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cost management strategic
Cost Management Strategies For Business Decisions 4th Edition Ronald Hilton, Michael Maher, Frank Selto - Solutions
One of Koala Camp Gear Division’s suppliers, Queensland Fabrics Company, has two divisions, which report- Decision ed the following results for the most recent year: MEL Clg Brisbane Division Cairns Division PiiMCOMiG Ho aL Gl Se cndiiitiz $ 900,000 $ 200,000 IAVESTEC IC aptamer mmcietner
When companies grow larger, as typified by the acquisition described in Outback Outfitters’ press release, how should they manage operations? What are the benefits and costs of decentralization?
Howcoulda responsibility accounting system foster goal or behavioral congruence for Outback Outfitters?
What are the major types of responsibility accounting centers?
What is the key feature of activity-based responsibility accounting?
Howis investment center performance typically measured?
18.1 Why is goal congruence important to an organization’s success?
18.2 Could the type of budget items for which some responsibility centers are accountable differ? That is, might some responsibility centers be responsible only for costs, some only for revenues, and some for both? Give examples.
18.3. Accounting is supposed to provide a neutral, relevant, and objective measure of performance. Why would problems arise when applying accounting measures in the context of performance evaluation?
18.4 Suppose you overheard this comment: This whole problem of measuring performance for segment managers using accounting numbers is so much hogwash. We pay our managers a good salary and expect them to do the best possible job. At least with our system, there is no incentive to play with the
18.5 Define and give examples of the following terms: cost center, discretionary cost center, revenue center, profit center, and investment center.
18.6 What are the advantages of using an ROI-type measure rather than a division’s profit as a performance evaluation technique?
18.7 The production department manager has just received a responsibility report showing a substantial unfavorable variance for overtime premium. The manager objects to the inclusion of this variance because the acceptance of a large rush order by the sales department caused the overtime.To whom
18.8 Under what conditions does the use of ROI measures inhibit a division manager’s goal-congruent decision making?
18.9 Create an example showing the calculation of residual income. What information is used in computing residual income that is not used in computing ROI?
18.10 Why do some companies use gross book value instead of net book value to measure a division’s invested capital?
18.11 Define the term economic value added (EVA). How does it differ from residual income?
18.12 Describe an alternative to using ROI, residual income, or EVA to measure investment-center performance.
18.13 Under what circumstances is it appropriate to change Outback Outfitters’ Sydney plant from a profit center to an investment center?
18.14 Performance reports based on controllability are impossible.Nobody really controls anything in an organization!Do you agree or disagree? Explain your answer.
18.15 Central management of Adler, Inc., evaluated divisional performance using residual income (RI) measures. The division managers were ranked according to the RI in each division. All division managers with residual income in the upper half of the ranking received a bonus. The bonus amount was
18.16 Explain why distinguishing between investment centers and their managers is important in performance evaluation.
18.17 Explain how the manager of the automobile division of an insurance company could improve her division’s ROI.
18.18 Management of division A is evaluated based on residual income measures. The division can either rent or buy a certain asset. Might the performance evaluation technique have an impact on the rent-or-buy decision? Why or why not?
18.19 What is the chief disadvantage of ROI as an investmentcenter performance measure? How does the residualincome measure eliminate this disadvantage?
18.20 Distinguish between the following measures of invested capital and briefly explain when each should be used: (1)total assets, (2) total productive assets, and (3) total assets less current liabilities.
18.21 Bleak Prospects, Inc., found that its market share was slipping.Bleak encouraged division managers to maximize ROI and make decisions consistent with that goal. Nonetheless, frequent customer complaints resulted in lost business.Moreover, Bleak depended on an established product line and was
18.22 Why does ROI or residual income typically rise across time in a division? What undesirable behavioral implications could this phenomenon have?
The following data pertain to the Overlook Inn for the month of August. The inn’s organization chart shows that the food and beverage department has the following subunits: banquets and catering, restaurants, and kitchen.Flexible Budget: August Actual Results: August(in thousands)* (in
Heartland Company’s Cleveland Division manager is considering the acquisition of a new asset that will increase the division’s profit. The division already earns $390,000 on assets of $1.3 million. The company’s cost of capital is 20 percent. The new investment has a cost of $225,000 and will
The Cleveland Division manager in the preceding exercise has the option to lease the asset on a year-toyear lease for $74,000 per year. All depreciation and other tax benefits would accrue to the lessor.Requireda. What is the division ROI if it leases the asset?b. What is the division’s residual
The following data are available for the two divisions of Great Plains Products, Inc.West Division$195,000 750,000 East Division DIVISIOMODETATING OU teee«acr areears evee:rs ’DIVISION WAVESIMEM ies-saces se te. a0se vara oer ses 100,000 The cost of capital for the company is 21
Select one of the following companies (or any company of your choosing), and use the Internet to explore its most recent annual report.American Airlines (www.americanair.com) Pizza Hut (www.pizzahut.com)Deere and Company (www.deere.com) Ramada Inn (www.ramada.com)Firestone Tire & Rubber
San Mateo Division of California Metals Corporation just started operations. It purchased depreciable assets costing $2 million and having an expected life of four years, after which the assets can be salvaged for $400,000. In addition, the division has $2 million in assets that are not
Chelsea Construction Associates, a real estate developer and building contractor in Manhattan, has two sources of long-term capital: debt and equity. The firm’s cost of issuing debt is the after-tax cost of the interest payments on the debt, considering the fact that the interest payments are tax
Bay State General Hospital serves the metropolitan Boston area. The hospital is a nonprofit organization supported by patient billings, county and state funds, and private donations. An organization chart and cost information for August follow.Actual Budget August Year to Date August Year to Date
Ohio Pipe Fitting Corporation has two divisions to which the following data pertain. The company’s Missing Data; Improving RO] Tequired rate of return on invested capital is 8 percent.(LO 5,6) Dayton Cincinnati Division Division SalSSifEVOMUC ss ccvsonsnesns decree nee $10,000,000 ?iaYeia) igXcw
CompuTech, Inc., a manufacturer of products using the latest microprocessor technology, has appointed and Performance you the manager of its Micro Technology Division. Your division has $800,000 in assets and manufac-Measures; Ethics tures a special chip assembly. On January 2 of the current year,
Refer to the information given in the preceding problem. As the Micro Technology Division manager, you are still assessing the problem of whether to acquire Klondike Machine Company’s machine. You learn that the new machine could be acquired next year, but it will cost 15 percent more then. Its
Refer to Exhibit 18-6. Prepare a similar table of the changing ROI, assuming the following accelerated depreciation schedule. Assume income before depreciation of $150,000 per year. (If there is a loss, leave the ROIs column blank.)Year Depreciation Te aSs Gnece BROCE Gee ana RC CU AGRA EEE eae ee
North Sea Drilling Company is an oil and gas exploration and drilling company operating off the coast of Scotland. Oil and gas companies inevitably incur costs on unsuccessful exploration ventures called dry holes. A debate continues over whether those costs should be written off as period expenses
Louisiana Shrimp Boats, Inc. (LSB), is a seafood restaurant chain operating throughout the south. The company has two sources of long-term capital: debt and equity. LSB’s cost of issuing debt is the aftertax cost of the interest payments on the debt, considering the fact that the interest
Cindy Wilkins, CEO of River Beverages, looks to the future and comments, “Planning is an important aspect of budget preparation for every level of our organization. I would like to decrease the time spent on preparing the budget, but I believe that it keeps people thinking about the future. The
In December, Koala Camp Gear Company produced 2,000 Tree Line tents and incurred the following actual Decision costs for direct material and direct labor: MEL g Purchased 25,000 sq. meters of tent fabric at $8.25 per sq. meter.Used 24,500 sq. meters at $8.25 per sq. meter.Used 4,200 hours of direct
Howcould Koala Camp Gear’s controller set standards for the production of tents using the company’s standard-costing system?
What is the appropriate interpretation of each variance detailed in Koala Camp Gear Company’s cost-variance report?
Whois in the best position in the organization to influence each of these variances?
What criticisms are made of standard-costing systems as they are used in today’s business environment?
16.1 One of the principles espoused by management is that . How can responsibility determining the significance of a variance.reporting systems and/or analysis of variances assist in
16.7 Describe the factors that managers often consider when one should manage by exception
16.8 What is the interpretation of the direct-labor rate that process? variance ? What are some possible causes?
16.2 atte how standard material prices and quantities OS etietic interpretation Of the direct-material price
16.9 What manager generally is in the best position to influence the direct-labor rate variance?
16.10 What is the interpretation of the direct-labor efficiency: S ;variance: variance ?
16.4 What manager usually is in the best position to influence he di a : 5
16.11 What manager generally is in the best position to influence the direct-material price variance? the direct-labor efficiency variance?
16.5 What is the interpretation of the direct-material quantity
16.12 Describe how standard costs are used for product costing., ?ioe |
16.13 What is meant by the term kaizen costing?16.6 What manager usually is in the best position to influence oGlesemmerialiqidntiesivarants? 16.14 (Appendix) List four companies that probably use directe directmaterial mix and yield variances.
16.15 Distinguish between perfection and practical standards. e
16.20 Many companies set wage rates through union Which type of standard is likely to produce the best Se nin ie oa Under these circumstances, how could a-~notivational effects? labor price variance arise that is the responsibility of a line
6.16 In a service environment with no inventories, is variance manager?>>—analysis useful? Why or why not?
16.21 Discuss several ways in which standard-costing systems
16.17 hy should management want to divide production cost should be adapted in today’s advanced manufacturing ariances into price and efficiency variances? environment.
16.22 Which of the following terms is most consistent with the old saying, “Slow and steady wins the race”: advanced manufacturing system, product innovation, kaizen costing, or investment in high technology? Explain.
16.19 Refer to question
16.18. Why does an analogous question not arise in the context of the direct-labor variances?
Yuriko Company manufactures laboratory glassware in its plant near Kyoto, Japan. The controller~ recently reported the following information concerning direct-material requirements in department 8.Material Used Are Not Equal Ditectimatentalpurchased (ACI al) smn mney senentanea vosmanee aeracrr rae
The standard direct-labor cost per unit for Jay Housewares, Inc. was $30 ($15 per hour times 2 hours per(LO 3) es unit). During the period, actual direct-labor costs amounted to $56, 520; 2 900 direct-labor hours were\ worked, and 1,900 units were produced. aya ye Meet ea Zt AW CAc- 522 thr « ~_
FarmCo, Inc. produces items made from local farm products that it distributes to supermarkets. Because\ (LO 1,5) price competition has become increasingly important over the years, Abby Tyler, the company’s controller, is planning to implement a standard-costing system. She asked her
Several automobile companies have recently developed hybrid vehicles, which run on a combination of High-Tech Product gasoline and electricity.(LO I, 2) Required 4 As a group, discuss how companies developing new high-tech products would set standard costs for them. What special challenges might be
Choose one of the following manufacturers (or any manufacturer of your choosing), and use the Internet to gather information about any new products the company has recently introduced or plans to introduce.Kodak (www.kodak.com)Pfizer (www.pfizer.com)Xerox (Www.xerox.com)Boeing
Due to evaporation during production, Portland Plastics Company requires 8 pounds of material input for every 7 pounds of good plastic sheets manufactured. During May, the company produced 4,725 pounds of good sheets.Required Compute the total standard allowed input quantity given the good output
Cleveland Chemical Company manufactures industrial chemicals. The company plans to introduce a new chemical solution and needs to develop a standard product cost. The new chemical solution is made by combining a chemical compound (lotrel) and a solution (salex), heating the mixture, adding a second
The controller for La Jolla Caterers, Inc., uses a statistical control chart to help management determine when to investigate variances. The critical value is 1 standard deviation. The company incurred the following direct-labor efficiency variances during the first six months of the current
Burlington Burrito has two categories of direct labor, unskilled, which costs $6.50 per hour, and skilled, which costs $10.30 per hour. Management has established standards per “equivalent meal,” which has been defined as a typical meal consisting of a burrito, a drink, and a side order.
Bay State Technology has set the following direct-material standards for its product, the photon gismo.Standard costs for one unit of output:Material |, 10 units of input at $100 per unit Material II, 20 units of input at $150 per unit During August, the company had the following results:Universal
Analyze each of the following scenarios independently.a. Canfield Company reports the following direct-labor information for its primary product for October: Variances; Missing Data Sranaareiy ato oats. 28.)..A0 ede Varonee: 2h touboin onl $ 7.00 per hour (FO?)JNhObF al WTe\@Ey/ Seo Lat andl ire
Information about Rexford Corporation’s direct-material cost follows:Standard price per direct-material OUNCE wo... ecceeceeeteeees $ 345 Actual quantity purchased and USEC... eee esseeennesereneees 420 ounces Standard quantity allowed for ProdUctiON ......ccccceeeceeneee 435 ounces IGEN ANAMC O
Savannah Textiles, Inc. manufactured 500 units of a special multilayer fabric with the trade name Stylex pj ect-Material and during July. The standard prime costs for one unit of Stylex are: OirecthaberVarancas Direct material: 20 yards at $1.35 Per Yard .oe.cecscccccescsssssesessestssesesesesees
PrimeCare, Inc., a manufacturer of custom-designed home health care equipment, has been in business for 15 years. Last year, to better control the costs of its:products, the controller implemented a standardcosting system. Reports for tracking performance are issued monthly, and any unfavorable
TasteeFruit Company is a small producer of fruit-flavored frozen desserts. For many years, its products have had strong regional sales:on the basis of brand recognition. However, other companies have begun marketing similar products in the area, and price competition has become increasingly
Big Sur Water Sports, Inc., manufactures fiberglass boards used for riding the waves at the beach. The Warleances ticdanal products are sold under the brand name Crazy Board. The standard cost for material and labor is $89.20 Entries; Missing Data per board. This includes 8 kilograms of direct
British Isles Agribusiness, Ltd. (BIA), manufactures agricultural machinery in Manchester, England. Goer venance At a recent staff meeting, the controller presented the following direct-labor variance report for the year Investigation just ended. (LO 4)BRITISH ISLES AGRIBUSINESS, LTD.Direct-Labor
Brisbane Video Corporation manufactures TV sets in Australia, largely for the domestic market. The company recently implemented a kaizen costing program with the goal of reducing the manufacturing cost per television set by 10 percent during 20x7, the first year of the kaizen effort. The cost per
Confidential Insurance Company compares actual results with standard costs. The standard direct-labor rates are established each year when the annual plan is formulated and held constant for the entire year.The standard direct-labor rates in effect for the current fiscal year and the standard hours
Panhandle Chemical Company manufactures a wide variety of chemical compounds and liquids for industrial uses. The standard mix for producing a single batch of 500 gallons of doroxaline follows:Quantity Cost (LO 10)Input Chemical (in gallons) (per gallon) Total Cost KaleXter cerccmmara tiene ee ee.
Metro Classic Fashions, Inc., manufactures inexpensive men’s dress shirts, which are produced in lotsto Case 16.47*fill each special order. Its customers are department stores in various cities. Metro Classic Fashions sews _ Direct-Material and Directthe particular store’s labels on the shirts.
Suppose that Glass Creations computed its predetermined overhead rate on a quarterly basis instead of annually.The following projections have been made for the year:Estimated Estimated Quarterly Manufacturing Direct-Labor Predetermined Overhead Hours Overhead Rate FIPStQUAntet iam Matteo wabanes $
What factors should a cost-management analyst when designing a product-costing system
What features should a job-order costing system have, and how can they be developed?
Howcancost-management analysts use job-cost information to support planning and decisionmaking activities?
What is a product-costing system and what does it do?
What are the characteristics of the following three product-costing methods: (a) job-order costing, (b)process costing, and (c) operation costing? Give an example of a product or service that would be accounted for by each method.
Describe the basic cost-flow model as an algebraic equation
Distinguish between work in process, finished goods, and cost of goods sold.
Explain how to measure the costs of a product using normal costing, actual costing, and standard costing.
How are the events “complete a job,” “sell a job,” and“end the accounting period” different and how are inventory accounts affected by these events?
How does job-order costing differ for service organizations and manufacturing organizations
How can overhead be over- or underapplied?
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