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business
management accounting

Questions and Answers of Management Accounting

Blackarm Inc. makes three products and is reviewing the profitability of its product line. You are given the following budgeted data about the firm for the coming year.The company is concerned about
Robber Co. manufactures control panels for burglar alarms, a very profitable product. Every product comes with a 1-year warranty offering free repairs if any faults arise in this period.It currently
Brown Ltd is a company that has in stock some materials of type XY that cost £75,000 but that are now obsolete and have a scrap value of only £21,000. Other than selling the material for scrap,
A market gardener is planning his production for next season, and he has asked you, as a cost accountant, to recommend the optimal mix of vegetable production for the coming year.He has given you the
Provide examples of each of the following: (a) direct labour, (b) indirect labour, (c) direct materials, (d) indirect materials and (e) indirect expenses.
Distinguish between a direct and indirect cost.
Explain the meaning of the terms: (a) prime cost,(b) overheads and (c) cost allocations.
Describe how a given direct cost item can be both a direct and indirect cost.
Explain the meaning of each of the following terms: (a)variable costs, (b) fixed costs, (c) semi-fixed costs and(d) semi-variable costs. Provide examples of costs for each of the four categories.
What is an opportunity cost? Give some examples.
Explain responsibility accounting.
Classify each of the following as being usually fixed (F), variable (V), semi-fixed (SF) or semi-variable (SV):(a) Direct labour(b) Depreciation of machinery(c) Factory rental(d) Supplies and other
Which of the following costs are likely to be controllable by the head of the production department?(a) Price paid for materials(b) Charge for floor space(c) Raw materials used(d) Electricity used
A direct cost is a cost that:(a) is incurred as a direct consequence of a decision(b) can be economically identified with the item being costed(c) cannot be economically identified with the item
Which of the following would be classed as indirect labour?(a) Assembly workers in a company manufacturing televisions(b) A stores assistant in a factory store(c) Plasterers in a construction
A manufacturing company has four types of cost(identified as T1, T2, T3 and T4). The total cost for each type at two different production levels is:Calculate the costs per unit. Which cost types
Sunk and opportunity costs for decision-making Mrs Johnston has taken out a lease on a shop for a down payment of €5,000. Additionally, the rent under the lease amounts to €5,000 per annum. If
Explain what is meant by the term ‘relevant range’.
Define the term contribution margin ratio and explain how it can be used for cost–volume–profit analysis.
Describe the assumptions underlying cost–volume–profit analysis.
How can sensitivity analysis be used in conjunction with cost–volume–profit analysis?
The following information is required for sub-questions(a) and (b): The company expects to sell h units in the next accounting period.(a) The margin of safety is shown on the diagram by:(i) k(ii)
The diagram shows the profit–volume chart of Z Ltd for its last accounting period. The company made a profit of $w during the period.(a) An increase in the fixed costs per period (assuming the
The following details relate to product R: Level of activity 1,000 2,000 (units) (/unit) (/unit) Direct materials 4.00 4.00 Direct labour 3.00 3.00 Production overhead 3.50 2.50 Selling overhead 1.00
A Ltd has fixed costs of €60,000 per annum. It manufactures a single product which it sells for €20 per unit.Its contribution to sales ratio is 40 per cent.A Ltd’s break-even point in units
A company manufactures a single product which it sells for £15 per unit. The product has a contribution to sales ratio of 40 per cent. The company’s weekly break-even point is sales of
An organization manufactures and sells a single product which has a variable cost of £24 per unit and a contribution to sales ratio of 40 per cent. Total monthly fixed costs are £720,000.What is
The summarized profit and loss statement for Exewye plc for the last year is as follows:At a recent board meeting the directors discussed the year’s results, following which the chairman asked for
A company manufactures a single product. Budget and standard cost details for next year include:Required:(i) Calculate the break-even point in units.(ii) Calculate the percentage by which the
XYZ Ltd produces two products and the following budget applies for the next year:You are required to calculate the break-even points for each product and the company as a whole and comment on your
Cardio Co. manufactures three types of fitness equipment: treadmills(T), cross-trainers (C) and rowing machines (R). The budgeted sales prices and volumes for the next year are as follows:Labour
The profit statements for two different companies in the same industry are as follows:Required:(a) Compute the degree of operating leverage for each company.(b) Compute the break-even point for each
Tweed Ltd is a company engaged solely in the manufacture of jumpers, which are bought mainly for sporting activities.Present sales are direct to retailers, but in recent years there has been a steady
XYZ Ltd retails a product range which can conveniently be divided into three distinct lines X, Y and Z. Based on sales forecasts provided by the marketing department and costs prepared by various
Form groups of two to six persons each. The groups should each selecta simple product or service. Be creative, but do not pick a product or service thatis too complex. For those having difficulty
Understand a management control system and how it relates toorganizational goals.
Use responsibility accounting to define an organizational subunit as a costcentre, expense centre, revenue centre, profit centre, or investment centre.
Explain how corporate performance is affected by employee motivation and goalcongruence.
Compare financial and non-financial performance, and explain why managementcontrol systems should consider both.
Prepare segment income statements using the contribution margin approach forevaluating profit and investment centres.
Measure performance against quality, cycle time, and productivity objectives.
Describe the difficulties of management control in service and not-for-profit organizations.
Explain how management control systems must evolve with changing times.
How does management determine its critical (key) success factors?
“Performance evaluation seeks to achieve goal congruence and managerialeffort.” Describe what is meant by this statement.
Why do accountants need to consider behavioural factors when designinga management control system?
Managers of profit centres should be held responsible for the centre’sentire profit. They are responsible for profit even if they cannot controlall factors affecting it.” Discuss.
What are four non-financial measures of performance that managersfind useful?
Control systems in not-for-profit organizations will never be as highlydeveloped as in profit-seeking organizations.” Do you agree? Explain.
The president of a fast-growinghigh-tech firm remarked, “Developing budgets and comparing performancewith the budgets may be fine for some firms. But we want to encourage innovationsand
The following multiple goals were identified by theGeneral Electric company:General Electric is a huge, highly decentralized corporation. It has approximately170 responsibility centres called
The Sargent Metal Fabricators hasbeen manufacturing machine tools for a number of years and has an industrywidereputation for high-quality work. The company has been faced with irregularityof output
GL Interiors, Inc., a privately-held enterprise, hasa subcontract to produce overhead storage bins for a Boeing airplane. AlthoughGL was a low bidder, Boeing was reluctant to award the business to
Lynch, Barney, and Schwab is a stock brokerage firm thatevaluates its employees on sales activity generated. Recently the firm also beganevaluating its stockbrokers on the number of new accounts
In early 2006, Global Telecom, a telephone communications company, purchasedthe controlling interest in Eurotel in an eastern European country. A keyproductivity measure monitored by Global Telecom
Digital Processors Ltd. monitors its cycle time closely in order to prevent schedule delays and excessive costs. The standard cycle time for the manufacture of printed circuit boards for one of its
Officials in Russia had been rewarding managersfor exceeding a five-year-plan target for production quantities. But a problemarose because managers naturally tended to predict low volumes so that
Consider the following data for the year’s operations of an automobile dealer:The president of the dealership has long regarded the markup on materialand labour for the parts and service activity
Crystal Cleaners had the following results in 2003 and 2006:Crystal used the same facilities in 2006 as in 2003. However, over the past fouryears the company put more effort into training its
Computer Data Services (CDS) performs routine and custom information systems services for many companies in a large metropolitan area.CDS has built a reputation for high-quality customer service and
Suppose a McDonald’s franchise in Bangkok had budgeted sales for 2006 of B7.5 million (where B stands for baht, the Thai unit of currency). Cost of goods sold and other variable costs were expected
Beta Alpha Psi, the accounting fraternity, recently held a dinner dance. The original (static) budget and actual results were as follows:1. Subdivide each variance into a sales-volume variance
The University of Liverpool offers an extensive continuing education program in many cities throughout Britain. For the convenience of its faculty and administrative staff and to save costs, the
Algoma Metals Inc. uses a standard cost system.The month’s data regarding its cast iron vats follow:Prepare schedules of all variances, using the format of Exhibit 12-9 (thegeneral three-column
Horst Company is a chemical manufacturer that suppliesindustrial users. The company plans to introduce a new solution and needsto develop a standard product cost for this new solution.The new
Kronos Shipping Company’s general manager reportsquarterly to the company’s president on the firm’s operating performance. Thecompany has used a budget based on detailed expectations for the
Artistic Metalworks Company manufactures sculptured metal ornaments that are shaped and finished by hand. The following standards were developed for a line of lampposts:During April, 550 lampposts
The Mendoza Company is installing anabsorption standard-costing system and a flexible-overhead budget. Standardcosts have recently been developed for its only product and are as follows:Expected
The expected activity of the paper-makingplant of Leventhal Paper Company was 45,000 machine hours per month.Practical capacity was 60,000 machine hours per month. The standard machinehours allowed
Study the format of the analysis of variances in Exhibit 12-12. Supposeproduction is 156,000 units. Also assume the following:Other data are as shown in Exhibit 12-12.Prepare an analysis of variances
Precision AutoParts Company has ahighly automated manufacturing process for producing a variety of auto parts.Through the use of computer-aided manufacturing and robotics, the companyhas reduced its
The following questions are based on the datacontained in Exhibit 12-9.1. Suppose actual production and sales were 8,000 units instead of 7,000units. (a) Compute the sales-volume variance. Is the
The emergency room at UniversityHospital uses a flexible budget based on patients seen as a measure of volume.An adequate staff of attending and on-call physicians must be maintained at alltimes, so
Belfair Kayak Company makesmolded plastic kayaks. Standards costs for an entry-level whitewater kayak are: Direct materials, 60 kilograms @ $5.50 per kilogram Direct labour, 1.5 hours $16 per hour
The new printing department of Shark Advertising Inc. provides printing services to the other departments. Prior to the establishment of the in-house printing department, the departments
Shakie Sports Company made 20,000 leather basketballs in a given year.Its total manufacturing costs were $170,000 variable and $70,000 fixed. Assumethat no price changes will occur in the following
Use responsibility accounting to define an organizational subunit as a costcentre, expense centre, revenue centre, profit centre, or investment centre.
The Sargent Metal Fabricators hasbeen manufacturing machine tools for a number of years and has an industrywidereputation for high-quality work. The company has been faced with irregularityof output
GL Interiors, Inc., a privately-held enterprise, hasa subcontract to produce overhead storage bins for a Boeing airplane. AlthoughGL was a low bidder, Boeing was reluctant to award the business to
Lynch, Barney, and Schwab is a stock brokerage firm thatevaluates its employees on sales activity generated. Recently the firm also beganevaluating its stockbrokers on the number of new accounts
The city of Sydney, Nova Scotia, has a sign shop where street signs ofall kinds are manufactured and repaired. The manager of the shop uses standardsto judge performance. However, because a clerk
Materials support cost for the Industrial EquipmentManufacturing Company depends on the weight of material (plate steel, castings,etc.) moved. For the current budget period and based on scheduled
1. Information on Li Company’s direct labour and direct material costs isas follows:Complete the actual hours worked, rounded to the nearest hour.2. Information on Oseok Kwon Company’s direct
Parks Canada prepared the following budget for one of its national parksfor 2006:The fees were based on an average of 50,000 vehicle-admission days (vehiclesmultiplied by number of days in park) per
The L. MingCompany has had great difficulty controlling costs in Singapore during the pastthree years. Last month a standard cost and flexible-budget system was installed.Results for a department
Cost-behaviour analysis for the four activity centres inthe Billing Department of Great Lakes Power Company is as follows:1. Develop flexible budget formulas for each of the four activity centres.Use
The Geneva Chocolate Company uses standard costs and a flexible budgetto control its manufacture of fine chocolate. The purchasing agent is responsiblefor material price variances, and the production
Wilcox Company produced 80,000 units, 8,000 more units thanbudgeted. Production data are as follows. Except for physical units, all quantitiesare in dollars: ACTUAL RESULTS FLEXIBLE- SALES STATIC AT
Diaz Credit Services produces reports for consumersabout their credit ratings. The company’s standard contribution marginsaverage 70 percent of dollar sales and average selling prices are $50
Consider the following data regarding factory overhead: VARIABLE FIXED Budget for actual hours of input 45,000 70,000 Applied 41,000 64,800 Budget for standard hours allowed for output achieved ? ?
Consider the performance (in thousands of dollars)of Eastern Airlines for a given year in the table below.The static (master) budget had been based on a budget of $0.20 per revenue passenger
Consider these data: FACTORY OVERHEAD FIXED VARIABLE Actual incurred $14,200 $13,300 Budget for standard hours allowed for output achieved 12,500 11,000 Applied 11,600 11,000 Budget for actual hours
The Astro Co., a wholesaler of food products, budgetedthe following sales for the months shown below:All merchandise is marked up to sell at its invoice cost plus 25 percent.Merchandise inventories
All sales of Dunn’s Building Supplies (DBS) are made oncredit. Sales aré billed twice monthly, on the tenth of the month for the last halfof the prior month’s sales and on the 20th of the month
Consider the following information for the month ending June 30, 2007 for theJohnson Company:The cash balance, May 31, 2007, is $15,000. Sales proceeds are collected as follows:80 percent month of
Jane Myers is the manager of an extremely successful gift shop, Jane’s Gifts,which is operated for the benefit of local charities. From the data below, shewants a cash budget showing expected cash
Prepare a statement of estimated cash receipts and disbursements for October2007 for the Aquarius Company, which sells one product, herbal soap, by thecase. On October 1, 2007, part of the trial
Computer Superstores Inc. has a strong belief in using highly decentralizedmanagement. You are the new manager of one of its small “computer boutiques.”You know a great deal about how to buy, how
Daphne Kite Company wants a master budget for the next three months,beginning January 1, 2008. It desires an ending minimum cash balance of $5,000each month. Sales are forecasted at an average
Suppose Ritz-Carlton has a 300-room hotel in a tropical climate.Management expects occupancy rates to be 95 percent in December,January, and February, 85 percent in November, March, and April, and 70

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