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managerial accounting

Cornerstones of Managerial Accounting 3rd Edition Mowen, Hansen, Heitger - Solutions

Explain why NPV is generally preferred over IRR when choosing among competing or mutually exclusive projects. Why would managers continue to use IRR to choose among mutually exclusive projects?
Suppose that a firm must choose between two mutually exclusive projects, both of which have negative NPVs. Explain how a firm can legitimately choose between two such projects.
Multiple-Choice Questions 1. Capital investments shoulda. Earn back their original capital outlay.b. Only be analyzed using the ARR.c. Always produce an increase in market share.d. Always be done using a payback criterion.e. Do none of the above.2. To make a capital investment decision, a manager
Multiple-Choice Questions1. Net present value is calculated by usinga. Accounting income.b. The required rate of return.c. The IRR.d. The future value of cash flows.e. None of the above.2. Using Net present value, a project is rejected if it isa. Equal to zero.b. Positive.c. Negative.d. Less than
Kilebrew Manufacturing is considering an investment in a new automated manufacturing system. The new system requires an investment of $2,400,000 and either has:a. Even cash flows of $600,000 per year orb. The following expected annual cash flows: $300,000, $300,000, $800,000, $800,000, and
Eyring Company invested $10,000,000 in a new product line. The life cycle of the product is projected to be seven years with the following net income stream: $200,000 $600,000, $1,000,000, $1,200,000, $1,600,000, $2,200,000, and $1,600,000.Required:Calculate the accounting rate of return.
Oaks, Inc., has just completed development of a new cell phone. The new product is expected to produce annual revenues of $450,000. To produce the cell phone, an investment requires an investment in new equipment, costing $480,000. The cell phone has a projected life cycle of five years. After five
Gardner Company produces a variety of gardening tools and aids. The company is examining the possibility of investing in a new production system that will reduce the costs of the current system. The new system will require a cash investment of $4,607,200 and will produce net cash savings of
Luckinbill Inc. intends to invest in one of two competing types of computer-aided manufacturing equipment, built by two different manufacturers: CAM X and CAM Y. Both CAM X and CAM Y models have a project life of 10 years. The purchase price of the CAM X model is $1,200,000; and has a net annual
Each of the following situations is independent. Assume that all cash flows are after-tax cash flows.a. Emily Hansen has just invested $320,000 in a book and video store. She expects to receive a cash income of $96,000 per year from the investment.b. Kaylin Day has just invested $700,000 in a new
Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows.a. Nomander Company is considering the purchase of new equipment that will speed up the process for extracting copper. The equipment will cost $2,400,000 and have a life of five years with no
Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows.a. Harrison Manufacturing is considering the purchase of a new welding system. The cash benefits will be $360,000 per year. The system costs $2,040,000 and will last 10 years.b. Kylie Hepworth is
Each of the following scenarios is independent. Assume that all cash flows are after-tax cash flows.a. Manchester Company is considering the purchase of new equipment that will speed up the process for producing flash drives. The equipment will cost $6,254,000 and have a life of five years with no
Perry Hospital is investigating the possibility of investing in new dialysis equipment. Two local manufacturers of this equipment are being considered as sources of the equipment. After-tax cash inflows for the two competing projects are as follows:Both projects require an initial investment of
Whipple Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of tractors. The outlay required is $480,000. The NC equipment will last five years with no expected salvage value. The expected after-tax cash flows associated with
All four parts are independent of all other parts. Assume that all cash flows are after-tax cash flows.a. Randy Willis is considering investing in one of the following two projects. Either project will require an investment of $10,000. The expected cash flows for the two projects follow. Assume
Gee Company is considering an investment that requires an outlay of $100,000 and promises an after-tax cash inflow one year from now of $115,500. The company’s cost of capital is 10 percent.Required:1. Break the $115,500 future cash inflow into three components: (a) The return of the original
Each of the following cases is independent. Assume that all cash flows are after-tax cash flows.a. Thomas Company is investing $120,000 in a project that will yield a uniform series of cash inflows over the next four years.b. Video Repair has decided to invest in some new electronic equipment. The
A company is thinking about two different modifications to its current manufacturing process. The after-tax cash flows associated with the two investments follow:The company's cost of capital is 10 percent.Required:1. Compute the NPVand the IRR for each investment.2. Explain why the project with
Camus Blalack, process engineer, knows that the acceptance of a new process design will depend on its economic feasibility. The new process is designed to improve environmental performance. On the negative side, the process design requires new equipment and an infusion of working capital. The
Uintah Communications Company is considering the production and marketing of a communications system that will increase the efficiency of messaging for small businesses or branch offices of large companies. Each unit hooked into the system is assigned a mailbox number, which can be matched to a
Lindsey Thompson, owner of Leshow Company, was approached by a local dealer of air conditioning units. The dealer proposed replacing Leshow’s old cooling system with a modern, more efficient system. The cost of the new system was quoted at $96,660, but it would save $20,000 per year in energy
Eden Airlines is interested in acquiring a new aircraft to service a new route. The route will be from Dallas to El Paso. The aircraft will fly one round-trip daily except for scheduled maintenance days. There are 15 maintenance days scheduled each year. The seating capacity of the aircraft is 150.
Dr. Whitley Avard, a plastic surgeon, had just returned from a conference in which she learned of a new surgical procedure for removing wrinkles around eyes, reducing the time to perform the normal procedure by 50 percent. Given her patient-load pressures, Dr. Avard is excited to try out the new
Stillwater Designs has been rebuilding Model 100, Model 120, and Model 150 Kicker subwoofers that were returned for warranty action. Customers returning the subwoofers receive a new replacement. The warranty returns are then rebuilt and resold (as seconds). Tent sales are often used to sell the
Kildare Medical Center, a for-profit hospital, has three investment opportunities: (1) adding a wing for in-patient treatment of substance abuse, (2) adding a pathology laboratory, and (3) expanding the outpatient surgery wing. The initial investments and the net present value for the three
Foster Company wants to buy a numerically controlled (NC) machine to be used in producing specially machined parts for manufacturers of trenching machines (to replace an existing manual system). The outlay required is $3,500,000. The NC equipment will last five years with no expected salvage value.
Leakam Company’s product engineering department has developed a new product that has a three-year life cycle. Production of the product requires development of a new process that requires a current $100,000 capital outlay. The $100,000 will be raised by issuing $60,000 of bonds and by selling new
‘‘I know that it’s the thing to do,’’ insisted Pamela Kincaid, vice president of finance for Colgate Manufacturing. ‘‘If we are going to be competitive, we need to build this completely automated plant.’’ ‘‘I’m not so sure,’’ replied Bill Thomas, CEO of Colgate.
Newmarge Products Inc. is evaluating a new design for one of its manufacturing processes. The new design will eliminate the production of a toxic solid residue. The initial cost of the system is estimated at $860,000 and includes computerized equipment, software, and installation. There is no
A company is considering two competing investments. The first is for a standard piece of production equipment; the second is for computer-aided manufacturing (CAM) equipment. The investment and after-tax operating cash flows follow:The company uses a discount rate of 18 percent for all of its
A company is considering two competing investments. The first is for a standard piece of production equipment; the second is for computer-aided manufacturing (CAM) equipment. The investment and after-tax operating cash flows follow:Assume that the company€™s cost of capital is 14
Manny Carson, certified management accountant and controller of Wakeman Enterprises, had been given permission to acquire a new computer and software for the company’s accounting system. The capital investment analysis showed an NPV of $100,000; however, the initial estimates of acquisition and
Shaftel Ready Mix is a processor and supplier of concrete, aggregate, and rock products. The company operates in the intermountain western United States. Currently, Shaftel has 14 cement-processing plants and a labor force of more than 375 employees. With the exception of cement powder, all
Relevant Costing, Cost-Based Pricing, Cost Behavior, and Net Present Value Analysis for NoFatThe purpose of this integrated exercise is to demonstrate how a special sales-relevant decision analysis relies on knowledge of cost behavior (including variable, fixed, and batch costs) and how the
What is the difference between tactical and strategic decisions?
Explain why depreciation on an existing asset is always irrelevant.
Give an example of a future cost that is not relevant.
What role do past costs play in relevant costing decisions?
Can direct materials ever be irrelevant in a make-or-buy decision? Explain.
Discuss the importance of complementary effects in a keep-or-drop decision.
What are some ways that a manager can identify his or her knowledge of the feasible set of alternatives?
Should joint costs be considered in a sell-or-process-further decision? Explain.
Suppose that a product can be sold at split-off for $5,000 or processed further at a cost of $1,000 and then sold for $6,400. Should the product be processed further?
Suppose that a firm produces two products. Should the firm always place the most emphasis on the product with the largest contribution margin per unit? Explain.
Why would a firm ever offer a price on a product that is below its full cost?
Multiple-Choice Questions1. Which of the following is not a step in the short-run decision-making model?a. Defining the problemb. Identifying alternativesc. Identifying the costs and benefits of feasible alternativesd. Assessing qualitative factorse. All of the above are steps in the short-run
Multiple-Choice Questions1. In a make-or-buy decision,a. The company must choose between expanding or dropping a product line.b. The company must choose between accepting or rejecting a special order.c. The company would consider the purchase price of the externally provided good to be relevant.d.
Fresh Foods, a large restaurant chain, needed to determine if it would be cheaper to produce 5,000 units of its main food ingredient for use in its restaurants or to purchase them from an outside supplier for $12 each. Cost information on internal production includes the following:Fixed overhead
Harrison Ford Company has been approached by a new customer with an offer to purchase 10,000 units of its model IJ4 at a price of $4 each. The new customer is geographically separated from the company’s other customers, and existing sales would not be affected. Harrison normally produces 75,000
Shown below is a segmented income statement for Hickory Company€™s three wooden flooring product lines:Hickory€™s parquet flooring product line has a contribution margin of $50,000 (sales of $300,000 less total variable costs of $250,000). All variable costs are relevant.
Refer to Hickory Company’s segmented income statement in Cornerstone Exercise 13- 15. Assume that dropping the parquet product line would reduce sales of the strip line by 25 percent and sales of the plank line by 20 percent. All other information remains the same. Required:1. If the parquet
Jack’s Lumber Yard receives 8,000 large trees each period that it subsequently processes into rough logs by stripping off the tree bark and leaves. Jack’s then must decide whether to sell its rough logs (for use in log cabin construction) at split-off or to process them further into refined
Comfy Fit Company manufactures two types of university sweatshirts, the Swoop and the Rufus, with unit contribution margins of $5 and $15, respectively. Regardless of type, each sweatshirt must be fed through a stitching machine to affix the appropriate university logo. The firm leases seven
Comfy Fit Company manufactures two types of university sweatshirts, the Swoop and the Rufus, with unit contribution margins of $5 and $15, respectively. Regardless of type, each sweatshirt must be fed through a stitching machine to affix the appropriate university logo. The firm leases seven
Integrity Accounting Firm provides various financial services to organizations. Integrity has decided to price its jobs at the total variable costs of the job plus 15 percent. The job for a medium-sized dance club client included the following costs:Direct materials ................. $ 5,000Direct
Yuhu manufactures cell phones and is developing a new model with a feature (aptly named Don’t Drink and Dial) that prevents the phone from dialing an owner-defined list of phone numbers between the hours of midnight and 6:00 a.m. The new phone model has a target price of $350. Management requires
The model for making tactical decisions described in the text has six steps. These steps are listed, out of order, below.Required:Put the steps in the correct order, starting with the step that should be taken first.1. Select the alternative with the greatest overall benefit.2. Identify the costs
Austin Porter is a sophomore at a small Midwestern university (SMWU). He is considering whether to continue at this university or to transfer to one with a nationally recognized engineering program. Austin’s decision-making process included the following:a. He surfed the web to check out the
Zion Manufacturing had always made its components in-house. However, Bryce Component Works had recently offered to supply one component, K2, at a price of $25 each. Zion uses 10,000 units of Component K2 each year. The cost per unit of this component is as follows:Direct materials
Zion Manufacturing had always made its components in-house. However, Bryce Component Works had recently offered to supply one component, K2, at a price of $25 each. Zion uses 10,000 units of Component K2 each year. The cost per unit of this component is as follows:Direct materials
Smooth Move Company manufactures professional paperweights and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $7.00. The new customer is geographically separated from Smooth Move’s other customers, and existing sales will not be affected.
Smooth Move Company manufactures professional paperweights and has been approached by a new customer with an offer to purchase 15,000 units at a per-unit price of $7.00. The new customer is geographically separated from Smooth Move’s other customers, and existing sales will not be affected.
Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement, with amounts given in thousands, follows:Direct fixed expenses consist of depreciation and plant supervisory salaries. All depreciation on the equipment is dedicated to the product lines. None of the
Petoskey Company produces three products: Alanson, Boyne, and Conway. A segmented income statement, with amounts given in thousands, follows:Direct fixed expenses consist of depreciation and plant supervisory salaries. All depreciation on the equipment is dedicated to the product lines. None of the
Refer to the Petoskey Company information provided in Exercise 13-30. In addition, assume that 20 percent of the Alanson customers choose to buy from Petoskey because it offers a full range of products, including Conway. If Conway were no longer available from Petoskey, these customers would go
Bozo Inc. manufactures two products from a joint production process. The joint process costs $110,000 and yields 6,000 pounds of LTE compound and 20,000 pounds of HS compound. LTE can be sold at split-off for $55 per pound. HS can be sold at split-off for $8 per pound. A buyer of HS asked Bozo Inc.
Billings Company produces two products, Product Reno and Product Tahoe. Each product goes through its own assembly and finishing departments. However, both of them must go through the painting department. The painting department has capacity of 2,460 hours per year. Product Reno has a unit
Refer to the Billings Company information provided in Exercise 13-33. Also, assume that only 500 units of each product can be sold.Required:1. What is the optimal mix of products?2. What is the total contribution margin earned for the optimal mix?
Grinnell Lake Gift Shop has decided to price the candles that it sells at cost plus 80 percent. One type of carved bear-shaped candle costs $12, and huckleberry-scented votive candles cost $1.10 each.Required:1. What price will Grinnell Lake Gift Shop charge for the carved bear candle?2. What price
H. Banks Company would like to design, produce, and sell versatile toasters for the home kitchen market. The toaster will have four slots that adjust in thickness to accommodate both slim slices of bread and oversized bagels. The target price is $75. Banks requires that new products be priced such
Heather Alburty purchased a previously owned, two-year-old Grand Am for $8,900. Since purchasing the car, she has spent the following amounts on parts and labor:New stereo system ........ $1,200Trick paint ........... 400New wide racing tires ...... 800Total
Blasingham Company is currently manufacturing Part Q108, producing 35,000 units annually. The part is used in the production of several products made by Blasingham. The cost per unit for Q108 is as follows:Direct materials .........$ 6.00Direct labor ......... 2.00Variable overhead .......
Blasingham Company is currently manufacturing Part Q108, producing 35,000 units annually. The part is used in the production of several products made by Blasingham. The cost per unit for Q108 is as follows:Direct materials .....$ 6.00Direct labor ........ 2.00Variable overhead .... 1.50Fixed
Rianne Company produces a light fixture with the following unit cost: Direct materials ...... $2Direct labor ......... 1Variable overhead ..... 3Fixed overhead ....... 2Unit cost ......... $8The production capacity is 300,000 units per year. Because of a depressed housing market, the company
Hetrick Dentistry Services operates in a large metropolitan area. Currently, Hetrick has its own dental laboratory to produce porcelain and gold crowns. The unit costs to produce the crowns are as follows:Fixed overhead is detailed as follows:Salary (supervisor) ..... $26,000Depreciation
Describe the two-stage process associated with plantwide overhead rates.
Zanda Drug Corporation buys three chemicals that are processed to produce two types of analgesics used as ingredients for popular over-the-counter drugs. The purchased chemicals are blended for two to three hours and then heated for 15 minutes. The results of the process are two separate
AudioMart is a retailer of radios, stereos, and televisions. The store carries two portable sound systems that have radios, tape players, and speakers. System A, of slightly higher quality than System B, costs $20 more.With rare exceptions, the store also sells a headset when a system is sold. The
Steve Murningham, manager of an electronics division, was considering an offer by Pat Sellers, manager of a sister division. Pat’s division was operating below capacity and had just been given an opportunity to produce 8,000 units of one of its products for a customer in a market not normally
Jeremy Costa, owner of Costa Cabinets Inc., is preparing a bid on a job that requires $1,800 of direct materials, $1,600 of direct labor, and $800 of overhead. Jeremy normally applies a standard markup based on cost of goods sold to arrive at an initial bid price. He then adjusts the price as
Sealing Company manufactures three types of DVD storage units. Each of the three types requires the use of a special machine that has a total operating capacity of 15,000 hours per year. Information on the three types of storage units is as follows:Sealing Company's marketing director has assessed
Randy Stone, manager of Specialty Paper Products Company, was agonizing over an offer for an order requesting 5,000 calendars. Specialty Paper Products was operating at 70 percent of its capacity and could use the extra business; unfortunately, the order’s offering price of $4.20 per box was
Shenista Inc. produces four products (Alpha, Beta, Gamma, and Delta) from a common input. The joint costs for a typical quarter follow:Direct materials ..... $95,000Direct labor ........ 43,000Overhead ........ 85,000The revenues from each product are as follows: Alpha, $100,000; Beta, $93,000;
Norton Company produces two products (Juno and Hera) that use the same material input. Juno uses two pounds of the material for every unit produced, and Hera uses five pounds. Currently, Norton has 16,000 pounds of the material in inventory. All of the material is imported. For the coming year,
Eunice Company produces two products from a joint process. Joint costs are $70,000 for one batch, which yields 1,000 liters of germain and 4,000 liters of hastain. Germain can be sold at the split-off point for $24 or be processed further, into geraiten, at a manufacturing cost of $4,100 (for the
As pointed out earlier in ‘‘Here’s the Real Kicker,’’ Kicker changed banks a couple of years ago because the loan officer at its bank moved out of state. Kicker saw that as an opportunity to take bids for its banking business and to fine-tune the banking services it was using. This
Pamela McDonald, chief management accountant and controller for Murray Manufacturing Inc., was having lunch with Roger Branch, manager of the company’s power department. Over the past six months, Pamela and Roger had developed a romantic relationship and were making plans for marriage. To keep
Jan Shumard, president and general manager of Danbury Company, was concerned about the future of one of the company’s largest divisions. The division’s most recent quarterly income statement follows:Sales ................$3,751,500Less: Cost of goods sold ......... 2,722,400Gross profit
Describe the two-stage process for departmental overhead rates.
What are nonunit-level overhead activities? Nonunit-based cost drivers? Give some examples.
What is meant by ‘‘product diversity’’?
What is an overhead consumption ratio?
What is activity-based product costing?
What is an activity dictionary?
Explain how costs are assigned to activities.
Describe the value of activity-based customer costing.
Explain how ABC can help a firm identify its true low-cost suppliers.
What is driver analysis? What role does it play in process-value analysis?
What are value-added activities? Value-added costs?

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