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business
management accounting

Questions and Answers of Management Accounting

Compute product profitability when production is constrained by a scarce resource.
Identify the role of costs in pricing decisions in perfect and imperfect markets.
Discuss the factors that influence pricing decisions.
Identify contribution margin and absorption costing advantages and disadvantages.
Use target costing to decide whether to add a new product or service.
“The key decision to delete a product or department is identifying avoidable costs.” Do you agree? Explain.
Give four examples of limiting factors (or scarce resources).
Suppose the historical costs for the manufacture of a calculator were as follows: direct materials, $5 per unit; direct labour, $3 per unit.Management is trying to decide whether to replace some
Sonkar and Raji Ramaswamy were deciding whether to go to the symphony or the baseball game. They already have two nonrefundable tickets to “Pops Night at the Symphony” that cost $40 each. This is
Victory Athletic Supply (VAS) makes game jerseys for athletic teams. The F. C. Strikers soccer club has offered to buy 100 jerseys for the teams in its league for $15 per jersey. The team price for
Consider the following details of the income statement of the Pocket Calculator Division (PCD) of the Kim Electronics Company for the year ended December 31, 2006:PCD’s fixed manufacturing costs
Consider the following data: Variable selling and administrative costs per unit $ Total fixed selling and administrative costs Total fixed manufacturing costs Variable manufacturing costs per unit
1. Several successful chains of warehouse stores such as Costco have merchandising policies that differ considerably from those of traditional department stores. Identify characteristics of these
The Ibunez Tool Company has two products: a plain circular saw and a fancy circular saw. The plain circular saw sells for $66 and has a variable cost of $50. The fancy circular saw sells for $100 and
Greg Pino, a building contractor, constructs houses in tracts, often building as many as 20 homes simultaneously. He has budgeted costs for an expected number of houses in 2007 as follows:The job
The following is the income statement of a manufacturer of blue jeans:Hunter had manufactured 2 million units, which had been sold to various clothing wholesalers and department stores. In early
Lepanto Manufacturing Company produces two industrial solvents for which the following data have been tabulated. Fixed manufacturing cost is applied to product at a rate of $1 per machine hour.The
Hambley’s Toy Store is on Regent Street in London. It has a magic department near the main door. Management is considering dropping the magic department, which has consistently shown an operating
Ethos Day School is a private elementary school. In addition to regular classes, after-school care is provided between 3:00 p.m. and 6:00 p.m. at SF12 per child per hour. Financial results for the
The Velasquez Company, a maker of a variety of metal and plastic products, is in the midst of a business downturn and is saddled with many idle facilities. The National Hospital Supply Company has
Consider the following data from Kastoria Leather Company’s budgeted income statement (in thousands of dollars):Compute the following markup formulas that would be used for obtaining the same
Griffey, Rodriguez, and Martinez, a CA firm, is preparing to bid for a consulting job. Although Alice Griffey will use her judgment about the market in finalizing the bid, she has asked you to
The Transit Transportation Company has the following operating results to date for 2006:A large Toronto manufacturer has inquired about whether Transit would be interested in trucking a large order
Suppose a tour guide approached the general manager of The Agawa Canyon Railway with a proposal to offer a special guided tour to the agent’s clients. The tour would occur 20 times each summer and
West Coast Fashions sells both designer and moderately priced women’s wear in Vancouver. Profits have been volatile. Top management is trying to decide which product line to drop. Accountants have
The budget for the University Printing Company for 2007 follows. The company typically uses a so-called cost-plus pricing system. Direct material and direct labour are computed, overhead is added at
You are the director of business continuing education programs for Ryerson University. Courses for executives are especially popular, and you have developed an extensive menu of one-day and two-day
Ina recent year, National Air Lines, Inc., filled 50 percent of the available seats on its flights, a record about 15 percentage points below the national average.When you answer this question,
The Wittred Division of Victoria Sports Company manufactures boomerangs, which are sold to wholesalers and retailers.The division manager has set a target of 250,000 boomerangs for next month’s
The Drosselmeier Corporation, which makes Christmas nutcrackers, has an annual plant capacity of 2,400 product units. Its predicted operating results (in Euros [EUR]) for the year are Production and
Diaz Telecom had a fixed factory overhead budget for 2007 of $1 million. The company planned to make and sell 200,000 units of the product—a communications device. All variable manufacturing costs
Zimmerman Manufacturing Limited produces and sells flags. During 2006, the company manufactured and sold 50,000 flags at $25 each. Existing production capacity is 60,000 flags per year.In formulating
The Home Appliance Company manufactures small appliances, such as electric can openers, toasters, food mixers, and irons. The peak season is at hand, and the president is trying to decide whether to
Belleville Electrical Inc. makes small electric motors for a variety of home appliances. Belleville sells the motors to appliance makers, which assemble and sell the appliances to retail outlets.
Great Lakes Pharmaceuticals, Inc. (GLPI) produces both prescription and over-the-counter medications. In January, GLPI introduces a new prescription drug, Capestan, to relieve the pain of arthritis.
Frame It Company produces and sells picture frames. One particular frame for 8 x 10 photos was an instant success in the market, but recently competitors have come out with comparable frames. Frame
Is it more profitable to sell your product for $50 or $15? This is a difficult question for many movie studio executives. Consider a movie that cost $60 million to produce and required another $40
The Oahu Company manufactures electronic subcomponents that can be sold directly or can be processed further into “plug-in” assemblies for a variety of intricate electronic equipment. The entire
Mastercraft Inc. makes a variety of motordriven products for the home and small businesses. The market research department recently identified power lawn mowers as a potentially lucrative market. As
The Disposable Camera Division of Saari Optics Co. has the following costbehaviour patterns: Maximum production capacity is 20,000 units per year. Variable costs per units are $5 at all production
The Natural Water Company is a processor of mineral water. Sales are made principally in litre bottles to grocery stores throughout the country.The company’s income statements for the past year and
Form teams of three to six students. Each team should contact and meet with a manager responsible for pricing in a company in your area. This might be a product manager or brand manager for a large
Use differential and opportunity cost to analyze the income effects of a given alternative.
Decide whether to make or buy certain parts or products.
Decide whether a joint product should be processed beyond the split-off point.
Decide whether to rework or scrap obsolete inventory and to keep or replace old equipment.
Discuss how performance measures can affect decision making.
“Qualitative factors generally favour making over buying a component.”Do you agree? Explain.
“Evaluating performance, decision by decision, is costly. Aggregate measures, like the income statement, are frequently used.” How might the wide use of income statements affect managers’
Brandon Company produces and sells a product that has variable costs of $9 perunit and fixed costs of $110,000 per year.1. Compute the unit cost at a production and sales level of 10,000 unitsper
Lake Superior Electronics Company paid $7 million in cash four years agoto acquire a company that manufactures CD-ROMs. This company operates asa division of Lake Superior and has lost $500,000 each
A BMW executive in Germany is trying to decide whether the company should continueto manufacture an engine component or purchase it from Hanover Corporationfor 25.56 Euros (EUR) each. Demand for the
An administrator at Riverview Hospital is considering how touse some space made available when the outpatient clinic moved to a new building.She has narrowed her choices as follows:a. Use the space
Mussina Chemical Company produced threejoint products at a joint cost of $117,000. These products were processed furtherand sold as follows: CHEMICAL PRODUCT ADDITIONAL SALES PROCESSING COSTS ABC
Assume that a division of Sony, Inc. makes an electronic component for itsspeakers. Its manufacturing process for the component is a highly automatedpart of a just-in-time production system. All
Consider these data regarding Muskoka County’s photocopyingequipment:The county administrator is trying to decide whether to replace the oldequipment. Because of rapid changes in technology, she
Refer to the preceding problem (9-7).1. Suppose the “decision model” favoured by top management consistedof a comparison of a three-year accumulation of cash under each alternative.As the manager
Oliver Scott has just made the final payment onhis mortgage. He could continue to live in the home; cash expenses for repairs ©and maintenance (after any tax effects) would be $500 monthly.
Martina Bridgeman is a lawyer employed bya large law firm at $90,000per year. She is considering whether to become a sole practitioner, which wouldprobably generate annually $320,000 in operating
Sunshine State Fruit Company sells premium-quality oranges and other citrusfruits by mail-order. Protecting the fruit during shipping is important, so the companyhas designed and produces special
A petrochemical factory produces two products, L and M, as aresult of a joint process. Both products are sold to manufacturers as ingredientsfor assorted chemical products.Product L sells at
Renee Minelli, MD, is a psychiatrist who is in heavy demand. Eventhough she has raised her fees considerably during the past five years, Dr. Minellistill cannot accommodate all the patients who wish
The local book store bought more calendars than it could sell. It wasnearly June and 200 calendars remained in stock. The store paid $4.50 each forthe calendars and normally sold them for $8.95.
A department of Calcutta Textiles produces cotton fabric. All direct materials are introduced at the start of the process. Conversion costs are incurred uniformly throughout the process.In April
Refer to the preceding problem, P7-12. Using FIFO, answer the same questions.
Latham and Chris produces crushed limestone used in highway construction, among other products. To produce the crushed limestone, the company starts with limestone rocks from its quarry in Alberta
Ajax Meter Company manufactures a variety of measuring instruments.One product is an altimeter used by hikers and mountain climbers. Ajax adopted a just-in-time philosophy with an automated,
Digital Controls Inc. makes electric thermostats for homes and offices.The Westplains division makes one product, Autotherm, that has a standard cost of $37, consisting of $22 of materials and $15 of
Audio Components Ltd. recently installed a backflush costing system.One department makes speakers with a standard cost as follows:Speakers are scheduled for production only after orders are received,
The city of Castle Rock signed a lease for a photocopy machine at $2,500 per month and $0.02 per copy. Operating costs for toner, paper, operator salary, etc. are all variable at $0.03 per copy.
Kumar Milling buys oats at $0.60 per kilogram and produces Oat Flour, Oat Flakes, and Oat Bran. The process of separating the oats into oat flour and oat bran costs $0.30 per kilogram. The oat flour
The Wenatchee Company buys apples from local orchards and presses them to produce apple juice. The pulp that remains after pressing is sold to farmers as livestock food. This livestock food is
Hwang Management Consulting Company has two departments—accounting services and consulting services. For a given period, the following costs were incurred by the company as a whole: direct
Jade Soon, the administrator of General Hospital, is interested in obtaining more accurate cost allocations on the basis of cause and effect. The$180,000 of laundry costs has been allocated on the
Northern Pacific Railroad (NP) has a commuter operation that services passengers along a route between Vancouver and Whistler. Problems of cost allocation were highlighted in a news story about
The motor pool of Megalopolis provides automobiles for the use of various city departments. Currently, the motor pool has 50 autos. A recent study showed that it costs $3,600 of annual fixed cost per
The Pegasus Trucking Company has one service department and two regional operating departments. The budgeted cost behaviour pattern of the service department is $750,000 monthly in fixed costs plus
Many provinces have a hospital regulatory board that must approve the acquisition of specified medical equipment before the hospitals in the province can qualify for cost-based reimbursement related
Reliable Machining Products (RMP) is an automotive component supplier. RMP has been approached by Chrysler with a proposal to significantly increase production of Part T151A to a total annual
A chemical company has a batch process that takes 1,000 litres of a raw material and transforms it into 80 kilograms of X-1 and 400 kilograms of X-2.Although the joint costs of their production are
The Maori Novelty company makes a variety of souvenirs for visitors to New Zealand. The Otago division manufactures stuffed kiwi birds using a highly automated operation. A recently installed
Genesis Athletic Shoes had an ending inventory of direct materials of$9 million. During the year the company had acquired $15 million of additional direct materials and had used $12 million. Compute
East University uses job-cost records for various research projects. A major reason for such records is to justify requests for reimbursement for costs on projects sponsored by the federal
DeMond Chemicals has the following balances at December 31, 2006.All amounts are in millions:The cost of goods completed was $420 (in millions). The cost of direct materials requisitioned for
The Chickadee Company has the following balances (in millions) as of December 31, 2007:The cost of direct materials purchased during 2007 was $305. The cost of direct materials requisitioned for
MacLachlan Mfg. Co. had overapplied overhead of $20,000 in 2007. Before adjusting for overapplied or underapplied overhead, the ending inventories for direct materials, WIP, and finished goods were
The following summarized data are available on three job-cost records of Weeks Company, a manufacturer of packaging equipment:The company’s fiscal year ends on May 31. Factory overhead is applied
Refer to Exhibits 4-4 and 4-5. Suppose manufacturing costs were the same, but there was an ending work-in-process inventory of$3 million. The cost of the completed goods would therefore be $37
Ithalid Company began business on January 1, 2006, with assets of $150,000 cash and equity of$150,000 capital shares. In 2006 it manufactured some inventory at a cost of$60,000, including $12,000 for
Blackstone Tools produced 12,000 electric drills during 2006, although expected production was only 10,500 drills. The company’s fixed overhead rate is $7 per drill. Absorption-costing operating
Simple numbers are used in this problem to highlight the concepts covered in the chapter.Assume that the Canberra Company produces one product—a bath mat—that sells for $10. Canberra uses a
The Carley Company differs from the Marple Company (described in Problem 4-21) in only one respect: it has both variable and fixed manufacturing costs. Its variable costs are $0.14 per litre and its
The Trapani Company had the following actual data for 2006 and 2007:The basic production data at standard unit costs for the two years wereFixed factory overhead was budgeted at $98,000 per year. The
Direct labour is often accounted for at the gross wage rate, and the related “benefit costs” such as employer payroll taxes and employer contributions to health care plans are accounted for as
Two years ago, a ship owned by a foreign company ran aground during a severe storm and sank at the entrance of a Canadian harbour. The vessel blocked the entrance to the harbour and spilled
Form groups of four persons each. Each person should select one of the following four roles (if groups have between four and eight persons, two persons can play any of the roles in the
The Metropolitan City Hospital is unionized. In 2006, nurses received an average annual salary of $45,000. The hospital administrator is considering how the contract with nurses should be changed for
La Brasserie, a French restaurant in Moncton, New Brunswick, prepared a simplified version of its income statement as follows:The average dinner tab at La Brasserie is $40, and the average lunch tab
According to an article in Business Week, T.J. Izzo had a great idea after a bad back almost forced him to give up golf. His problem was carrying a golf bag, not swinging a club. So he designed a
Given the following cost behaviours and expected levels of cost driveractivity, predict total costs: 51. Fuel costs of driving vehicles, $0.20 per kilometre driven; at 15,000kilometres per month.2.

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