Questions and Answers of Managerial Of Accounting Information

The game is played in noneooperative fashion, with simultaneous moves by eaeh player.a] Suppose neither player ean gather any additional information. Verify that equilibrium payoffs are 7 for Row and
value ofinformation Two competitors, Row and Column, are fighting it out as the only merehants on a remote island. Eaeh has two strategies, and nature will provide one of two states (with equal
The text stresses the idea that a wider decision frame is implied by the presence of significant competitive response concems. IlIustrate this adage with the duopoly example portrayed in Figure
cost and price An often heard theme in pricing is that price should reflect full cost, othelWise all costs are not covered and in the long-run the enterprise is not viable. Suppose we have a
eost and price Consider a monopolist who faces a market dearing price of P( q) = 400 - 5q and a cost curve of C(q) = 400q _ 20q2 + q3.a] Determine the monopolist's optimal quantity and maximal
price diserimination Retum to the setting in the text where we compared the monopolist with the perfectly discriminating monopolist. The former had an output of q = 14, and the latter of q = 15. Why
duopoly and sequential play Retum to the duopoly seUing in the text, summarized in Figure 16.1. Suppose, instead of simultaneous play, the first firm can announce and eommit to a production plan for
best response bidding Retum to the setting of Table 16.3, case 1. The second firm is bidding according to the noted strategy. Suppose the first firm observes y = 0.6. Determine its expected profit if
eost pius equilibrium bidding Retum to the bidding story in Table 16.3. Suppose we define cost for the first firm as the expected value of its cost given x and y and for the second as the expected
winner's curse Table 16.2 summarizes the bidding illustration for the case of a = 0 and ~ = y= 10. Plot firm l's bid as a function ofy. Also plot firm l's expectedcost, given it hasobselVed y, on the
winner's curse26 Ralph wants to purchase a family heirloom from a neighbor. The heirloom has private value to the neighbor denoted v. Neighbor knows v; Ralph only knows v is uniformly distributed
winner's curse Retum to problem 10 above, but now assume v is uniformly distributed between v = 20 and v = 120. Repeat your earlier analysis. Why does trade take place here, for some values of v, but
sunk cost and bidding Retum to the bidding story in Table 16.3, but assume a =1 ,000 and fi ='Y =1 0.We will aIso now interpret the ax term as a type of design eost that must be incurred hefore the
inferring competitor's cost Ralph is eonsidering entering the custom keyboard market for personal eomputers. The keyboard is eustomizable and will operate aeross a variety of systems. Before
confusing a competitor chapter 16 Ralph has invented and patented a new eonsumer recording device. The projected manufaeturing eost is low, and Ralph is worried that once this faet beeomes known,
diagnosis of competitive position27 Ralph' s Paekaging, Inc., (RP) designs and produees specialized paekages for a variety of industrial produet firms. Most jobs are won on a competitive bid. The
raw material inventory at standard priee Retum to the manufaeturing eost varianees in Ralph's LP, problem 9 aboveo Now suppose an inventory of raw material is maintained. During the period, 1,200
varianees in classical setting In Chapter 2 we examined a single produet finn that used three faetors of produetion. The eost of producing output q was the minimum total expenditure on the three
Return to the case A data in Table 19.1. The monitor is useful, yet it is not used when output x2 is obselVed. Carefully explain.AppendixLO1
The chapter stresses the idea that the information content of a monitor must be controllable by the manager in question; otherwise, the partieular monitor cannot possibly be of any use in evaluating
Discuss the difference between an evaluation measure being controllability versus conditionally controllability by a manager.AppendixLO1
personal cost At this point some reflection is in order. What role does personal cost play in the contracting model developed in this chapter? Does the theory requirec. to be everywhere positive? Is
manager's opportunity eost Retum to the last lOW in Table 18.2, where the optimal pay-for-performance arrangement is displayed. The underIying data (in Table 18.1) assume M = 3,000.Locate an optimal
insurance and ineentives The eontracting model presented here is called a "hidden action" or "moral hazard" mode!. The latter term eomes from the insurance phenomenon where an insured subject has
optimal eontraet Retum to the setting of Table 18.1 (and solution in Table 18.2). Nowassume the probability of output XI under input L is .9 instead of 1.0. Detennine the optimal pay-for-performance
optimaI eontraet Ralph owns a production funetion. Randomness in the environment pius Iabor input from a manager eombine to produce output. The output can be one of two quantities: Xl < x2• The
shape of optimal incentives This is a eontinuation of problem 8 above. Now assume there are three possible outputs, Xl < x2 < X3• The probabHity strueture is listed below, and input H is
smoothing behavior Retum to the problem 9 above. easuaIly, we might interpret the story as one in whieh the manager receives a bonus when x2 is produced, but no additional reward if even more is
qualitative shape of optimal incentives Consider a costly input setting in whieh output (x) ean take one offour possible values. Input ean be either Lor H, with H desired by the risk neutral
optimal contract Determine an optimal contraet for the setting in problem 11 above.AppendixLO1
optimal production plan Ralph, who is risk neutraI, owns a produetion process. Produetion requires input from a manager. This input ean be one of three possible quantities: L < B
taxes and incentives Consider a setting where the manager' s input ean be L or H and the output ean be Xl = 10,000 or x2 = 50,000. The manager' s preferenees are described in the usual fashion, with
square root utility Ralph owns a produetion function that uses labor input to produce output.Outputwill be eitherxI = 10,000 orx2 = 20,000. Laboris supplied by an agent. One of three possible
optimal contract with monitor Consider a setting where labor input of L or H leads to uneertain output. The owner is risk neutral. Output ean be Xl or X2• The labor suppIier is modeled in the usual
[raming In note 25 we reformulated the problem of locating a best pay-for-performance arrangement to focus on the manager's utility, as opposed to pay, as the choice variable. Since the manager's
The central idea in the chapter is that some productive inputs are not acquired in perfect markets, are not necessarily delivered in the quality and quantity intended.In turn, this creates an
Goal congruence is said to exist when members of the management team (or more broadly the work. force) share the same goals; and in this perspective goal congruence is seen as an essential objective
eertain equivalents Verify the certain equivalent eaIculations summarized in Table 18.2. Notice, in this case, the certain equivalents can be calculated in two ways. One method eaIculates the certain
nonfinaneial measures Performance evaluation has a long history. For example, Bokenkotter [1979, page 153] reports the following practice in the Medieval Church. "The tasks of the bishop were manyand
spending comparisons The State of Connecticut monitors per pupil spending in the various local schooI districts. Each district is associated with peer districts, in terms of various demographies such
The development beginning in Table 18.1 results in a cost to the organization of input H that we denoted C(H). Without contracting frictions, the manager would be paid the sum of reselVation price
service department eost allocation In Chapter 8, working with data in Table 8.2, we examined a procedure in which the cost incurred in a service department might be allocated to the consuming
flexible budget Consider a manager who plOduces goods or services according to customer demand. The accounting library uses an estimate of total cost based on an LLA of TC = F + vq, where q is some
risk taking and insurance A major retailer, at one time, moved toward mare centralized buying of merchandise that would be inventoried by its many locations. Each such location was evaluated in terms
controllable versus conditionally controllable measure Constmet a setting, using a risk averse manager, two possible input supplies, and so on in which a monitor is not controllable but is
root utility This is a continuation of problem 15 in Chapter 18, where the manager's utility function is given by U(z,a) = vz -V(a). You should review the original problem to refresh the details.
randomized monitoring This is a eontinuation of problem 8 in Chapter 18. Everything remains as before, except Ralph now has an infonnation source. For a cost of 4,000 the source will report, without
controllable versus conditionally controllable measure This is a continuation of problem 8 in Chapter 18. The basic story and preference speeifieations remain as hefore. Ralph owns a produetion
information content of monitor Ralph, who is risk neutraI, owns a produetion process. One of three feasible labor inputs, L < B < H, must be selected. H, in faet, is desired. Output probabilities are
sunk cost Suppose you sign a one-year apartment lease; the lease eannot be broken and you eannot sublet the apartment. You must, and intend to, pay the rent. Two days after moving in, you are offered
interactions and stoehastic dominanee One of the eoncems in frarning decisions is interactions across decisions. Ralph is trying to secure an essential serviee from one of three possible
sunk cost and interactions Ralph purehased 200 units of a speeial eatalyst. The market for this eatalyst has sinee collapsed, and it eannot be sold; it ean be disposed of for zero ineremental
sunk cost Ralph has a reputation for timing, for knowing when to plunge into a new market, when to rebalanee an investment portfolio, and when to engage in a product promotion. Ralph has just
interactions and eost benefit {raming Retum to part [b] of the above problem. Frame the question of whether to purchase lottery L in incremental terms, by focusing on Ralph's eertain
learning by doing Ralph faees a ehoice problem with three equally likely states. You rnight think of these as reflecting the state of the econorny or the produet market' s acceptanee of a new produet
What advantages and disadvantages do you see in using formal statistieal procedures to estimate an LLA?AppendixLO1
Our review of elassieal estimation used the data in Table 13.1, first to estimate a population mean, then a one variable linear model and then a two variable linear model. In eaeh ease the population
eeriain equivalenls and relevant cost This is a continuation of the above problem. Retain the noted exponential utility measure, but now assume the revenue and eost events in Table 12.2, for option
Exercise with known population Consider a linear model of the form y, = 100,000 + 100xI , + 50xz, + E,. Also assume the error terms and independent variables are independently drawn from E,-
omitted variable with known population Return to problem 3. In part [b] you estimated a roodel with an omitted vari ab le. Carefully explain how this influenced your estimation exereise and whether
standard costing procedures Ralph is studying labor cost for the State of Conneetieut. One of the employers in a random sample faces the following situation. Workers are paid $14 per hour.Totallabor
overlime and overhead Ralph now works for a manufaeturing firm that produces ehassis eomponents for the autornobile industry. A debate has broken out about the direet labor cost of overtime
accruaIs Ralph's Firm has a linear eost cUlVe. There are no period costs. Production eosts (which equal the total of all product eosts) are described by the following linear mode1: TMCt = F + vqt +
allocations and unit costs RaIph manufaetures a proprietary personal computer ehassis that dramatieally increases the memory and speed of existing produets. The firm is "undereapitalized"and operates
ad hoe procedures This is a continuation of the above problem 3 where we examine ad hoc procedures for estimating the population parameters. For simplicity, we coneentrate on the case where the
certain equivalents and relevant cost Retum to the setting of Table 12.2, but now assume the utility measure, defined over wealth 'N, is given by U(W) = -exp{-rW>, with r = .00001.a] Evaluate the two
attributable cost Ralph produces and distributes two produets. The various LLAs combine to imply a eost eurve of F + v1% + v2'b. A perplexing problem is how to alloeate the"fixed" eosts to the period
rates of return Ralph is contemplating loaning a eousin $10,000. The loa n would be due in one year, with interest at 18%. Ralph figures the probability the cousin will pay back the loan (pIus
opportunity eost Suppose you are going to the movie. The choiees are amystery, a high adventure story, a musical, or a documentary. Further suppose you absolutely eannot stand musieals. Use the
shadow priees We find Ralph studying cost, and how cost depends on the way a choice problem is framed. Ralph now produces two products. Let x and y, respeetively, denote the quantities of the two
eomponent searehes and produet eost Retum to problem 8 above. Now suppose Ralph likes to think in terms ofhow many units of the first product, x, to produce and sell. Clearly we require 0 :s x :s
combinations of the /raming principles Suppose we want to maximize f(x,y) = 12x - x2 + 18y - 3y2 - 10, subject to x +Y :s; 8. x õ!: 0 and y Õ!: O. You should verify the solution has x = 5.25 and y
/raming and LLAs This problem works through a sequence of framing exercises.a] Ralph produces a single product, with quantity denoted x. Profit is given by the expressionx(lO - .sx), andcapacity is
souree documents Ralph manages a consulting companyand is presently looking over the time sheets for the last 12 engagements, wond~ring how mueh staff time is involved in a typical engagement. Ralph
inconsistent framing attempt Ralph manages a two product enterprise. Product x sells for 400 dollars per unit and product y sells for 600 per unit. Estimated manufacturing costs are as follows:direct
How does eost allocation arise when we use consistent framing to focus on product revenues and product eosts?AppendixLO1
Sunk eosts refer to expenditures or expenditure eommitments made in the past that cannot be altered. The sunk eost fallacy refers to someone allowing a sunk eost to influence irrationally a future
There is no necessary eonnection between relevant cost and a product' s variable eost in the accounting library. Carefullyexplain.AppendixLO1
/raming and shadow prices Retum to the setting of Table 12.1. Frames [I] and [II] provide shadow prices, indeed the same shadow prices, for the capacity constraints while frame [III] offers no such
/raming and marginai eost Retum to the setting summarized in Table 12.1. Change the sellingprice of the seeond product from 152 to 153 per unit. Determine the marginaI eost of the first product in
/raming and marginaI eost Retum to the setting of frames [1'] and [II'] in the text where factor ZI was fixed at 12,000. Suppose this implies factor Z3 is "80% fixed" in the sense ~ is fixed
/raming inconsistencies in ineremental analysis Central Hospital,21 managed by Ralph, is eontemplating the sale of its renal dialysis unit to a group of physicians who have offered to maintain the
/raming and cost allocation Retum to Chapter 8, problem 11. Carefully doeument the use of eonsistent framing in that settingo AppendixLO1
/raming and simultaneous cost allocation Retum to Chapter 8, problem 14, part [f]o Carefully doeument the use of eonsistent framing in that settingo AppendixLO1
incremental analysis Return to the special offer problem developed in Table 10.4, where wc concIuded the job 2 customer was acceptable if P - 38,200 - 22,000a ~ O. Carefully document how the three
multipLe and hybrid independent variables in overhead model Ralph is studying an overhead eost eategory that indudes a variety of produetion support aetivities: minor supplies, minor maintenanee,
small choices under constant risk aversion Retum to the discussion of uncertainty, where the gamble that resulted in a gain of 30,000 or a loss of 20,000, with equal odds, was anal yzed and the
taxes and risk aversion Ralph has been offered an interesting gamble. With probability .5, Ralph will gain $500 and with probability.5 Ralph will gain $100. The gain is net of the purchase price;
LLA errors Twin Produets produces two pro du ets, with quantities denoted qj and q2' Its eost eurve is given by C(qj,qz) = lOOqj + 100qz + lOqi + lOcE. The firm, however, aggregates the two produets
What is the relationship between present value analysis of investment proposals and economic ineome?AppendixLO1
The project analyzed throughout most of the chapter, Table 15.1, leads to a strietly positive present value. Yet the accounting library is slow to recognize this value, as in Table 15.4. OO the
present value versus accrual accounting Return to Table 15.4. Suppose the alteration costs must be capitalized and amortized along with the investment fortax purposes, but will be expensed for book
present value and economic income Return to the setting of Table 15.1. Using a discount rate of 12%, we know the project has a present value of 26.284. Investing 383, at t = 0, brings an immediate
consistent /raming Return to the illustration in Figure 15.2, where the cash flow sequence is -100, 290 and -208. Assume r = 10% is the correct discount rate. Suppose we take the initial investment
consistent /raming Verify the calculations in footnote 9.AppendixLO1
polynomial roots Return to the cash flow sequence in Table 15.1. W rite out the equation for the present value, as a function of r. Multiply both sides by (1 + r)6. Notice this gives you the
short-run and long-run coordination Retum to Ralph's LP, problem 12 in Chapter 14. There you detennined an optimal short-run production plan, given a set of LLAs. Here Ralph is eontemplating
present value versus accounting renderings This is a continuation of problem 8 above. Assume, for book purposes, that Ralph uses straight line depreciation. Also assume the 5,000 modification and
real versus nominal rates Retum to problem 8 above. Suppose investment and operating ca sh flow projections are all in real terms. Ralph's real cost of capital is 9%. A 6% inflation rate is
new pToduct with investment and inventory Ralph is now trying to deeide whether to aecept a customer's proposal to sign a long-term supplier contract. The customer will require 1,000 or 3,000 units

Showing 100 - 200 of 637