Questions and Answers of Advanced Accounting

Divine DVDs Pty Ltd manufactures and sells DVDS. Price and cost data are in the following table.(In the following requirements, ignore income taxes.)Required1. What is Divine DVDs' break-even point
Refer to the data given in Problem 18.33. Now assume that Divine DVDs pays income taxes of 30 percent.In P 18.33Divine DVDs Pty Ltd manufactures and sells DVDS. Price and cost data are in the
The Cotswold Limestone Company produces thin limestone sheets that are used for the facings on buildings. As can be seen in the contribution margin statement, last year the company had a net profit
AudioFriend manufactures audio speakers for tablet computers. The following data relate to the period just ended, when the company produced and sold 42 000 speaker sets:Sales
Malaka Oyster Company has increased its variable costs per kilogram of oysters harvested. However, its fixed costs decreased as a result of these changes. Why might this happen and how will these
Commercial Crates Pty Ltd manufactures two types of crates for transporting fresh fruit and vegetables Timber and Polystyrene. The budgeted data for next year are as follows:Facility costs for the
Air Tool Australia (ATA) is considering the addiction of a new valve to its product line. The valve would be used by manufacturers of Pneumatic equipment. The company anticipates starting with a
Suppose the variable costs of a medical practice increase. What types of costs might these be? How will this increase change the break-even point?
Explain what safety margin means? How can managers use this information to manage the profitability of a business?
Select two decisions-One common to a manufacturer and the other Common to a service organization-ad give two examples of irrelevant future costs for each decision. Why are they irrelevant?
In a decision about whether to accept or reject a special order, explain why it is important to know if this a 'one-off' decision.
Explain how the existence of spare or full production capacity can affect the choice of whether to accept or reject a special order.
Explain how avoidable and unavoidable costs are used in a decision to make or buy a product.
Explain four potential pitfalls in using accounting data in decision making.
The 'Real life' on page 847 outlines the challenges for accountants in cutting through complexity to provide insightful analysis of data to assist managers' decisions. Outline the professional skills
Explain briefly how to use the physical units, relative sales value net realisable and constant gross margin methods of joint cost allocation. Which method is the best?
Choose an organisation with which you are familiar and a particular decision situation. For that decision describe each step in the decision-making process, as illustrated in Exhibit 19.1.Exhibit 19.1
Michael Trencher, a concrete layer, bought his current cement mixer two years ago for $9000, and it has one more year of life remaining. He is using straight-line depreciation for the mixer. He could
Global Chemical Company (GCC) recently received an order for a product that it does not normally produce. Since the company has spare production capacity, management are considering accepting the
Refer to the data given in Exercise 19.24. Global Chemical Company's special order also requires 1000 kilograms of genatope, a solid chemical regularly used in the company's products. The current
George Street Deli's owner is disturbed by the poor profit performance of his gelato bar. He has prepared the following profit analysis:Required:1. Evaluate the above analysis that has been prepared
Iron Man Cleaning Company produces cleaning compounds and solutions for industrial and household use. While most of its products are processed independently, a few are related. Grit 337, a coarse
Crunch-Time Cereal Company manufactures two breakfast cereals in a joint process. Cost and quantity information follows:Required:Use the following methods to allocate the company's joint production
Refer to the data given in Exercise 19.30. Crunch-Time Cereal Company has an opportunity to further process its Crummies into a mulch for ornamental shrubs. The additional processing operation costs
The New South Wales Division of Sansuki Motor Corporation (SMC) manufactures sub-assemblies that are used in their final products. Lynn Hardt of the New South Wales Division's Profit Planning
Camilla's, a high-fashion dress manufacturer, is planning to market a new cocktail dress for the coming year. Camilla's supplies retailers primarily in the eastern states.Four metres of material are
All decisions have long-term implications, so the distinction between tactical decisions and long-term decisions is meaningless.' Do you agree or disagree with this statement? Give your reasons.
Cygnet Sawmill manufactures two timber products from a joint milling process. The two products are mine support braces (MSB) and lengths of unseasoned commercial building timber (CBT). A standard
In analysing information to make decisions, is objective information always relevant? Is objective information always accurate? In each case give examples to support your answer.
Why might a manager want to consider sunk costs in making a decision? Provide two examples of sunk costs and explain why they are irrelevant in decision making.
Explain why the original cost of production machinery is not a relevant cost in a make-or-buy decision. Could any aspect of the cost of machinery be relevant to this decision?
Explain the term opportunity cost. Select two decisions, one from your personal life and one a common decision that manufacturers face, and provide specific examples of relevant opportunity costs.
The prices of our consulting services are determined by whatever our competitors charge for similar services. Costs are irrelevant. Do you agree with this statement? Explain your answer.
Explain the rationale behind the time and material pricing approach? Why is this some industries?
Explain how, when using cost-plus pricing, activity-based costing may lead to more 'accurate' product costs compared with those produced by a traditional costing system.
In competitive bidding the submitted bid may differ, depending on whether or not the supplier organisation has spare capacity. Explain why this is the case.
The identification of relevant costs and benefits in decisions to accept or reject a special order, and the selection of a price for a competitive bid, may be based on similar principles. Explain.
Explain what is meant by predatory pricing and resale price maintenance.
The Real Life on page 914 provides some examples of companies that have engaged in price fixing Search the ACCC website to find case studies of price fixing. Choose one example and explain how the
Explain why different costs and revenues may be relevant when making short-term product mix decisions compared with making long-term product mix decisions.
Explain how linear programming can be used in making a long-term product mix decision.
Think of an industry in which political considerations are important in the setting of prices. Explain what the product is and why political issues are important.
Hotsounds Ltd manufactures premium MP4 players with unusual features. The divisional sales manager has estimated the following demand curve data:Quantity sold per month ____________________ Unit
Refer to the data given in Exercise 20.21. The divisional accountant at Hotsounds has estimated the following cost data for the division is MP4 players. (There are no fixed costs.) Quantity produced
Refer to the data given in Exercises 20.21 and 20.22In Exercises 20.21Hotsounds Ltd manufactures premium MP4 players with unusual features. The divisional sales manager has estimated the following
The following data relate to LawMate corporations top-of-the-line lawnmower.Variable manufacturing cost .............................................. $275Applied fixed manufacturing cost
The following data pertain to Islander Company's modern lampshade:Variable manufacturing cost .............................................. $200Applied fixed manufacturing cost
Tan Choo Company produces a single product in its Singapore plant, which currently sells for $15 per unit. Fixed costs are expected to amount to $180 000 for the year, and all variable manufacturing
ArchoChem Ltd manufactures two chemicals, West 1 and West 2. Contribution margin data follow:ArchoChem production process uses highly skilled labour, which is in short supply. The same employees work
When setting prices, it is important to define the product and market correctly. Do you agree with this statement? Provide an example to illustrate your answer.
Super Heating Ltd installs heating system in new homes. Jobs are priced using the time and materials method. The managing director of Super Heating is pricing a job involving the heating systems for
Halifax Pharmaceuticals is a wholesaler that specializes in packaging bulk drugs, in standard dosages, for local hospitals. The company has been in business for seven years and has been profitable
Harmon Company manufactures flour milling machinery according to customer specifications. The company operated at 75 percent of practical capacity during the year just ended, with the following
EPM Industries manufactures and sells three products, which are manufactured in a factory with four departments. Both labour and machine time is applied to the products as they pass through each
In the 'Real life' on page 900, price cutting in the airline industry was discussed. Provide an example of another industry in which competitors' actions have led to price increases or decreases.
Great Cooking Company offers monthly service plans for providing prepared meals that are delivered to customers' homes. The target market for these meal plans includes double-income families with no
Explain the difference between value-based pricing and economic value pricing?
Explain the disadvantages that can result when cost-plus prices are based on absorption costs.
In the example of return on investment pricing provided in this chapter, the markup percentage was different depending on which definition of product cost was used. Explain why the markup was
Explain how capital expenditure can impact a firm's competitiveness?
Explain how to calculate a project's accounting rate of return. Would you expect a project's accounting rate of return or the internal rate of return to be higher? Explain your answer.
My annual salary bonus is based on my business unit's return on investment. There is no way that will approve capital expenditure projects which do not generate an accounting profit each year.
What is the diminishing value method of depreciation, and how does it differ from the straight-line method? Why do some businesses prefer to use the diminishing value method of depreciation for tax
The profit or loss on disposal of a non-current asset is an accounting entry and not a cash flow. For this reason it should not be considered in analysing capital expenditure decisions. True or
The 'Peal life' explains the factors that influence companies to invest in new technology. Explain the difficulties that arise when traditional cash flow methods of capital expenditure analysis are
The 'Peal life on page 955 explained the difficulties associated with making major acquisition decisions years in advance. Describe the strategic issues that Qantas may have taken into account when
Outline the six stage of the typical capital expenditure process and explain the likely management accountant in this process?
Waikato City Council (WCC) is considering the purchase of a site for a new landfill. The purchase price for the site is $234000 and preparatory work will cost $88080. The landfill would be useable
Refer to the data given in Exercise 21.21.In E21-21Waikato City Council (WCC) is considering the purchase of a site for a new landfill. The purchase price for the site is $234000 and preparatory work
Tiger's Place is a not-for-profit nursery run by the parents of the enrolled children. Since the school is out of town, it has a water storage tank rather than city water supply. After a flock of
Refer to the data given in Exercise 21-23. In E21-23 Tiger's Place is a not-for-profit nursery run by the parents of the enrolled children. Since the school is out of town, it has a water storage
The board of management of Nelson New Age Theatre is considering the replacement of the theatre's lighting system. The old system requires two people to operate it, but the new system would need only
Parkes Book Company's management is considering an advertising program that would require an initial expenditure of $165 500 and bring in additional sales over the next five years. The projected
New Life Spring Water Company recently purchased a new delivery truck for $100 000. Management expects the truck to generate the following additional annual revenues and expenses during its useful
Briefly outline the concept of discount cash flow analysis. Explain the essential different between the two common methods of discounted cash flow analysis.
In year 1, Expert Chemicals purchased a forklift truck for $300 000, and at the end of year 3 sold it for $55530. At the time of sale $233070 in accumulated depreciation had been recorded. Note the
All Steel Fabrication Ltd purchased industrial tools costing $120 000. These tools are expected to last for three years. The company tax rate is 30 percent.Required:1 Prepare a schedule setting out
The management of Wombat Village, a private refuge for endangered wildlife, is considering an investment in an electrified fencing system to keep out feral foxes and cats. The fences would cost $186
The owner of Black Hills Cafe is considering the purchase of a new semi-automatic coffee-making. The machine will cost $75 000 and last 10 years. The machine is expected to have no salvage value at
The chief executive of Bankstown Airport is considering approaching the Federal Airport Authority to request permission to construct a new longer runway at the airport. Currently, the airport can
Refer to the data given in Problem 21.37.Required:1 Prepare a net present value analysis of the proposed long runway.2 Should the runway be approved?3 Which of the data used in the analysis are
The grater the discount rate, the greater the percent value of a future cash flow. Is this statement true or false? Explain your answer.
Terry's Tiles Ltd is reviewing a capital investment proposal. The initial cost of the project and the net cash flows for each year are presented in the schedule below. It is estimated that there
The owner of Peter's Pancake House is considering an expansion of the business. He has identified two alternatives, as follows:• Build a new restaurant near a large suburban shopping centre.• Buy
BioChem plans to replace an old piece of research equipment which is obsolete and becoming increasingly unreliable under the stress of daily operations. The equipment is fully depreciated, and no
Paper Solutions Ltd manufactures three different models of paper shredders including the waste container that serves as the base. While the shredder heads are different for the three models, the
Compare and contrast the assumptions underlying the net present value and IRR methods of discounted cash flow analysis?
In the initial presentation of MMCs' decision relating to the purchase of a new CT scanner, two alternatives were proposed. When a real-options analysis approach was considered, a further two
Given the limitations of the payback method, why do many businesses continue to use it?
Explain the differences between each pair of concepts: a. Real versus financial assets b. Investment versus financing decisions c. Capital budgeting versus capital structure decisions
Explain the differences between each pair of concepts: a. Real versus financial assets b. Investment versus financing decisions c. Capital budgeting versus capital structure decisions Discuss.
Give two examples of capital budgeting decisions and financing decisions.
If agency problems can be mitigated by tying the manager's compensation to the fortunes of the firm, why don't firms compensate managers exclusively with shares in the firm?
Canada Business, www.canadabusiness.ca, is a Government of Canada Web site for businesses. Click on "Starting," then on "Corporation, partnership, or sole proprietorship?" Pick a province and review
To learn about careers in finance, go to www.careers-in-finance.com. This site describes jobs in commercial banking, corporate finance, financial planning, insurance, investment banking, money
Go to the Web page of TO Financial Group, www.td.com, and look at the activities of their various businesses. If you are an investment banker, which business would you work for? If you want to trade
We mentioned in Chapter 1 that large banks have their fingers in many pies. The Web sites of the very largest banks are equally massive. The Royal Bank of Canada (www.royalbank.com) and Scotiabank
Go to www.globefund.com, find "Fund Filter" under "Inside Funds" in the middle of the page. Select an asset class that interests you. For example, under the ·Aggressive Growth" category, pick
Using the Fund Filter from question 24, find a mutual fund offering a similar investment objective for each of the ETFs you found in question 21. Compare the top 5 holdings, risks, past returns, and
In most years, new issues of stock are a tiny fraction of total stock market trading. In other words, secondary market volume is much greater than primary market volume. Does the fact that firms only

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