Questions and Answers of Managerial Of Accounting Information

make OT buy Ralph's Enterprise (RE) manufactures hydraulic eomponents for the aireraft industry. One element eommon to a variety of produets is a speeialized valve that RE manufactures. The standard
expansion via leasing Retum to problem 14 of Chapter 14, Consumer, Inc. A competitor, experiencing bad times, has ofIered to lease Consumer, Inc., produetive capaeity thatwill inerease the assembly
possible misspecification of overhead LLA Empire Electronics (EE) is an assembler of custom electronic components. It faces an opportunity to bid on a particular assembly. Direct material is
possible misspecijication of overhead LLA Ralph works for a municipality and is studying a proposal that the city subcontract with a small neighboring community to extend its municipal garbage
choice o/LLA Consumer, Inc. produces and distributes a variety of consumer produets. For simplicity, the story is eondensed to highlight two produets, eonsumer staples (with quantity ql) and fashion
changing price level Cybemetics is a family held manufaeturing firm. Being family held, it does not respeet GAAP in its finaneial reporting practices. In faet, it uses eash basis accounting. The
relevant range Ralph is studying a partieular warranty eost aecount, in whieh all repair eosts for a partieular (rather expensive) industrial monitoring produet are aecumulated.As a first step, Ralph
reciprocal services Return to problem 13, Chapter 8 where eost was aggregated into eategory A(TCJ, eategory B (TC;), and assembly (TeA). Further suppose we know, for output q, that the reeiprocal
What is the distinction between (i) a large and a small decision and between (ii)a short-run and a long-run decision? Give an example where a short-run decision is small, another where a short-run
Discuss the relationship between break-even analysis and our earIier study of variable costing.AppendixLO1
Why are the graphs in Figure 14.1 truncated?AppendixLO1
The text illustration surrounding Table 14.2 concems the question of whether to produce an extra product. It was framed in terms of incremental revenue le ss incremental cost of the extra product.
Suppose we have a decision that is small, with the possible exception of risk considerations. Further suppose constant, nontrivial risk aversion is present. If the randomness in the current decision
break-even calculations Ralph is planning a visit to the bank to solicit a small business loan. Ralph's business plan, in summary form, is given by the following LLAs:revenue TR = 240q;rnanufacturing
large break-even and output ealeulations24 Ralph' seost eurve is pieee-wise linear. For output of 0 s q s 1,000 units it is given by C(q) = 1,000 + 6q; for 1,000 s q s 2,000 it is given by C(q) =
eost versus expenditure It is often claimed that arranging a long term supplier eontraet for neeessary direet materials will insulate you from price ehanges in the materials market. Coase[1968]
eost versus expenditure The material eost illustration in Table 14.2 stresses the differenee between an appropriate measure of eost for some purpose and the expenditure on the faetor in question.
eost versus expenditure Retum to the two period inventory setting of Table 14.2, where we framed a new produet opportunity in terms of ineremental revenue less ineremental eost.a] Carefully explain
interactions in customer evaluation Retum to the produet evaluation discussion in the text, where a potential third produet, with quantity Cb, was under eonsideration. Presuming limited market
LLAs, product choice, and income measurement We now find Ralph managing a two produet finn, Ralph's LP, with constrained eapaeity. The produetion process eonsists of fabrieation and assembly
continued analysis of LLA choice Retum to the rnake or buy illustration in the text, surrounding Table 14.3, where we used the regression based LLA of av = 2,425,200 + 3.IDL, along with PI = 600, P2
interactions among deeisions Consider a setting in which Ralph is risk averse with utility function for total cashofU(totalcash) = [total casht. At present Ralph has 1,000 cashin hand, sowe have U(x)
The three principles of consistent frarning were presented in terms of loeating an element in a given set, say, zEA, that make a given eriterion function, f(z), as large as possible. Carefully
increasing transformations Suppose we want to maximize f(z) = 12z - Z2, overO:s z:s AppendixLO1
Why does the first prineiple of consistent framing apply to transforming the entire function and not its individual components? Hint: what is the maximum of [12z - z2f, subject to the noted
substituting an expected value for a random variable Suppose we want to maximize the expeeted value of f(z) = 8z - Z2, over z ~ 0, where 8 is a random variable. We now refrarne this by substituting
incremental analysis Suppose a firm seeks to maximize its profit. It is presently producing and selling q units. It has an opportunity to produee and sell q + 1 units. Carefully explain the use of
accounting joint products Ralph produces three products, in fixed proportions. Call them A, B, and C.Relevant data follow.A units produced 500 selling price per unit at split-off 200 B750 300 C400 10
library procedures This is a eontinuation of problem 3, part [b] above. Suppose 250 units of A, 400 units of B, and all of e are sold. The remaining units are in finished goods inventory. Assume all
more library procedures Repeat problem 4, but for the case product e is treated as a by -product, with its net sales value netted against the joint eost. Assume the remaining joint eost is allocated
links to economic analysis Return to the setting of problem 3 above. Suppose two extra eustomers amveo One, eonveniently, wants 1 unit of product A and the second, eonveniently, wants 1.5 units of
an LP formulation This is a further eontinuation of problem 3 above. Now formulate an LP, using decision variables of A (units of produet A), B (units of product B that are not processed further), BB
process eosting Verify the calculations in footnote 16, where standard variable costing is used.AppendixLO1
Consider an auto repair shop, a group of welfare case workers who oversee entitlements for aset of clients, and a capital intensive manufacturing setting where direct labor is not recorded and
Are joint aceountingproducts eeonomic joint products? Carefully explain your eonclusion.AppendixLO1
pooling procedures Verify the cIaim in footnote 21.AppendixLO1
decision making with reciprocal allocation Ralph is now managing a finn with interdependent service eeJlters. Two such centers are involved, say, power and maintenance. For eaeh such center, 80% of
reciprocal services Ralph is wrestling with reeiproeal serviees in a manufaeturing settingo Let q denote the units of product produced. It tums out that two intennediate "products"or services are
decision making and cost allocation Retum to problem 11. Now suppose indireet labor is also required, in the ratio of .5 dollars of indirect labor to every dollar of direet labor. Further assume the
dee is ian making Consider a three product firm facing a constrained linear technology. The firm is organized into two departments, machining and assembly. Machine hours are eonstraining in the first
interdepartmental east allocation Repeat part [b] of problem 9 on the assumption that variable eosting is used.AppendixLO1
interdepartmental east allocation Retum to the three department example in Table 8.2. Suppose the LLAs are perfeetIy accurate and output is given by ql = 1,000 and CI2 = 2,000 units. Also suppose
process eosting, using tuli standard eosting Verify the calculations in footnote 14. Then assume the LLAs in Table 9.6 determine the product's standard eost. Also assume the overhead intereept of
tuli versus variable eosting This is a eontinuation of problem 9 aboveo Suppose 21,000 units are sold during the perioel. How much higher or lower is the entity's income this period if it uses
aetivity based eosting Return to the activity based costing example in Table 9.8 of the text. The idea here, in simplified fashion, is the production operations are served by a number of support
option value of capacity Ralph' s Custom Produets (RCP) is a eustom manufaeturer of material handling equipment. V arious just-in-time manufaeturing systems require parts from suppliers that arrive
reliability engineering Ralph works in the back room of a commercial credit house. One of the problems under study is designing redundancy into data capture equipment, in order to minimize data
hypothesis testing and internal control Sampling from a Normal population provides a caricature of quality controI.Suppose a machine is operating according to tolerances, is "in control" or is "out
shifting expenses A municipality typically uses encumbrance accounting. The annual budget establishes a spending eeiling for each category. Expenses are then recorded as quickly as possible. For
shifting incorne A textbook publisher's central management team labors under an ineentive arrangement that pays a sizable bonus if ineome exeeeds budgeted ineome for the year. Near the end of areeent
shifting LLAs Return to the setting of Table 10.4. Now assume 40% of variable overhead A will be ineurred if direet labor is idle, while 100% of the variable arnount will be ineurred if direct labor
restricted recognition The example in Table 10.4 leads to a straightforward question of accepting or rejecting a specified offer. Yet rejection will not be reeorded in the accounting library, and
Verify the claim in footnote 22.AppendixLO1
internai control techniques Exarnine the tasks of a typical bank teller. Where do you see the broad themes of restrieted action possibilities, redundaney, and ineentives at work?AppendixLO1
internai contrai checklist Exarnine the eheekout proeess at your local supermarket. Using the eheeklist for internaI eontrols, identify the ways in whieh the integrity of the process and attendant
A eentral theme in maintaining library integrity is restrieting what goes into the library. Ineome is not reeognized, no matter how optimistie the setting, for produets in the design stage. Carefully
Would internaI control issues arise in perfect and complete markets? Explain.AppendixLO1
even more activity based costing Return to problem 12 above but now assume variable costing is used. Using the same allocation procedures as before, but adapted to the variable costing fonnat,
more aetivity based eosting Return to the example in Table 9.8 where full eosting is used. Constmct a spreadsheet model that will calculate the product eosts in three ways: using the four pool
option value of capacity Ralph' s Option finds Ralph the manager of a consulting company. At present, business is slow and Ralph has 1,200 hours of consultanCs time that are not committed to one job
norma~ full eosting and journal entries Simple Manufaeturing Company manufaetures and distributes a single produet.It records manufaeturing eosts using a normal eosting system with overhead applied
standard, fuU eosting Return to the setting of Table 7.1, but assume that the following actual eosts have been incurred.job 1 job2 job3 total actual direct labor hours 1,100 1,600 1,700 4,400 actual
Consider a firm with a manufacturing and a marketing group. The marketing group receives manufactured products from the manufacturing group, and sells them to a variety of customers. The marketing
Actual, normal, and standard costing all use the basic building blocks of aggregation and linear approximation. Discuss how linear approximation is used in each of these basic approaches to product
variable versus full eosting, including balanee sheet effeets Ralph's Firm manufactures and sells a single product. For eonvenience, only two assets are present, cash and finished goods inventory.
full costing Ralph's Venture finds Ralph in a startup eompany. Ralph has prepared a business plan and a venture capitalist has agreed to provide the necessary funds.Ralph' s business plan rests on
variable versus full eostmg, income effeets Consider a single produet firm with the following LLAs, where q denotes units manufactured and selling and administrative is, of course, a period
norma~ full eosting Ralph's Shop manufaetures custom equipment. Eaeh customer's problem is unique, and Ralph uses job order eosting to help keep traek of the profitability of eaeh job or eustomer.
comparison of methods Ralph's Job deals with a small eustom fabrieator of display eabinets. The accounting system separately accumulates direet labor eost, direet material eost, and two overhead
aetual versus normal eosting Return to the setting of Ralph' s Firm, problem 11 in Chapter 5. After reflection and analysis, Ralph eoncludes that total manufaeturing overhead (DV) is best described
norma~ full eosling and journal entries Return again to the Simple Manufaeturing Company problem above, where normal, full eosting is used. Suppase all events as described in the originaI problem
norma~ variable eosting and journal entries Return to the setting of Simple Manufaeturing above. Suppose, now, that variable eosting is used. Further suppose 40% of the overhead application rate is
Consider the typical customer invoice from an autornobile mechanic. The invoiee is based on a posted labor rate of, say, w per hour. Does this mean the average wage is w per hour? Does it mean labor
Suppose we have a single produet firm. The firm uses normal, full eosting with a normal volume equal to its effieient scale or output level (where average eeonomie eost is a minimum). The LIA is
aetua~ full eosting Verify the produet eost eonstruetions in Table 6.6, using the data in Table 6.1.AppendixLO1
eonversion to aetual eost Suppose it turns out the standards in the above exercise are deemed to be too inaecurate and ending inventory ealeulations, both finished goods and work in process, must be
standard variable eost, journal entries Return to the seUingofTable 7.1, but now assume standard, variable eosting is used Provide all journal entries to reeord the underlying events. Then summarize
norrnaI versus standing eost, journal entries This is a eontinuation of the Simple Manufaeturing Company, problem 5 in Chapter 6. Simple now employs standard, fulI eosting. Suppose the following LLAs
cost allocation and product costs Retum to the three department example in Table 8.2. Normal, full eosting is used; also, normal volume is defined by output of ql = 900 and 'h = 1,800 units.Further
unit costs Suppose the firm's eost CUlVe is given by the expression C(ql''h) = G(ql) +H(q:z} + J(ql''l2), where eaeh plOduet's marginal eost is strietly positive. Verify that holding ql eonstant, and
unit costs Verify the daim in footnote 3.AppendixLO1
unit costs Ralph manufaetures two produets. The manufacturing eost CUlVe is given by TMC = 40,000 + 10ql + 5q:z, where q; denotes units ofproduet i and TMC denotes total manufacturing eost.aJ Plan #1
The difficulty with the material in Chapter 8 is that joint eeonomic eosts are fairly obvious when we know the eeonomic cost curve; yet life goes forward with accounting estimates and we must be
Give four examples: one where economic and accounting joint costs are present, one where economic but not accounting joint cost is present, one where accounting but not economic joint eost is
Suppose we have a firm that produces and seIls widgets in each of two periods.EconomicaIIy, then, we have a multiproduct firm, as widgets in two different periods are different economic products. The
Can we have economic joint cost in a short-run setting in a single product firm?Can we have accounting joint cost in such a setting? CarefuIlyexplain.AppendixLO1
eost ealeulations in the presenee of learning Ralph is contemplating introduction of a new produet. Various materials will cost 200 per unit; labor will eost 37 per hour. The overhead LLA is OV = F
standard full and variable eost, journal entries This is a eontinuation of the Ralph's Job story in Chapter 6, problem 9. Here we tell the story in terms of standard costs. The overhead LLAs were
normal versus standard eost, with balanee sheet Sweet Produets (SP) manufaetures severaI types of somewhat eustomized reereation produets, partly to order and partly for stock. Job order costing is
variable versus tuli eosting, ineorne effeets Retum to problem 11, Chapter 6. Standard eosting is now used, based on the LLAs noted in the originaI problem. Produetion and sales remain as before.
variable versus tuli eosting, inforrnation eontent Consider a single produet firm. The known eonstant selling priee for its product is 100 per unit. The firm's known eost curve is given by TC =
nonlinear budgef8 Ralph's manufaeturing cost (TMC) is estimated as follows, where q denotes units manufaetured:TMC = 8,000 + 6q, if 0 ::s; q ::s; 2,000;TMC = 10,000 + 5q if 2,000 ::s; q::s; 4,000;
learning Given an estimated time of 500 labor hours to build the initial unit of a new produet, and a presumed learning rate of 72%, detennine the firm's learning eurve for labor hours. Construet a
useful and useless information Ralph faces a choice problem in which the dollar outcome is uncertain. Ralph thinks of the uncertainty as reflecting natural and economy-wide events. For simplicity,
constant risk aversion and value of information Repeat problem 11 above for the ease where Ralph's utilily is negative exponential, U(W) = -exp(-rW), where w is now interprcted as the net gain. Let r
complications with nonconstant risk aversion Returu to problem 10 above. Now assume Ralph is risk averse with utility equal to the square root ofthe outcome. So, for example, U(225) == 15. What is
dominance Ralph is contemplating various lotteries. The possible prizes are 100, 200,300, or 400 dollars. Assume in what follows that more is strietly preferred to le ss dollars.Below are some
equilibrium analysis Locate an equilibrlum in the following simultaneous move game, played between protagonists Row and Column.left right up 60, 10 0, 12 down 40,-40 2, 2 Now assume the mIes of the
scaling the utility function A seemingly awkward part of using the negative exponential utility function is the fact it is negative. Consider a utility function of U(W) = 10 - exp(-rW), with r =.01.
decision analysis Retum to the setting of Table 4.2, but now assume the utility function is U(W)= -exp(-rW), for wealth w. Set initial wealth at w = 0, and r at .01.a] Suppose no information is

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