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managerial accounting
Questions and Answers of
Managerial Accounting
Relevant and sunk costs Don Baxter's 6-year-old Impala requires repairs estimated at $5,400 to make it roadworthy again. His friend Aaron Bloom suggested that he buy a 6-year-old Ford Escort instead
Relevant and sunk costs Gilmark Company has 10,000 obsolete lamps carried in inventory at a cost of $12 each. They can be sold as they are for $4 each. They can be reworked, however, at a total cost
Relevant and sunk costs McKinnon Company's plant manager is considering buying a new grinding machine to replace an old grinding machine or overhauling the old one to ensure compliance with the
Relevant costs and revenues: replacement decision Joyce Printers, Inc., is considering replacing its current printing machines with newer, faster, and more efficient printing technology. The
Make-or-buy and relevant costs The assembly division of Davenport, Inc., is bidding on an order of 50,000 smart phones. The division is eager to get this order because it has a substantial amount of
Make-or-buy Kane Company is considering outsourcing a key component. A reliable supplier has quoted a price of $64.50 per unit. The following costs of the component when manufactured in-house are
Make-or-buy and opportunity cost Premier Company manufactures gear model G37, which is used in several of its farm-equipment products. Annual production volume of G37 is 20,000 units. Unit
Make-or-buy, relevant costs, and opportunity cost Fab Motors has manufactured compressor parts at its plant in Pitcairn, Indiana, for the past 25 years. An outside supplier, Superior Compressor
Dropping a segment George??s Grill analyzes profitability of three operating units: restaurant, bar, and billiards room. Revenues, variable costs, and attributable fixed costs (which can be avoided
Special order pricing McGee Corporation’s Olympia plant produces a module used in automobile manufacturing. The company’s practical capacity is 4,000 modules per week. The selling price is $900
Special order pricing Shorewood Shoes Company makes and sells a variety of leather shoes for children. For its current mix of different models and sizes, the average selling price and costs per pair
Export order Berry Company produces and sells 30,000 cases of fruit preserves each year. The following information reflects a breakdown of its costs: Berry marks up its prices 40% over full costs.
Profitability of order and extra shift decisions The manufacturing capacity of Ritter Rotator Company’s plant facility is 60,000 rotators per quarter. Operating results for the first quarter of
Shelf mix decision Superstore is a large discount supermarket. Profits have declined, so the manager has collected data on revenues and costs for different food categories. The following data pertain
Product mix decision Boyd Wood Company makes a regular and a deluxe grade of wood floors. Regular grade is sold at $16 per square yard, and the deluxe grade is sold at $25 per square yard. The
Cost classification and target profit Walt’s Woodwork Company makes and sells wooden shelves. Walt’s carpenters make the shelves in the company’s rented building. Walt has a separate office at
Introducing a new product, profitability Santos Company is considering introducing a new compact disc player model at a price of $105 per unit. Santos’s controller has compiled the following
Cost behavior and cost classifications Shannon O’Reilly is trying to decide whether to continue to take public transportation to work or to purchase a car. Before making her decision, she would
Cost behavior and decisions Second City Airlines operates 35 scheduled round-trip flights each week between New York and Chicago. It charges a fixed one-way fare of $200 per passenger. Second City
Breakeven point and competitive contribution margin analysis Johnson Company and Smith Company are competing firms that offer limousine service from the Charlesburg airport. While Johnson pays most
Multiple breakeven points Last month, Capetini Capacitor Company sold capacitors to its distributors for $250 per capacitor. The sales level of 3,000 capacitors per month was less than the
Effect on costs of volume changes Capilano Containers Company specializes in making high-quality customized containers to order. Its agreement with the labor union ensures employment for all its
Profitability of orders and opportunity cost Dawson Company produces and sells 80,000 boxes of specialty foods each year. Each box contains the same assortment of food. The company has computed the
Costing orders, profitability, and opportunity cost Wedmark Corporation’s Cupertino, California, plant manufactures chips used in personal computers. Its practical capacity is 2,000 chips per
Relevant costs and equipment replacement decision Anderson Department Stores is considering the replacement of the existing elevator system at its downtown store. A new system has been proposed that
Incremental revenues and costs, special order Genis Battery Company is considering accepting a special order for 50,000 batteries that it received from a discount retail store. The order specified a
Relevant costs, sunk costs, product replacement decisions Syd Young, the production manager at Fuchow Company, purchased a cutting machine for the company last year. Six months after the purchase of
Make-or-buy Beau’s Bistro has a reputation for providing good value for its menu prices. The desserts, developed by the pastry chef, are one of the distinctive features of the menu. The pastry chef
Outsourcing and ethics Hollenberry, Inc., is a successful mail-order catalog business with customers worldwide. The company’s headquarters is in a small town some distance from any major
Dropping a product Merchant Company manufactures and sells three models of electronic printers. Ken Gail, president of the company, is considering dropping model JT484 from its product line because
Drop unprofitable product or department Perform an Internet or electronic library search on “close underperforming departments,” “unprofitable products,” or a similar phrase to locate an
Product mix and overtime decisions Excel Corporation manufactures three products at its plant. The plant capacity is limited to 120,000 machine hours per year on a single-shift basis. Direct material
Profitability of order, opportunity cost, and capacity Hudson Hydronics, Inc., is a corporation based in Troy, New York, that sells high-quality hydronic control devices. It manufactures two
Capacity and product mix decisions, linear programming Xu Company makes two types of wood doors: standard and deluxe. The doors are manufactured in a plant consisting of three departments: cutting,
Client mix decision Spencer Grant, a financial planner, contacts and meets with local individuals to assist with financial planning and investments in Spencer's employer's investment services
Estimating total labor costs Dr. Barbara Benson is the head of the pathology laboratory at Barrington Medical Center in Mobile, Alabama. Dr. Benson estimates the amount of work for her laboratory
Value proposition, CVP analysis, fixed costs, and opportunity costs Nordstrom, Inc. (http:/ /www.nordstrom.com) and Saks Fifth Avenue (http:/ /www.saksfifthavenue.com) are upscale retailers. Using
Product mix decision Aramis Aromatics Company produces and sells its product AA100 to well-known cosmetics companies for $940 per ton. The marketing manager is considering the possibility of refining
Variable and fixed costs in the wine industry, decision making A Votre Santé: Product Costing and Decision Analysis in the Wine Industry3 Background A Votre Santé (AVS) is a small, independent
1. What are sunk costs? Explain whether they are relevant costs.2. What is an opportunity cost that is relevant in a make-or-buy decision?
1. What is an opportunity cost? 2. Are avoidable costs relevant? Explain. 3. What does the term breakeven point mean?
1. “When production capacity is constrained, determine what products to make by ranking them in order of their contribution per unit.” Do you agree with this statement? Explain. 2. What are the
Revenues for Goodrich Corporation increased from $6.4 billion in 2007 to $7.1 billion in 2008 (a 10.5 percent increase), but earnings increase by over 40% from $483 million to $674 million. In recent
When Anheuser-Busch Company recognized a $160 million charge on its income statement for the closure of Tampa Breweries, it consisted of a write-down of plant assets of $113.7 million, employee
Refer to the Merck income statement presented at the very beginning of the chapter, and note that the company reported climbing profits of $3.4 billion, $7.9 billion, and $13 billion in 2007, 2008,
In the share holders’ equity section of its 2008 and 2009 balance sheets, H&R Block reported accumulated other comprehensive income balances of $2.5 million and negative $11.6 billion,
Listed below are transaction or items that are frequently reported in financial statements.1. Income effect due to changing from the double-declining-balance method to the straight-line method of
Transactions include the following: 1. Declaration of stock dividend. 2. Purchase of 50 percent of the outstanding stock of another company. 3. Payment of previously accrued interest payable. 4.
The December 31, 2012, balance sheet of Smedley Company is as follows: During 2013 the company entered into the following transaction:1. Common stock was issued for $ 35,000 cash.2. Services were
Morton Manufacturing maintains a credit line with first bank that allows the company to borrow up to $1 million. A covenant associated with the loan contract limits the company’s dividends in any
In a three-year period AT&T. the telecommunications provider, reported net income of $1.9 billion (Year Three), a net loss of $13 billion (Year Two), and net income of $7.7 billion (Year One).
LTB Enterprises consists of four separate divisions: building products, chemicals, mining, and plastics. On march 15, 2012, LTB sold the chemical division for $ 625,000 cash. Financial information
It is December 2012, and Sharon Sowers, the CEO of Mallory Services, has decided to sell the clerical division. She has received an offer for $ 105,000 but is undecided about whether she wishes to
It is December 2012, and Rob Blanding, the CEO of Carmich Industries, has decided to sell the chemical division. He has received an offer for $ 350,000, but he is undecided about whether he wishes to
The 2007 income statement for Group Danone, a French-based food processor that publishes IFRS-based financial statements, is provided below (in million euros).2007Net sales ...............
You are currently auditing the financial records of Paxson Corporation, which is located in San Francisco, California. During the current year, inventories with an original cost of $2,325,000 were
The management of Sting Enterprises shares in a bonus that is determined and paid at the end of each year. The amount of the bonus is defined by multiplying net income from continuing operations
The following income statement was reported by battery Builders for the year ending December 31, 2012: Show how battery builders would report earrings per share on the face of the income
The following information was taken from the 2012 financial records of Rothrock consolidated. All items are pretax. The company's income tax rate is 35 percent, and the item above are treated
The following pretax amounts were obtained from the financial records of Watson Company for 2012: The company's tax rate is 35 percent.(a) Prepare an income statement for the year ended December
Kennington Company has outstanding debt that contains restrictive covenants limiting dividends to 15 percent of net income from continuing operations. During 2012, the company reported net income
Madigan international is planning a major stock issuance in early 2013. During 2012, the company reported net income from operations of $865,000 before taxes. The four items below describe major
Brinkley Leasing purchases farm machinery and leases it to farms. At the beginning of 2011 the company paid $ 1,000,000 for a fleet of tractors, and estimated their useful lives at five years.
Lundy Manufacturing produces and sells football equipment. The company was involved in the following transactions or events during 2012: 1. The company purchased $250,000 worth of materials to be
The manager of Martin House are paid a salary and share in a bonus that is determine at the end of each year. The total bonus is determine by multiplying the company’s income from operations by 25
Raleigh Corporation began operations on February 10, 2012. During 2012, the company entered into the following transactions:1. Issued $110,000 of common, stock and $25,000 of preferred stock.2.
Excerpts from Crozier Industries' financial record as of December 31, 2012, follow: The amount shown do not include any tax effects. Crozier's tax rate is 35 percent. Assume that all items are
In its 2012 financial report, Meeks Company reported $850,000 under the line item “extra ordinary losses” on the income statement. The company’s tax rate is 35 percent. The footnote pertaining
The following information has been obtained from the internal financial records of MTM Company:Retained earnings, December 31, 2011 ......... 1,259,000Dividends declared and paid during 2012 ........
The lower portion of the 2006 income statement for McDonald’s follows (dollars in million):Income from continuing operations ......... 2875.0Income from discontinued operations net of taxes ...
The lower portions of the 2008 income statement for duke Energy Corporation follows (dollars in millions, except per-share amounts):Income from continuing operations .......... $1,279Income from
Woodland Farm Corporation has the following items to indicate in its financial statements:None of the listed amounts includes any income tax effects. The company's tax rate is 35 percent.Required(a)
Tom Brown, controller of Microbiology Labs, informs you that the company has sold a segment of its business. Mr. Brown also provides you with the following information for 2012:The following
If you want the formulas and any calculations, select the corresponding cell and press F2 (Function Key on key board), It will show all calculations and formulas Automatically
"A sports nutrition company is examining whether a new high-performance sports drink should be added to its product line. A preliminary feasibility analysis indicated that the company would need to
Which of the following are Section 1231 assets? Explain. Assume all the items have been held long-term. a. Machinery used in the business b. Personal home c. Factory building d. Land held as an
A newly formed firm must decide on a plant location. There are two alternatives under consideration: locate near the major raw materials or locate near the major customers. Locating near the raw
Charrd Corporation manufactures a gas operated barbecue grill. The following information relates to Charrd's operations for last year:Unit product cost under absorption costing $55 per unitFixed
Flowers Galore (FG) has been in business for several years. FG is open Monday-Friday with hours from 9 a.m. until 6 p.m. Saturdays, FG is open from 9 am until 2 pm. FG is the only flower shop in this
Short-run pricing, capacity constraints. Colorado Mountains Dairy, maker of specialty cheeses, produces a soft cheese from the milk of Holstein cows raised on a special corn-based diet. One kilogram
Value-added, nonvalue-added costs. The Marino Repair Shop repairs and services machine tools. A summary of its costs (by activity) for 2011 is as follows:a. Materials and labor for servicing machine
Target operating income, value-added costs, service company. Calvert Associates prepares architectural drawings to conform to local structural-safety codes. Its income statement for 2012 is as
Cost-plus target return on investment pricing. John Blodgett is the managing partner of a business that has just finished building a 60-room motel. Blodgett anticipates that he will rent these rooms
Cost-plus, target pricing, working backward. Road Warrior manufactures and sells a model of motorcycle, XR500. In 2011, it reported the following:Units produced and
Life cycle product costing. Gadzooks, Inc., develops and manufactures toys that it then sells through infomercials. Currently, the company is designing a toy robot that it intends to begin
Relevant-cost approach to pricing decisions. Burst, Inc., cans peaches for sale to food distributors. All costs are classified as either manufacturing or marketing. Burst prepares monthly budgets.
Considerations other than cost in pricing decisions. Executive Suites operates a 100-suite hotel in a busy business park. During April, a 30-day month, Executive Suites experienced a 90% occupancy
Cost-plus, target pricing, working backward. The new CEO of Radco Manufacturing has asked for a variety of information about the operations of the firm from last year. The CEO is given the following
Cost-plus, time and materials, ethics. R & C Mechanical sells and services plumbing, heating, and air conditioning systems. R & C's cost accounting system tracks two cost categories: direct
Cost-plus and market-based pricing. Florida Temps, a large labor contractor, supplies contract labor to building-construction companies. For 2012, Florida Temps has budgeted to supply 84,000 hours of
Life-cycle costing. New Life Metal Recycling and Salvage has just been given the opportunity to salvage scrap metal and other materials from an old industrial site. The current owners of the site
Airline pricing, considerations other than cost in pricing. Air Eagle is about to introduce a daily round-trip flight from New York to Los Angeles and is determining how it should price its
Ethics and pricing. Apex Art has been requested to prepare a bid on 500 pieces of framed artwork for a new hotel. Winning the bid would be a big boost for sales representative Jason Grant, who works
Value engineering, target pricing, and locked-in costs. Pacific Décor, Inc., designs, manufactures, and sells contemporary wood furniture. Ling Li is a furniture designer for Pacific. Li has spent
Value engineering, target pricing, and locked-in costs. Pacific Décor, Inc., designs, manufactures, and sells contemporary wood furniture. Ling Li is a furniture designer for Pacific. Li has spent
Managers should always buy inventory in quantities that result in the lowest purchase cost per unit. Do you agree? Why?
Disposal of assets. Answer the following questions.1. A company has an inventory of 1,100 assorted parts for a line of missiles that has been discontinued. The inventory cost is $78,000. The parts
Relevant and irrelevant costs. Answer the following questions.1. DeCesare Computers makes 5,200 units of a circuit board, CB76 at a cost of $280 each. Variable cost per unit is $190 and fixed cost
Lawn World, a manufacturer of lawn mowers, predicts that it will purchase 264,000 spark plugs next year. Lawn World estimates that 22,000 spark plugs will be required each month. A supplier quotes a
Fair Lakes Hospital Corporation has been operating ambulatory surgery centers in Groveton and Stockdale, two small communities each about an hour away from its main hospital. As a cost control
Equipment upgrade versus replacement. (A. Spero, adapted) The TechGuide Company produces and sells 7,500 modular computer desks per year at a selling price of $750 each. Its current production
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