Q1. Name one special-purpose management accounting report that could be designed for each manager. Include the name of the report, the information it would contain, and how frequently it should be issued

Q2. On January 31, a snowstorm damaged the office of a small business, and some of the accounting information stored in the computer's memory was lost. The following information pertaining to January activities was retrieved from other sources:

Direct materials purchased

$18,000

Work in processbeginning inventory

2,000

Direct materialsbeginning inventory

6,000

Direct materialsending inventory

10,000

Finished goodsbeginning inventory

12,000

Finished goodsending inventory

2,500

Sales

60,000

Manufacturing overhead and direct labour incurred

22,000

Gross profit percentage based on net sales

40%

Instructions

a.

What was the cost of direct materials used in January?

b.

What amount of work in process inventory was transferred out to finished goods during January?

c.

Assume that $20,000 of direct materials was used in January and that the cost of goods available for sale in January amounted to $40,000. What did the ending work in process inventory amount to?

Q3, Aurora Manufacturing has multiple divisions that make a wide variety of products. Recently the bearing division and the wheel division got into an argument over a transfer price. The wheel division needed bearings for garden tractor wheels. It normally buys its bearings from an outside supplier for $25 per set. The company's top management recently started a campaign to persuade the different divisions to buy their materials from each other whenever possible. As a result, Maria Hamblin, the purchasing manager for the wheel division, received a letter from the vice-president of purchasing that instructed her to contact the bearing division to discuss buying bearings from it.

To comply with this request, Maria called Terry Jerabek of the bearing division and asked the price for 15,000 bearings. Terry responded that the bearings normally sell for $36 per set. However, Terry noted that the bearing division would save $3 on marketing costs by selling internally, and would pass these cost savings on to the wheel division. He further commented that his division was at full capacity, and therefore would not be able to provide any bearings right away. In the future, if he had available capacity, he would be happy to provide bearings.

Maria responded indignantly, "Thanks, but no thanks. We can get all the bearings we need from Falk Manufacturing for $24 per set." Terry snorted back, "Falk makes junk. It costs us $22 per set just to make our bearings. Our bearings can withstand the heat of 2,000 degrees Celsius and are good to within .00001 centimetres. If you guys are happy buying junk, then go ahead and buy from Falk."

Two weeks later, Maria's boss from the central office stopped in to find out whether she had placed an order with the bearing division. Maria answered that she would rather buy her bearings from her worst enemy than from the bearing division.

Instructions

Answer the following questions:

a.

Why might the company's top management want the divisions to start doing more business with one another?

b.

Under what conditions should management force a buying division to buy from an internal supplier? Under what conditions should management force a selling division to sell to an internal division, rather than to an outside customer?

c.

The vice-president of purchasing thinks that this problem should be resolved by forcing the bearing division to sell to the wheel division at its cost of $22. Is this a good solution for the wheel division? Is this a good solution for the bearing division? Is this a good solution for the company?

d.

Provide at least two other possible solutions to this problem. Discuss the merits and drawbacks of each solution.

Q4. Castle Company is considering the purchase of a new machine. The invoice price of the machine is $150,000, freight charges are estimated to be $6,000, and installation costs are expected to be $4,000. The salvage value of the new equipment is expected to be zero after a useful life of four years. The company could retain the existing equipment and use it for an additional four years if it doesn't purchase the new machine. At that time, the equipment's salvage value would be zero. If Castle purchases the new machine now, it would have to scrap the existing machine. Castle's accountant, Shaida Fang, has accumulated the following data for annual sales and expenses, with and without the new machine:

1.Without the new machine, Castle can sell 15,000 units of product annually at a per-unit selling price of $120. If it purchases the new machine, the number of units produced and sold would increase by 20%, and the selling price would remain the same.

2.The new machine is faster than the old machine, and it is more efficient in its use of materials. With the old machine, the gross profit rate is 20% of sales, whereas the rate will be 25% of sales with the new machine.

3.Annual selling expenses are $180,000 with the current machine. Because the new machine would produce a greater number of units to be sold, annual selling expenses are expected to increase by 10% if it is purchased.

4.Annual administrative expenses are expected to be $100,000 with the old machine, and $90,000 with the new machine.

5.The current book value of the existing machine is $40,000. Castle uses straight-line depreciation.

Instructions

To perform an incremental analysis for the four years that shows whether Castle should retain the existing machine or buy the new one. (Ignore income tax effects.)

Q5. Clay Company has decided to introduce a new product that can be manufactured by either a capital-intensive method or a labour-intensive method. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs under the two methods are as follows:

Capital-Intensive

Labour-Intensive

Direct materials

$5.00 per unit

$5.50 per unit

Direct labour

$6.00 per unit

$8.00 per unit

Variable overhead

$3.00 per unit

$4.50 per unit

Fixed manufacturing costs

$2,524,000

$1,550,000

Clay's market research department has recommended an introductory unit sales price of $32. The incremental selling expenses are estimated to be $502,000 annually, plus $2 for each unit sold, regardless of the manufacturing method.

Instructions

a.

Calculate the estimated break-even point in annual unit sales of the new product if Clay Company uses (1) the capital-intensive manufacturing method, or (2) the labour-intensive manufacturing method.

b.

Determine the annual unit sales volume at which there would be no difference between methods.

c.

Explain the circumstances under which Clay should use each of the two manufacturing methods.