate.(b) Required rate of return.(c) Cutoff rate.(d) All of these are alternative names for the discount
If a project has intangible benefits whose value is hard to estimate, the best thing to do is:(a) ignore these benefits, since any estimate of their value will most likely be wrong.(b) include a
An example of an intangible benefit provided by a capital budgeting project is:(a) the salvage value of the capital investment.(b) a positive net present value.(c) a decrease in customer complaints
The following information is available for a potential capital investment.Initial investment $80,000 Salvage value 10,000 Net annual cash fl ow 14,820 Net present value 18,112 Useful life 10 years
A post-audit of an investment project should be performed:(a) on all significant capital expenditure projects.(b) on all projects that management feels might be financial failures.(c) on randomly
A project should be accepted if its internal rate of return exceeds:(a) zero.(b) the rate of return on a government bond.(c) the company’s required rate of return.(d) the rate the company pays on
The following information is available for a potential capital investment.Initial investment $60,000 Net annual cash fl ow 15,400 Net present value 3,143 Useful life 5 years The potential
Which of the following is incorrect about the annual rate of return technique?(a) The calculation is simple.(b) The accounting terms used are familiar to management.(c) The timing of the cash inflows
The following information is available for a potential capital investment.Initial investment $120,000 Annual net income 15,000 Net annual cash fl ow 27,500 Salvage value 20,000 Useful life 8 years
Describe the process a company may use in screening and approving the capital expenditure budget.AppendixLO1
What are the advantages and disadvantages of the cash payback technique?AppendixLO1
Tom Wells claims the formula for the cash payback technique is the same as the formula for the annual rate of return technique. Is Tom correct? What is the formula for the cash payback
Two types of present value tables may be used with the discounted cash flow techniques. Identify the tables and the circumstance(s) when each table should be used.AppendixLO1
What is the decision rule under the net present value method?AppendixLO1
Discuss the factors that determine the appropriate discount rate to use when calculating the net present value.AppendixLO1
What simplifying assumptions were made in the chapter regarding calculation of net present value?AppendixLO1
What are some examples of potential intangible benefits of investment proposals? Why do these intangible benefits complicate the capital budgeting evaluation process? What might happen if intangible
What steps can be taken to incorporate intangible benefits into the capital budget evaluation process?AppendixLO1
What advantages does the profitability index provide over direct comparison of net present value when comparing two projects?AppendixLO1
What is a post-audit? What are the potential benefits of a post-audit?AppendixLO1
Identify the steps required in using the internal rate of return method when the net annual cash flows are equal.AppendixLO1
El Cajon Company uses the internal rate of return method. What is the decision rule for this method?AppendixLO1
What are the strengths of the annual rate of return approach? What are its weaknesses?AppendixLO1
Your classmate, Mike Dawson, is confused about the factors that are included in the annual rate of return technique. What is the formula for this technique?AppendixLO1
Sveta Pace is trying to understand the term “cost of capital.” Define the term and indicate its relevance to the decision rule under the internal rate of return technique.AppendixLO1
Bella Company is considering purchasing new equipment for $450,000. It is expected that the equipment will produce net annual cash flows of $50,000 over its 10-year useful life. Annual depreciation
Hsung Company accumulates the following data concerning a proposed capital investment: cash cost $215,000, net annual cash flows $40,000, present value factor of cash inflows for 10 years 5.65
Magic Corporation, an amusement park, is considering a capital investment in a new exhibit. The exhibit would cost $136,000 and have an estimated useful life of 5 years.It will be sold for $65,000 at
Caine Bottling Corporation is considering the purchase of a new bottling machine. The machine would cost $200,000 and has an estimated useful life of 8 years with zero salvage value. Management
Beacon Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $400,000, has an expected useful life of 10 years, a salvage value of zero, and is
Quillen Company is performing a post-audit of a project completed one year ago. The initial estimates were that the project would cost $250,000, would have a useful life of 9 years, zero salvage
Horowitz Company is evaluating the purchase of a rebuilt spot-welding machine to be used in the manufacture of a new product. The machine will cost $176,000, has an estimated useful life of 7 years,
Viera Corporation is considering investing in a new facility. The estimated cost of the facility is $2,045,000. It will be used for 12 years, then sold for $716,000. The facility will generate annual
Mecha Oil Company is considering investing in a new oil well. It is expected that the oil well will increase annual revenues by $130,000 and will increase annual expenses by $70,000 including
Wallowa Company is considering a long-term investment project called ZIP. ZIP will require an investment of $120,000. It will have a useful life of 4 years and no salvage value. Annual cash inflows
Wallowa Company is considering a long-term investment project called ZIP. ZIP will require an investment of $120,000. It will have a useful life of 4 years and no salvage value. Annual cash inflows
Wallowa Company is considering a long-term investment project called ZIP. ZIP will require an investment of $120,000. It will have a useful life of 4 years and no salvage value. Annual cash inflows
Wallowa Company is considering a long-term investment project called ZIP. ZIP will require an investment of $120,000. It will have a useful life of 4 years and no salvage value. Annual revenues would
Doug’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $22,000. Each project will last for 3 years and produce the following net annual cash
Hiland Inc. manufactures snowsuits. Hiland is considering purchasing a new sewing machine at a cost of $2.45 million. Its existing machine was purchased five years ago at a price of $1.8 million; six
BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn’t equipped to do. Estimates
Eisler Corporation is involved in the business of injection molding of plastics. It is considering the purchase of a new computer-aided design and manufacturing machine for$430,000. The company
BSU Inc. wants to purchase a new machine for $29,300, excluding $1,500 of installation costs. The old machine was bought five years ago and had an expected economic life of 10 years without salvage
Ueker Company is considering three capital expenditure projects. Relevant data for the projects are as follows.Annual Life of Project Investment Income Project 22A $240,000 $16,700 6 years 23A
Pierre’s Hair Salon is considering opening a new location in French Lick, California.The cost of building a new salon is $300,000. A new salon will normally generate annual revenues of $70,000,
Vilas Company is considering a capital investment of $190,000 in additional productive facilities. The new machinery is expected to have a useful life of 5 years with no salvage value. Depreciation
BAP Corporation is reviewing an investment proposal. The initial cost and estimates of the book value of the investment at the end of each year, the net cash flows for each year, and the net income
Alona Company’s overhead rate was based on estimates of $200,000 for overhead costs and 20,000 direct labor hours. Alona’s standards allow 2 hours of direct labor per unit produced. Production in
Data for Nona Inc. are given in E23-7.Instructions Journalize the entries to record the materials and labor variances.AppendixLO1
The following is a list of terms related to performance evaluation. 1. Balanced scorecard 5. Customer perspective 2. Variance 6. Internal process perspective 3. Learning and growth perspective 7.
Fisk Company uses a standard cost accounting system. During January, the company reported the following manufacturing variances.Materials price variance $1,200 U Labor quantity variance $750 U
Burte Corporation prepared the following variance report.BURTE CORPORATION Variance Report—Purchasing Department For the Week Ended January 9, 2014 Type of Quantity Actual Standard Price Materials
Picard Landscaping plants grass seed as the basic landscaping for business campuses.During a recent month, the company worked on three projects (Remington, Chang, and Wyco). The company is interested
Wales Company purchased (at a cost of $10,800) and used 2,400 pounds of materials during May. Wales’s standard cost of materials per unit produced is based on 2 pounds per unit at a cost $5 per
Manufacturing overhead data for the production of Product H by Smart Company are as follows.Overhead incurred for 52,000 actual direct labor hours worked $263,000 Overhead rate (variable $3; fixed
During March 2014, Toby Tool & Die Company worked on four jobs. A review of direct labor costs reveals the following summary data.Job Actual Standard Total Number Hours Costs Hours Costs Variance
You have been given the following information about the production of Horatio Co., and are asked to provide the plant manager with information for a meeting with the vice president of
The following direct materials and direct labor data pertain to the operations of Laurel Company for the month of August.Costs Quantities Actual labor rate $13 per hour Actual hours incurred and used
Nona Inc., which produces a single product, has prepared the following standard cost sheet for one unit of the product.Direct materials (8 pounds at $2.50 per pound) $20 Direct labor (3 hours at
Lewis Company’s standard labor cost of producing one unit of Product DD is 4 hours at the rate of $12.00 per hour. During August, 40,600 hours of labor are incurred at a cost of $12.15 per hour to
The standard cost of Product B manufactured by MIT Company includes three units of direct materials at $5.00 per unit. During June, 29,000 units of direct materials are purchased at a cost of $4.70
Hank Itzek manufactures and sells homemade wine, and he wants to develop a standard cost per gallon. The following are required for production of a 50-gallon batch.3,000 ounces of grape concentrate
Shannon Company is planning to produce 2,000 units of product in 2014. Each unit requires 3 pounds of materials at $5 per pound and a half-hour of labor at $15 per hour. The overhead rate is 70% of
Indicate which of the four perspectives in the balanced scorecard is most likely associated with the objectives that follow.1 Ethics violations.2 Credit rating.3 Customer retention.4 Stockouts.5
The standard cost of product 5252 includes 1.9 hours of direct labor at$14.00 per hour. The predetermined overhead rate is $22.00 per direct labor hour. During July, the company incurred 4,100 hours
The standard cost of product 777 includes 2 units of direct materials at$6.00 per unit. During August, the company bought 29,000 units of materials at $6.30 and used those materials to produce 16,000
Jacque Company accumulated the following standard cost data concerning product I-Tal.Direct materials per unit: 2 pounds at $5 per pound Direct labor per unit: 0.2 hours at $15 per hour Manufacturing
Using the data in BE23-6 and BE23-10, compute the overhead volume variance.Normal capacity was 25,000 direct labor hours.AppendixLO1
Some overhead data for Roby Company are given in BE23-6. In addition, the flexible manufacturing overhead budget shows that budgeted costs are $4 variable per direct labor hour and $50,000 fixed.
Journalize the following transactions for Dewey, Inc.(a) Incurred direct labor costs of $24,000 for 3,000 hours. The standard labor cost was$25,500.(b) Assigned 3,000 direct labor hours costing
Journalize the following transactions for Combs Company.(a) Purchased 6,000 units of raw materials on account for $11,500. The standard cost was$12,000.(b) Issued 5,600 units of raw materials for
The four perspectives in the balanced scorecard are (1) financial, (2) customer,(3) internal process, and (4) learning and growth. Match each of the following objectives with the perspective it is
In October, Roby Company reports 21,000 actual direct labor hours, and it incurs $118,000 of manufacturing overhead costs. Standard hours allowed for the work done is 20,400 hours. The predetermined
Hartley Company’s standard labor cost per unit of output is $22 (2 hours 3 $11 per hour). During August, the company incurs 2,100 hours of direct labor at an hourly cost of $10.80 per hour in
Simba Company’s standard materials cost per unit of output is $10 (2 pounds 3 $5). During July, the company purchases and uses 3,200 pounds of materials costing$16,192 in making 1,500 units of
Labor data for making one gallon of finished product in Tang Company are as follows: (1) Price—hourly wage rate $13.00, payroll taxes $0.80, and fringe benefits $1.20.(2) Quantity—actual
Tang Company accumulates the following data concerning raw materials in making one gallon of finished product: (1) Price—net purchase price $2.30, freight-in$0.20, and receiving and handling $0.10.
Perez Company uses both standards and budgets. For the year, estimated production of Product X is 500,000 units. Total estimated cost for materials and labor are$1,300,000 and $1,700,000. Compute the
John Hsu is attempting to outline the important points about overhead variances on a class examination.List four points that John should include in his outline.AppendixLO1
Alma Ortiz does not understand why the overhead volume variance indicates that fixed overhead costs are under- or overapplied. Clarify this matter for Alma.AppendixLO1
What is the purpose of computing the overhead volume variance? What is the basic formula for this variance?AppendixLO1
If the $9 per hour overhead rate in Question 12 includes$5 variable, and actual overhead costs were$248,000, what is the overhead controllable variance for June? The normal capacity hours were
(a) Explain the basic features of a standard cost accounting system. (b) What type of balance will exist in the variance account when (1) the materials price variance is unfavorable and (2) the labor
(a) How are variances reported in income statements prepared for management? (b) May standard costs be used in preparing financial statements for stockholders?Explain.AppendixLO1
What are some examples of nonfinancial measures used by companies to evaluate performance?AppendixLO1
Kerry James says that the balanced scorecard was created to replace financial measures as the primary mechanism for performance evaluation. He says that it uses only nonfinancial measures. Is this
What are the four perspectives used in the balanced scorecard? Discuss the nature of each, and how the perspectives are linked.AppendixLO1

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