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Survey of Accounting 2nd edition Edmonds, old, Mcnair, Tsay - Solutions

It all comes down to the bottom line. The numbers never lie. Do you agree with this conclusion? Explain your position.
Carmon Company invested $300,000 in the equity securities of Mann Corporation. The current market value of Carmon’s investment in Mann is $250,000. Carmon currently needs funds for operating purposes. Although interest rates are high, Carmon’s president has decided to borrow the needed funds
What is an opportunity cost? How does it differ from a sunk cost?
A local bank advertises that it offers a free noninterest bearing checking account if the depositor maintains a $500 minimum balance in the account. Is the checking account truly free?
A manager is faced with deciding whether to replace machine A or machine B. The original cost of machine A was $20,000 and that of machine B was $30,000. Because the two cost figures differ, they are relevant to the manager’s decision. Do you agree? Explain your position.
Are all fixed costs unavoidable?
Identify two qualitative considerations that could be associated with special order decisions.
Which of the following would not be relevant to a make or buy decision?(a) Allocated portion of depreciation expense on existing facilities.(b) Variable cost of labor used to produce products currently purchased from suppliers.(c) Warehousing costs for inventory of completed products (inventory
What two factors should be considered in deciding how to allocate shelf space in a retail establishment?
What level(s) of costs is (are) relevant in special order decisions?
Why would a company consider outsourcing products or services?
Chris Sutter, the production manager of Satellite Computers, insists that the DVD drives used in the company’s upper-end computers be outsourced since they can be purchased from a supplier at a lower cost per unit than the company is presently incurring to produce the drives. Jane Meyers, his
Identify some qualitative factors that should be considered in addition to quantitative costs in deciding whether to outsource.
The managers of Wilcox Inc. are suggesting that the company president eliminate one of the company’s segments that is operating at a loss. Why may this be a hasty decision?
Why would a supervisor choose to continue using a more costly old machine instead of replacing it with a less costly new machine?
Joyce Hardman is trying to decide which of two different kinds of candy to sell in her retail candy store. One type is a name-brand candy that will practically sell itself. The other candy is cheaper to purchase but does not carry an identifiable brand name. Ms. Hardman believes that she will have
Lopez Company makes and sells a single product. Lopez incurred the following costs in its most recent fiscal year.Lopez could purchase the products that it currently makes. If it purchased the items, the company would continue to sell them using its own logo, advertising program, and sales
Irby Company makes fine jewelry that it sells to department stores throughout the United States. Irby is trying to decide which of two bracelets to manufacture. Irby has a labor contract that prohibits the company from laying off workers freely. Cost data pertaining to the two choices
Huey Concrete Company pours concrete slabs for single-family dwellings. Tudor Construction Company, which operates outside Huey’s normal sales territory, asks Huey to pour 40 slabs for Tudor’s new development of homes. Huey has the capacity to build 300 slabs and is presently working on 250 of
Roddam Company manufactures a personal computer designed for use in schools and markets it under its own label. Roddam has the capacity to produce 20,000 units a year but is currently producing and selling only 15,000 units a year. The computer’s normal selling price is $1,400 per unit with no
Identifying qualitative factors for a special order decisionRequiredDescribe the qualitative factors that Roddam should consider before accepting the special order described in Exercise 13-5.
Payne Company, which produces and sells a small digital clock, bases its pricing strategy on a 35 percent markup on total cost. Based on annual production costs for 10,000 units of product, computations for the sales price per clock follow.Requireda. Payne has excess capacity and receives a special
Hill Bicycle Manufacturing Company currently produces the handlebars used in manufacturing its bicycles, which are high-quality racing bikes with limited sales. Hill produces and sells only 6,000 bikes each year. Due to the low volume of activity, Hill is unable to obtain the economies of scale
Green Lawn Inc. makes and sells lawn mowers for which it currently makes the engines. It has an opportunity to purchase the engines from a reliable manufacturer. The annual costs of making the engines are shown here.*The equipment has a book value of $72,000 but its market value is zero.Requireda.
Reece Corporation, which makes and sells 79,400 radios annually, currently purchases the radio speakers it uses for $10 each. Each radio uses one speaker. The company has idle capacity and is considering the possibility of making the speakers that it needs. Reece estimates that the cost of
Mulga Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,000 containers follows.*One-third of these costs can be avoided by purchasing the containers.Omar Container Company has offered to sell comparable
Rembert Freight owns a truck that cost $90,000. Currently, the truck’s book value is $54,000, and its expected remaining useful life is four years. Rembert has the opportunity to purchase for $64,000 a replacement truck that is extremely fuel efficient. Fuel cost for the old truck is expected to
John Cassaway owns his own taxi, which he bought an $18,000 permit to operate two years ago. Mr. Cassaway earns $36,000 a year operating as an independent but has the opportunity to sell the taxi and permit for $73,000 and take a position as dispatcher for Sartino Taxi Co. The dispatcher position
Lockett Company operates three segments. Income statements for the segments imply that profitability could be improved if Segment A were eliminated.Requireda. Explain the effect on profitability if Segment A is eliminated.b. Prepare comparative income statements for the company as a whole under two
Haygood Transport Company divides its operations into four divisions. A recent income statement for Stancil Division follows.Requireda. Should Stancil Division be eliminated? Support your answer by explaining how the division's elimination would affect the net income of the company as a whole. By
Hanley Corporation is considering the elimination of one of its segments. The segment incurs the following fixed costs. If the segment is eliminated, the building it uses will be sold.RequiredBased on this information, determine the amount of avoidable cost associated with thesegment.
A machine purchased three years ago for $210,000 has a current book value using straight-line depreciation of $126,000; its operating expenses are $30,000 per year. A replacement machine would cost $240,000, have a useful life of nine years, and would require $13,000 per year in operating expenses.
Elrod Company is considering replacement of some of its manufacturing equipment. Information regarding the existing equipment and the potential replacement equipment follows.*The amounts shown for operating expenses are the cumulative total of all such expected expenses to be incurred over the
Philpot Company paid $73,000 to purchase a machine on January 1, 2007. During 2009, a technological breakthrough resulted in the development of a new machine that costs $120,000. The old machine costs $41,000 per year to operate, but the new machine could be operated for only $12,000 per year. The
Because of rapidly advancing technology, Newell Publications Inc. is considering replacing its existing typesetting machine with leased equipment. The old machine, purchased two years ago, has an expected useful life of six years and is in good condition. Apparently, it will continue to perform as
Context-sensitive relevanceRequiredRespond to each requirement independently.a. Describe two decision-making contexts, one in which unit-level materials costs are avoidable, and the other in which they are unavoidable.b. Describe two decision-making contexts, one in which batch-level setup costs
Overby Construction Company is a building contractor specializing in small commercial buildings. The company has the opportunity to accept one of two jobs; it cannot accept both because they must be performed at the same time and Overby does not have the necessary labor force for both jobs. Indeed,
Awtrey Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 1,000 units. Awtrey made 20,000 blankets during the prior accounting period. The cost of producing the blankets is summarized here.Requireda. Sunny Motels has offered
Faucette Chemical Company makes a variety of cosmetic products, one of which is a skin cream designed to reduce the signs of aging. Faucette produces a relatively small amount (15,000 units) of the cream and is considering the purchase of the product from an outside supplier for $4.50 each. If
Holcombe Bike Company (HBC) makes the frames used to build its bicycles. During 2009, HBC made 20,000 frames; the costs incurred follow.HBC has an opportunity to purchase frames for $100 each.Additional Information1. The manufacturing equipment, which originally cost $550,000, has a book value of
Levene Boot Co. sells men's, women's, and children's boots. For each type of boot sold, it operates a separate department that has its own manager. The manager of the men's department has a sales staff of nine employees, the manager of the women's department has six employees, and the manager of
Walter Manufacturing Co. produces and sells specialized equipment used in the petroleum industry. The company is organized into three separate operating branches: Division A, which manufactures and sells heavy equipment; Division B, which manufactures and sells hand tools; and Division C, which
McKay Inc. makes and sells state-of-the-art electronics products. One of its segments produces The Math Machine, an inexpensive calculator. The company's chief accountant recently prepared the following income statement showing annual revenues and expenses associated with the segment's operating
On May 31, 2007, Dell, Inc. announced it was making several changes to the way it did business in order ". . . to restore competitiveness to the core business, re-ignite growth, and build solutions critical to customer needs." As one of the changes the company initiated a comprehensive review of
Maccoa Soft, a division of Zayer Software Company, produces and distributes an automated payroll software system. A contribution margin format income statement for Maccoa Soft for the past year follows.Requireda. Divide the class into groups and then organize the groups into three sections. Assign
Obtain Colgate-Palmolive’s (C-P) Form 8-K dated December 6, 2004. Companies file an 8-K with the SEC when they want to announce a special event has occurred at their business. As is often the case with Form 8-Ks, C-P’s includes as an attachment a press release related to its planned
State law permits the State Department of Revenue to collect taxes for municipal governments that operate within the state’s jurisdiction and allows private companies to collect taxes for municipalities. To promote fairness and to ensure the financial well-being of the state, the law dictates
John Dillworth is in charge of buying property used as building sites for branch offices of the National Bank of Commerce. Mr. Dillworth recently paid $110,000 for a site located in a growing section of the city. Shortly after purchasing this lot, Mr. Dillworth had the opportunity to purchase a
Budgets are useful only for small companies that can estimate sales with accuracy. Do you agree with this statement?
Why does preparing the master budget require a committee?
What are the three levels of planning? Explain each briefly.
What is the primary factor that distinguishes the three different levels of planning from each other?
What is the advantage of using a perpetual budget instead of the traditional annual budget?
What are the advantages of budgeting?
How may budgets be used as a measure of performance?
Ken Shilov, manager of the marketing department, tells you that “budgeting simply does not work.” He says that he made budgets for his employees and when he reprimanded them for failing to accomplish budget goals, he got unfounded excuses. Suggest how Mr. Shilov could encourage employee
What is a master budget?
What is the normal starting point in developing the master budget?
How does the level of inventory affect the production budget? Why is it important to manage the level of inventory?
What are the components of the cash budget? Describe each.
The primary reason for preparing a cash budget is to determine the amount of cash to include on the budgeted balance sheet. Do you agree or disagree with this statement?Explain.
What information does the pro forma income statement provide? How does its preparation depend on the operating budgets?
How does the pro forma statement of cash flows differ from the cash budget?
Candice Hargrove, the accountant, is a perfectionist. No one can do the job as well as she can. Indeed, she has found budget information provided by the various departments to be worthless. She must change everything they give her. She has to admit that her estimates have not always been accurate,
Camtech, which expects to start operations on January 1, 2008, will sell digital cameras in shopping malls. Camtech has budgeted sales as indicated in the following table. The company expects a 10 percent increase in sales per month for February and March. The ratio of cash sales to sales on
The budget director of Camila's Florist has prepared the following sales budget. The company had $200,000 in accounts receivable on July 1. Camila's Florist normally collects 100 percent of accounts receivable in the month following the month of sale.Requireda. Complete the schedule of cash
Tumblin Corporation, which has three divisions, is preparing its sales budget. Each division expects a different growth rate because economic conditions vary in different regions of the country. The growth expectations per quarter are 4 percent for East Division, 2 percent for West Division, and 6
Cung’s Dress Delivery operates a mail-order business that sells clothes designed for frequent travelers. It had sales of $610,000 in December. Because Cung’s Dress Delivery is in the mail order business, all sales are made on account. The company expects a 30 percent drop in sales for January.
Picken Inc. is a candy store located in a large shopping mall.RequiredWrite a brief memo describing the sales pattern that you would expect Picken to experience during the year. In which months will sales likely be high? In which months will sales likely be low? Explain why.
Tucker Lighting Company sells lamps and other lighting fixtures. The purchasing department manager prepared the following inventory purchases budget. Tucker Lighting's policy is to maintain an ending inventory balance equal to 10 percent of the following month's cost of goods sold. April's budgeted
Readers' Home buys books and magazines directly from publishers and distributes them to grocery stores. The wholesaler expects to purchase the following inventory.Readers' Home's accountant prepared the following schedule of cash payments for inventory purchases. Readers' Home's suppliers require
Birchem Company, which sells electric razors, had $260,000 of cost of goods sold during the month of June. The company projects a 5 percent increase in cost of goods sold during July. The inventory balance as of June 30 is $28,000, and the desired ending inventory balance for July is $29,000.
The budget director for Lenoir Window Cleaning Services prepared the following list of expected operating expenses. All expenses requiring cash payments are paid for in the month incurred except salary expense and insurance. Salary is paid in the month following the month in which it is incurred.
Executive officers of Shavez Company are wrestling with their budget for the next year. The following are two different sales estimates provided by two different sources.Shavez’s past experience indicates that cost of goods sold is about 60 percent of sales revenue. The company tries to maintain
January budgeted selling and administrative expenses for the retail shoe store that May Rozell plans to open on January 1, 2009, are as follows: sales commissions, $18,000; rent, $15,000; utilities, $5,000; depreciation, $4,000; and miscellaneous, $2,000. Utilities are paid in the month following
The accountant for Lori's Dress Shop prepared the following cash budget. Lori's desires to maintain a cash cushion of $14,000 at the end of each month. Funds are assumed to be borrowed and repaid on the last day of each month. Interest is charged at the rate of 2 percent per month.Requireda.
Ellen Crawley owns a small restaurant in New York City. Ms. Crawley provided her accountant with the following summary information regarding expectations for the month of June. The balance in accounts receivable as of May 31 is $55,000. Budgeted cash and credit sales for June are $105,000 and
Jim Denty, the controller of Grime Corporation, is trying to prepare a sales budget for the coming year. The income statements for the last four quarters follow.Historically, cost of goods sold is about 60 percent of sales revenue. Selling and administrative expenses are about 10 percent of sales
Dorough Pointers Inc. expects to begin operations on January 1, 2009; it will operate as a specialty sales company that sells laser pointers over the Internet. Dorough expects sales in January 2009 to total $120,000 and to increase 10 percent per month in February and March. All sales are on
Caine Inc. sells fireworks. The company's marketing director developed the following cost of goods sold budget for April, May, June, and July.Caine had a beginning inventory balance of $3,500 on April 1 and a beginning balance in accounts payable of $15,100. The company desires to maintain an
Top executive officers of Leach Company, a merchandising firm, are preparing the next year's budget. The controller has provided everyone with the current year's projected income statement.Cost of goods sold is usually 65 percent of sales revenue, and selling and administrative expenses are usually
Wynn is a retail company specializing in men's hats. Its budget director prepared the list of expected operating expenses that follows. All items are paid when the expenses are incurred except sales commissions and utilities, which are paid in the month after they are incurred. July is the first
McBride Medical Clinic has budgeted the following cash flows.McBride Medical had a cash balance of $7,000 on January 1. The company desires to maintain a cash cushion of $5,000. Funds are assumed to be borrowed, in increments of $1,000, and repaid on the last day of each month; the interest rate is
Fresh Fruits Corporation wholesales peaches and oranges. Nora Boyd is working with the company's accountant to prepare next year's budget. Ms. Boyd estimates that sales will increase 5 percent annually for peaches and 10 percent for oranges. The current year's sales revenue data follow.Based on the
Resha Company is a retail company that specializes in selling outdoor camping equipment. The company is considering opening a new store on October 1, 2009. The company president formed a planning committee to prepare a master budget for the first three months of operation. He assigned you, the
Zigler Corporation has three divisions, each operating as a responsibility center. To provide an incentive for divisional executive officers, the company gives divisional management a bonus equal to 20 percent of the excess of actual net income over budgeted net income. The following is Everett
Rachael Moulton and Bobby Lagg recently graduated from the same university. After graduation they decided not to seek jobs in established organizations but to start their own small business. They hoped this would provide more flexibility in their personal lives for a few years. Since both of them
The following trial balance was drawn from the records of Havel Company as of October 1, 2010.Requireda. Divide the class into groups, each with four or five students. Organize the groups into three sections. Assign Task 1 to the first section, Task 2 to the second section, and Task 3 to the third
The annual budget of the United States is very complex, but this case requires that you analyze only a small portion of the historical tables that are presented as a part of each year’s budget. The fiscal year of the federal government ends on September 30. Obtain the budget documents needed at
Toll Brothers, Inc., is a large builder of luxury homes across the United States. From 2000 through 2006 it experienced continuous growth in revenues that averaged over 24 percent annually. Not only did it experience growth from year to year, but its revenue grew in each quarter of 2005 and 2006.
Clarence Cleaver is the budget director for the Harris County School District. Mr. Cleaver recently sent an urgent e-mail message to Sally Simmons, principal of West Harris County High. The message severely reprimanded Ms. Simmons for failing to spend the funds allocated to her to purchase computer
Pam Kelly says she has no faith in budgets. Her company, Kelly Manufacturing Corporation, spent thousands of dollars to install a sophisticated budget system. One year
What is a responsibility center?
What are the three types of responsibility centers? Explain how each differs from the others.
What is the difference between a static budget and a flexible budget? When is each used?
When the operating costs for Bill Smith’s production department were released, he was sure that he would be getting a raise. His costs were $20,000 less than the planned cost in the master budget. His supervisor informed him that the results look good but that a more in-depth analysis is
When are sales and cost variances favorable and unfavorable?
Joan Mason, the marketing manager for a large manufacturing company, believes her unfavorable sales volume variance is the responsibility of the production department.What production circumstances that she does not control could have been responsible for her poor performance?
When would variable cost volume variances be expected to be unfavorable? How should unfavorable variable cost volume variances be interpreted?
What factors could lead to an increase in sales revenues that would not merit congratulations to the marketing manager?

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