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managerial accounting

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

Lorale Company, a producer of recreational vehicles, recently decided to begin producing a major subassembly for jet skis. The subassembly would be used by Lorale’s jet ski plants and also would be sold to other producers. The decision was made to lease two large buildings in two different
Harry Johnson, the chief financial officer of Ur Thrift, Inc, a large retailer, had just finished a meeting with the Roger Swasey, the chief financial officer of the large retailer, and Connie Baker, its environmental officer. Over the years, Harry had overseen the development of a number of cost
Discuss the differences between centralized and decentralized decision making.
What is decentralization?
Explain why firms choose to decentralize.
What are margin and turnover? Explain how these concepts can improve the evaluation of an investment center.
What are the three benefits of ROI? Explain how each benefit can lead to improved profitability.
What is residual income? What is EVA? How does EVA differ from the general definition of residual income?
Can residual income or EVA ever be negative? What is the meaning of negative residual income or EVA?
What is a transfer price? Discuss.
Briefly explain three common transfer pricing policies used by organizations.
What is the Balanced Scorecard?
Describe the four perspectives of the Balanced Scorecard.
Multiple-Choice Questions 1. The practice of delegating authority to division-level managers by top management isa. Centralization.b. Good business practice.c. Decentralization.d. Autonomy.e. Never done in business today.2. Which of the following is a reason for decentralizing?a. Training and
Multiple-Choice Questions1. The key difference between residual income and economic value added is that EVAa. Uses the actual cost of capital for the company rather than a minimum required cost of capital.b. Uses the minimum required cost of capital for a company rather than the actual
East Mullett Manufacturing earned operating income last year as shown in the following income statement:Sales ...............$531,250Cost of goods sold ......... 280,000Gross margin ........$251,250Selling and administrative expense .... 187,500Operating income ....... $ 63,750At the beginning of
East Mullett Manufacturing earned operating income last year as shown in the following income statement:Sales ..............$531,250Cost of goods sold ........... 280,000Gross margin ........$251,250Selling and administrative expense ... 187,500Operating income ......... $ 63,750At the beginning of
East Mullett Manufacturing earned net income last year as shown in the following income statement:Sales ................. $531,250Cost of goods sold ........... 280,000Gross margin .......... $251,250Selling and administrative expense ...... 187,500Operating income ......... $ 63,750Less:
Burt Inc. has a number of divisions, including the Indian Division, a producer of liquid pumps, and Maple Division, a manufacturer of boat engines. Indian Division produces the h20-model pump that can be used by Maple Division in the production of motors that regulate the raising and lowering of
Indy Company has the following data for one of its manufacturing plants: Maximum units produced in a quarter (3-month period): 250,000 unitsActual units produced in a quarter (3-month period): 200,000 unitsProductive hours in one quarter: 25,000 hoursRequired:1. Compute the theoretical cycle time
Indy Company has the following data for one of its manufacturing plants:Maximum units produced in a quarter (3-month period): 250,000 unitsActual units produced in a quarter (3-month period): 200,000 unitsProductive hours in one quarter: 25,000 hoursActual cycle time: 7.5 minutesTheoretical cycle
Consider each of the following independent scenarios:a. Terrin Belson, plant manager for the laser printer factory of Compugear Inc., brushed his hair back and sighed. December had been a bad month; two machines had broken down, and some factory production workers (all on salary) were idled for
Pelak Company had sales of $350,000, expenses of $315,000, and average operating assets of $140,000.Required:1. Compute the operating income.2. Compute the margin and turnover ratios.3. Compute the ROI.
Elway Company provided the following income statement for last year:Sales ..................$285,000Less: Variable expenses ......... 171,000Contribution margin .........$114,000Less: Fixed expenses ........... 91,200Operating income .......... $ 22,800At the beginning of last year, Elway had
Data follow for the Construction Division of D. Jack Inc.:Required:1. Compute the margin and turnover ratios for each year.2. Compute the ROI for the Construction Division for eachyear.
The Tuxedo Division of Shamus O’Toole Company had operating income last year of $180,000 and operating assets of $2,000,000. O’Toole’s minimum acceptable rate of return is 7 percent.Required:1. Calculate the residual income for the Tuxedo Division.2. Was the ROI for the Tuxedo Division
Falconer Company had net (after-tax) income last year of $1,100,000 and operating assets of $3,000,000. Falconer’s actual cost of capital was 11 percent.Required:1. Calculate the EVA for Falconer Company.2. Is Falconer creating or destroying wealth?
Washington Company has two divisions: the Adams Division and the Jefferson Division. The following information pertains to last year€™s results:Washington€™s actual cost of capital was 12 percent.Required:1. Calculate the EVA for the Adams Division.2. Calculate the EVA for the
Refer to the Washington Company information in Exercise 12-25. In addition, Washington Company’s top management has set a minimum acceptable rate of return equal to 8 percent.Required:1. Calculate the residual income for the Adams Division.2. Calculate the residual income for the Jefferson
Aulman Inc. has a number of divisions, including a Furniture Division and a Motel Division. The Motel Division owns and operates a line of budget motels located along major highways. Each year, the Motel Division purchases furniture for the motel rooms. Currently, it purchases a basic dresser from
Refer to the Aulman Inc. company information shown in Exercise 12-27. Also, assume that the company policy is that all transfer prices are negotiated by the divisions involved.Required:1. What is the maximum transfer price? Which division sets it?2. What is the minimum transfer price? Which
Refer to the Aulman Inc. company information shown in Exercise 12-27. Also, although the Furniture Division has been operating at capacity (50,000 dressers per year), it expects to produce and sell only 40,000 dressers for $40 each next year. The Furniture Division incurs variable costs of $14 per
Prakesh Company has the following data for one of its manufacturing cells:Maximum units produced in a month: 50,000 unitsActual units produced in a month: 40,000 unitsHours of production labor in one month: 10,000 hoursRequired:1. Compute the theoretical cycle time (in minutes).2. Compute the
Lasker Company divided its tool production factory into manufacturing cells. Each cell produces one product. The cordless drill cell had the following data for last quarter:Maximum units produced in a quarter: 90,000 unitsActual units produced in a quarter: 75,000 unitsHours of cell production
Ventris Company found that one of its manufacturing cells had actual cycle time of 15 minutes per unit. The theoretical cycle time for this cell was nine minutes per unit.Required:1. Calculate the amount of processing time per unit and the amount of nonprocessing time per unit.2. Calculate the MCE.
Kurena Company provided the following information on one of its factories:Maximum units produced in a quarter: 180,000 unitsActual units produced in a quarter: 112,500 unitsHours of cell production labor in a quarter: 30,000 hoursTheoretical cycle time: 10 minutes per unitActual cycle time: 16
Leslie Blandings, division manager of Audiotech Inc., was debating the merits of a new product—a weather radio that would put out a warning if the county in which the listener lived were under a severe thunderstorm or tornado alert. The budgeted income of the division was $725,000 with operating
Ready Electronics is facing stiff competition from imported goods. Its operating income margin has been declining steadily for the past several years; the company has been forced to lower prices so that it can maintain its market share. The operating results for the past three years are as
The manager of a division that produces add-on products for the automobile industry has just been presented the opportunity to invest in two independent projects. The first is an air conditioner for the back seats of vans and minivans. The second is a turbocharger. Without the investments, the
Knitpix Products is a division of Parker Textiles Inc. During the coming year, it expects to earn income of $310,000 based on sales of $3.45 million; without any new investments, the division will have average operating assets of $3 million. The division is considering a capital investment
GreenWorld Inc. is a nursery products firm. It has three divisions that grow and sell plants: the Western Division, the Southern Division, and the Canadian Division. Recently, the Southern Division of GreenWorld acquired a plastics factory that manufactures green plastic pots. These pots can be
Lansing Electronics Inc. manufactures a variety of printers, scanners, and fax machines in its two divisions: the PSF Division and the Components Division. The Components Division produces electronic components that can be used by the PSF Division. All the components this division produces can be
Technovia Inc. has two divisions: Auxiliary Components and Audio Systems. Divisional managers are encouraged to maximize ROI and EVA. Managers are essentially free to determine whether goods will be transferred internally and what will be the internal transfer prices. Headquarters has directed that
The theoretical cycle time for a product is 30 minutes per unit. The budgeted conversion costs for the manufacturing cell are $2,700,000 per year. The total labor minutes available are 600,000. During the year, the cell was able to produce 1.5 units of the product per hour. Suppose also that
The following list gives a number of measures associated with the Balanced Scorecard: a. Number of new customersb. Percentage of customer complaints resolved with one contactc. Unit product costd. Cost per distribution channele. Suggestions per employeef. Warranty repair costsg. Consumer
A company like Kicker performs warranty repair work on speakers in a manufacturing cell. The typical warranty repair involves taking the defective speaker apart, testing the components, and replacing the defective components. The maximum capacity of the cell is 1,000 repairs per month. There are
Jason Kemp was torn between conflicting emotions. On the one hand, things were going so well. He had just completed six months as the assistant financial manager in the Electronics Division of Med-Products Inc. The pay was good, he enjoyed his coworkers, and he felt that he was part of a team that
Name the two major types of financial statement analysis discussed in this chapter.
What is horizontal analysis? Vertical analysis? Should both horizontal and vertical analyses be done? Why?
Explain how creditors, investors, and managers can use common-size analysis as an aid in decision making.
What are liquidity ratios? Leverage ratios? Profitability ratios?
Identify two types of standards used in ratio analysis. Explain why it is desirable to use both types.
What information does the quick ratio supply that the current ratio does not?
Suppose that the accounts receivable turnover ratio of a company is low when compared with other firms within its industry. How would this information be useful to the managers of a company?
A high inventory turnover ratio provides evidence that a company is having problems with stockouts and disgruntled customers. Do you agree? Explain.
A loan agreement between a bank and a customer specified that the debt ratio could not exceed 60 percent. Explain the purpose of this restrictive agreement.
A manager decided to acquire some expensive equipment through the use of an operating lease even though a capital budgeting analysis showed that it was more profitable to buy than to lease. However, the purchase alternative would have required the issuance of some bonds. Offer some reasons that
Explain why an investor would be interested in a company’s debt ratio.
Assume that you have been given the responsibility to invest some funds in the stock market to provide an annuity to an individual who has just retired. Explain how you might use the dividend yield and the dividend payout ratio to help you with this investment decision.
Explain how an investor might use the price-earnings ratio to value the stock of a company.
Why would investors and creditors be interested in knowing the dilutive effects of convertible securities on earnings per share?
Explain the significance of the inventory turnover ratio in a JIT manufacturing environment.
In a JIT manufacturing environment, the current ratio and the quick ratio are virtually the same. Do you agree? Why?
1. A company provided income statements for the past five years. In looking at the percentage columns for each year, you notice that sales are 46 percent higher in year 5 than in year 1. The company has most likely provideda. A horizontal analysis using the prior period as the base year.b. A
Allyson Company provided the following income statements for its first three years of operation:Required:Prepare common-size income statements by using year 1 as the base period. Round answers to the nearestpercentage.
Refer to the Allyson Company income statements shown in Cornerstone Exercise 16-11.Required:Prepare common-size income statements by using net sales as the base. Round answers to the nearest percentage.Exercise 16-11
Hannah Company has current assets equal to $3,800,000. Of these, $1,200,000 is cash,$1,800,000 is accounts receivable, $500,000 is inventory, and the remainder is marketable securities. Current liabilities total $2,000,000.Required:Round answers to one decimal place.1. Calculate the current
Last year, Dogwood Company had net sales of $9,375,000 and cost of goods sold of $4,812,000. Dogwood had the following balances:Required:Round answers to one decimal place.1. Calculate the average accounts receivable.2. Calculate the accounts receivable turnover ratio.3. Calculate the accounts
Last year, Dogwood Company had net sales of $9,375,000 and cost of goods sold of $4,812,000. Dogwood had the following balances:Required:Round answers to one decimal place.1. Calculate the average inventory.2. Calculate the inventory turnover ratio.3. Calculate the inventory turnover indays.
Beech Company provided the following income statement for last year:Sales............. $ 24,350,735Cost of goods sold...........15,300,000Gross margin.............. $ 9,050,735Operating expenses...................... 4,910,685Operating income..................... $ 4,140,050Interest
Maple Company’s balance sheet shows total liabilities of $32,800,300, total stockholders’ equity of $10,350,000, and total assets of $43,150,300.Required:Round answers to two decimal places.1. Calculate the debt ratio for Maple Company.2. Calculate the debt-to-equity ratio for Maple Company.
The income statement, statement of retained earnings, and balance sheet for Jeanette Company are as follows:Required:Calculate the return on sales. Round the answer to one decimalplace.
Refer to the Jeanette Company information in Cornerstone Exercise 16-18. Assume a tax rate of 40%.Required:Round answers to two decimal places.1. Calculate the average total assets.2. Calculate the return on total assets.Exercise 16-18
Refer to the Jeanette Company information in Cornerstone Exercise 16-18.Required:Round answers to two decimal places.1. Calculate the average common stockholders’ equity.2. Calculate the return on stockholders’ equity.Exercise 16-18
Refer to the Jeanette Company information in Cornerstone Exercise 16-18.Required:Round answers to two decimal places.1. Compute the dollar amount of preferred dividends.2. Compute the number of common shares.3. Compute earnings per share for Jeanette Company.Exercise 16-18
Refer to the Jeanette Company information in Cornerstone Exercise 16-18. Also, assume that the price per common share for Jeanette Company is $8.10.Required:Compute the price-earnings ratio. Round the answer to two decimal places.Exercise 16-18
Refer to the Jeanette Company information in Cornerstone Exercise 16-18. Also, assume that the market price per common share is $8.10.Required:Round answers to two decimal places.1. Compute the dividends per share.2. Compute the dividend yield.3. Compute the dividend payout ratio.Exercise 16-18
Fogel Company€™s income statements for the past two years are as follows:Required:Prepare a common-size income statement for year 2 by expressing each line item for year 2 as a percentage of that same line item from year 1. (Round percentages to the nearest tenth of apercent.)
Refer to the Fogel Company income statements for the past two years as shown in Exercise 16-24.Required:1. Prepare a common-size income statement for year 1 by expressing each line item as a percentage of sales revenue. (Round percentages to the nearest tenth of a percent.)2. Prepare a common-size
Camellia Company€™s income statements for the last three years are as follows:Required:1. Prepare a common-size income statement for year 2 by expressing each line item for year 2 as a percentage of that same line item from year 1. 2. Prepare a common-size income statement for year 3 by
Refer to Camellia Company’s income statements for the last three years as shown in Exercise 16-26.Required:1. Prepare a common-size income statement for year 1 by expressing each line item as a percentage of sales revenue.2. Prepare a common-size income statement for year 2 by expressing each
Discuss the difference between budgets and standard costs.
Describe the relationship that unit standards have with flexible budgeting.
Why is historical experience often a poor basis for establishing standards?
What are ideal standards? Currently attainable standards? Of the two, which is usually adopted? Why?
Explain why standard costing systems are adopted.
How does standard costing improve the control function?
Discuss the differences among actual costing, normal costing, and standard costing.
What is the purpose of a standard cost sheet?
The budget variance for variable production costs is broken down into quantity and price variances. Explain why the quantity variance is more useful for control purposes than the price variance.
When should a standard cost variance be investigated?
What are control limits, and how are they set?
Explain why the materials price variance is often computed at the point of purchase rather than at the point of issuance.
The materials usage variance is always the responsibility of the production supervisor. Do you agree or disagree? Why?
The labor rate variance is never controllable. Do you agree or disagree? Why?
Suggest some possible causes of an unfavorable labor efficiency variance.
What is kaizen costing? On which part of the value chain does kaizen costing focus?
What is target costing? Describe how costs are reduced so that the target cost can be met.
Multiple Choice Questions1. Historical experience should be used with caution in setting standards becausea. Most companies keep poor records.b. Ideal standards are always better than historical standards.c. They may not be achievable by operating personnel.d. They may perpetuate operating
Multiple Choice Questions1. The total (budget) variance is given by the equationa. (AP × AQ) – (SP × SQ)P.b. (SP × AQ) – (AP × SQ)P.c. (SP × AQ) – (SP × SQ)P.d. (AP × SP) – (AQ × SQ)P.e. None of the above.2 Investigating variances from standard isa. Always done.b. Done if the

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