1. Is the identification of purchases returns and allowances by department valuable to managerial control? Explain.
2. If one department consistently has a comparatively large amount of cash short in its operations, what management action might be appropriate?
3. Why is it better for managers to use contribution margin analysis rather than net income analysis when deciding whether to retain, expand, or contract operations?
4. How does a firm's accountant determine the reasonable basis to be used in allocating a specific indirect expense? Should management be concerned about the basis used?
5. The management of a store with three sales departments plans to install a bonus system for department managers. Do you think the bonus system should be based on each department's contribution margin or on the department's net income after allocating all administrative expenses? Explain.