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business
management accounting

Questions and Answers of Management Accounting

7.4 Should all variances be investigated to find their cause? Explain your answer.
7.2 What is meant by a variance? What is the point in analysing variances?
7.1 Explain what is meant by feedforward control and distinguish it from feedback control.
6.6 Daniel Chu Ltd, a new business, will start production on 1 April, but sales will not start until 1 May. Planned sales for the next nine months are as follows:Sales Units May 500 June 600 July 700
6.5 Lewisham Ltd manufactures one product line – the Zenith. Plans over the next few months are as follows:1 Sales demand Units July 180,000 August 240,000 September 200,000 October 180,000 Each
6.3 A nursing home, which is linked to a large hospital, has been examining its budgetary control procedures, with particular reference to overhead costs.The level of activity in the facility is
6.4 What is a budget committee? What purpose does it serve?
6.3 What do budgets have to do with control?
6.2 What were the five uses of budgets that were identified in the chapter?
6.1 Define a budget. How is a budget different from a forecast?
■ Identify the uses of budgeting and construct various budgets, including the cash budget, from relevant data.
Define responsibility accounting and describe four types of responsibility centers. lop6
Explain why firms choose to decentralize. lop6
Compute and explain return on investment (ROI) and economic value added (EVA). lop6
Discuss methods of evaluating and rewarding managerial performance. lop6
Explain the role of transfer pricing in a decentralized firm. lop6
What problems does Ted face as the CEO of a large, divisionalized company that he did not face as the head of a small company? lop6
What values did Steve and Ted share in the early days of the company? What values do you suppose that the division managers hold now? Are these values the same or different?How do managerial values
What is a management incentive plan? Can you think of a plan or plans that would help Ted and Steve to move their managers in the directions they want? lop6
Explain why firms choose to decentralize. lop6
Assume that a division earned operating profits of $500,000 on average operating assets of $2 mil- lion. What is the division's return on investment? Suppose that a second division had operating
What are the three benefits of ROI? Explain how each can lead to improved profitability. lop6
What are two disadvantages of ROI? Explain how each can lead to decreased profitability. lop6
What is EVA? Explain how EVA overcomes one of ROI's disadvantages. lop6
What disadvantage is shared by ROI and EVA? What can be done to overcome this problem? lop6
What is a transfer price? lop6
What is the transfer pricing problem? lop6
If the minimum transfer price of the selling divi- sion is less than the maximum transfer price of the buying division, the intermediate product should be transferred internally. Do you agree? Why
If an outside, perfectly competitive market exists for the intermediate product, what should the transfer price be? Why? lop6
Suppose that a selling division can sell all that it produces for $50 per unit. Of that 550, however, $3 represents the costs of distribution (commis- sions, freight, collections, and so on).
Discuss the advantages of negotiated transfer prices. lop6
Discuss the disadvantages of negotiated transfer prices. lop6
Identify three cost-based transfer prices. What are the disadvantages of cost-based transfer prices? When might it be appropriate to use cost-based transfer prices? lop6
The performance of the divisional manager is equivalent to the performance of a division. Do you agree? Explain. lop6
What type of control is being exercised with the use of standards? lop5
Discuss the importance of unit costs. lop5
Describe functional-based costing approaches. lop5
Explain why functional-based costing approaches may produce distorted costs. lop5
Explain how an activity-based costing system works. lop5
Provide a detailed description of how activities can be grouped into homogeneous sets to reduce the number of activity rates. lop5
Describe the role of activity-based costing for organizations with only one product, homogeneous products, or a JIT structure. lop5
What are product costs? lop5
What role do product costs play in bids? lop5
If product costing is the root of the bidding difficulties, why are the smaller, less diverse firms having more success? lop5
Why wasn’t the controller’s office able to explain the highprofit margins on the lowvolume products? lop5
What is meant by a traditional, functional-based costing system? Why might it cause distortions in product costs? lop5
Assuming Sharp’s problems are founded in the way costs are assigned to products, what can Sharp do to solve the problem? lop5
Explain why knowing the unit cost of a product or service is important. lop5
What is cost measurement? cost assignment? What is the difference between the two? lop5
Explain why an actual overhead rate is rarely t used for product costing. lop5
Describe the two-stage process associated with plantwide overhead rates. lop5
Describe the two-stage process for departmental. lop5
Explain why departmental rates might be chosen over plantwide rates. lop5
Explain how low-volume products can be under- costed and high-volume products overcosted if only unit-based cost drivers are used to assign overhead costs. lop5
Explain how undercosting low-volume products and overcosting high-volume products can affect the competitive position of a firm. lop5
What are nonunit-level overhead activities? nonunit-based cost drivers? Give some examples. lop5
What is meant by "product diversity"? lop5
What is an overhead consumption ratio? lop5
Explain how departmental overhead rates can produce product costs that are more distorted than those computed using a plantwide rate. produced. Why are they produced? lop5
Overhead costs are the source of product cost dis- tortions. Do you agree? Explain. lop5
What is activity-based product costing? lop5
What is an activity dictionary? lop5
What is the difference between a primary and a secondary activity? lop5
Explain how costs are assigned to activities. lop5
Explain how homogeneous sets of activities are overhead rates. lop5
What is a homogeneous cost pool? lop5
What are unit-level activities? batch-level activities? product-level activities? facility-level activities? lop5
What is JIT manufacturing? List five ways in which JIT manufacturing differs from traditional manufacturing? lop5
What are manufacturing cells? Explain how they differ from production departments. lop5
Explain why some indirect manufacturing costs i in traditional manufacturing become direct costs in JIT manufacturing Give some examples of costs that change in this way. lop5
In JIT manufacturing, direct labor costs are less important and largely fixed in nature. Do you agree? Explain. lop5
Without inventories, there is no distinction between product and period costs. Do you agree? Explain. lop5
How does JIT manufacturing increase product- costing accuracy? lop5
Why might ABC be useful in a company with only one product? with JIT manufacturing? lop5
Nublado Company produces ski boots. At the beginning of the year, the cost manager estimated that overhead costs would be $2,910,000 and that the units produced would be 300,000. Actual data
Compute the predetermined overhead rate for Brooks Manufacturing. lop5
Compute the applied overhead.lop5
Compute the overhead variance and label the variance as underapplied or overapplied overhead.lop5
Explain why predetermined rates are used.lop5
Morris Systems Design develops specialized software for companies and uses a normal costing system. The following data are available for 2001: lop5 Budgeted: Overhead $600,000 Machine hours 25,000
Using the information from Exercise 4-3, suppose Morris Systems Design applied overhead to production on the basis of machine hours instead of direct labor hours.Required:What is the predetermined
Herbal Vitamex, Inc., uses a predetermined overhead rate to apply overhead.Overhead is applied on the basis of direct labor hours in the mixing department and on the basis of machine hours in the
Compute the predetermined overhead rate for each department. lop52
Compute the applied overhead for the year 2001. What is the underapplied or overapplied overhead for each department? for the firm? lop5
Suppose a batch of tablets used 2,000 direct labor hours in mixing and 800 machine hours in tableting. If the batch size is 40,000 units, what is the overhead cost per tablet? lop5
Plata Company has traditionally produced a handcrafted soft leather briefcase un- der the label Maletin Elegant. Recently the company began producing a second brief- case using lower-quality
A hospital is in the process of implementing an ABC system. A pilot study is being done to assess the effects of the costing changes on specific products. Of particular interest is the cost of caring
Milan Machining Company has identified the following overhead activities, costs, and activity drivers for the coming year: lop5 Activity Expected Cost Activity Driver Activity Capacity Setup $60,000
Bijan Company uses FIFO to account for the costs of production. For the first pro- cessing department, the following equivalent-unit schedule has been prepared: LO3 Conversion Materials Cost Units
Naylor Company has two processing departments: assembly and finishing. A pre- determined overhead rate of $6 per DLH is used to assign overhead to production. The company experienced the following
Describe the basic characteristics and cost flows associated with process manufacturing. LO3
Define equivalent units and explain their role in process costing. Explain the differences between the weighted average method and the FIFO method of accounting for process costs. LO3
Prepare a departmental production report using the weighted average method. LO3
Explain how process costing is affected by nonuniform application of manufacturing inputs and the existence of multiple processing departments. LO3
Prepare a departmental production report using the FIFO method. (Appendix)1. Why do you suppose that Makenzie did not originally implement an accounting system that would give individual product
Distinguish between sequential processing and parallel processing. LO3
Describe the differences between process costing and job-order costing. LO3
What are equivalent units? Why are they needed in a process costing system? LO3
Under what conditions will the weighted average and FIFO methods give essentially the same re- sults? LO3
Explain why transferred-in costs are a special type of raw material for the receiving department. LO3

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