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cost management strategic
Cost Management Strategies For Business Decisions 3rd Edition Michael W. Maher, Frank Selto Ronald W. Hilton - Solutions
13.9 Why might a manager inappropriately consider sunk costs when making a decision?
13.8 Give two examples of sunk costs and explain why these amounts might be both useful to and irrelevant in decision making.
13.7 "A quantitative analysis allows a decision maker to put a price on the total value of qualitative characteristics in a deci- sion situation." Explain this statement and give an example.
13.6 What criteria must be satisfied for information to be relevant?
13.5 Describe a conflict that might occur between accuracy. timeliness, relevance, and cost of information.
13.4 Distinguish between target costing and target pricing.
13.3 Distinguish between an organization's goals and tangible objectives.
13.2 List and briefly describe each of the five stages of the decision-making framework.
13.1 Review the chapter's key terms and define them.
12.63 Predicting the profitability of a ski resort's winter operations can be as difficult as forecasting the weather and the world political situation, as events of the 2001-2002 season confirmed. Nonetheless, modeling aspects of the operations, which can be quantified and related, can prove
12.62 The Tooling Business Unit (TBU) of the Huge Company manufactures tools, setup jigs, fixtures, and prototypes used throughout the company's operations. The market value of products produced at TBU is estimated to be $1 billion annually. These products are machined and/or welded from metal
12.61 Virtually no organization publicizes its break-even point to external parties. Airlines are a notable exception, but only a handful disclose this key operating statistic. Access the homepages of Continental Airlines and Comair Holdings, Inc. Continental is a global carrier and one of the
12.60 A computer spreadsheet solution of a linear programming model follows:Required Write the linear programming objective function and constraints in equation form.b. Explain the meaning of each cell in the linear program model section of the spreadsheet. 10 ! Ble Edit Your Insert Format Iods
12.59 You are about to interview with Fairfield Blues for a staff accountant's position. Upon arriving at the interview. a human resources specialist hands you a short examination that covers cost-volume-profit analysis. Required Briefly respond to the following questions.a. Assume that Fairfield
12.58 A computer spreadsheet solution of a linear programming model follows:Required Write the linear programming objective function and constraints in equation form.b. Explain the meaning of each cell in the linear program model section of the spreadsheet. Insert Format Iools Data indow Help
12.57 Marie, your housemate and art student, plans to start a small T-shirt printing business to partially finance her education. A generous art teacher has donated old but serviceable equipment and the use of a heated garage. Marie will produce original and custom designs per customer requests.
12.56 Many commercial companies offer computer software packages to build financial planning models. Managing complex operations can be very difficult without effective computer software. Selecting among the various available packages can be quite difficult, and many organizations rely on the
12.55 University Bookstore is a nonprofit retail outlet for textbooks, computers, and general merchandise (including trade books, supplies, and university-licensed apparel and gifts). It is located near the main cam- pus of State University and controls the majority of the local market share for
12.54 Refer to the data for Fairfield Blues in rows 1 to 12 of Exhibit 12-5. Assume that it is considering these alternative scenarios: 1. Increase the number of concerts to 10 per year. Average attendance at concerts will decline 10 percent per performance from the level planned, but all other
12.53 Cerise Hamilton was having a conversation with her neighbor, a production supervisor for Avco Corporation, a metal products company. Avco's metal turning department has 90,000 machine hours to manufacture two products: S109 and T678. The following data are available: T678 Required $109 Unit
12.52 Boing. Inc.. operates a commuter airline. Last year the airline flew 10,000 flights and sold 400.000 one- way tickets at $59 per ticket. Total costs amounted to $21,600,000. An activity-based costing study recently revealed that Boing's costs include the following components: Activity Cost
12.51 HiSpeed Pumps, Inc., manufactures small, highly efficient pumps for marine application. Last year the firm sold 30,000 pumps at an average of $329 each. An ABC study recently revealed that HiSpeed's activities had the following costs: Unit, Batch, and Facility-Level Activity Unit-level
12.50 Kalifo Company manufactures a line of electric garden tools that hardware stores sell. The company's controller. Will Fulton. has just received the upcoming year's sales forecast for the firm's three prod- ucts: weeders, hedge clippers, and leaf blowers. Kalifo has experienced considerable
12.49 A financial analyst is studying the feasibility of two alternative assembly methods, manual and auto- mated. The automated method has variable operating costs of $2.10 per unit and annual committed costs of $130,000; in contrast, the manual method has variable costs of $4.20 and committed
12.48 A financial analyst is studying two packaging systems, basic and deluxe. The basic system has variable operating costs of $6 per unit and annual committed costs of $600,000; in contrast, the deluxe system has variable costs of $3 and committed costs of $800,000. The company sells its products
12.47 Refer to the information for Fairfield Blues presented in Exhibit 12-5, rows I to 12. Assume that you have some new information about costs and activities for next year. Namely, you learn that the cost per game should be $3,000 instead of $2.400, the cost per ticket should be $1.50 instead of
12.46 PhotoKing transfers old home movies (primarily super-8 film and VHS tape) to DVD. The current year's projected sales volume is 2.000 units. The company has been selling the service for an average of $200 per recorded DVD, variable costs consist of the $2 purchase price of the blank DVD and a
position.
12.45 Prepare a group response either in favor of or against the following comment: "The greatest obstacle to improving the overall efficiency of an organization is the cost-accounting mentality that seeks to make each individual process as efficient as possible." Be prepared to debate your
12.44 Search the periodicals in your library or on the Internet for an article about or description of an organiza- tion that applied the principles of the Theory of Constraints to improve its productive processes. Prepare either a two-page written description or analysis of that organization's
12.43 Identify which of the following business processes for a small (two-person) independent telephone com- pany are most likely to be current and future bottleneck processes. Theoretical E B Available Capacity Practical Value-Adding (activity Capacity F Excess A Process Hours per Week Time
12.42 Identify which of the following insurance claim processes are most likely to be current and future bottle- neck processes. Theoretical Capacity E Practical A Available Hours Value-Adding Time (hours (claims per week) Capacity F Excess (85%) Average Process per Week per claim) (D=B+C) (E=0.85
12.41 Classic Corporation manufactures two models, small and large. The weekly time available for process- ing the two models is 100 hours in machining and 90 hours in polishing. The contribution margin is $3 for the small model and $4 for the large model. Each model is processed as follows:
12.40 Manufacturing cost and other data for two components, 543 and 789, used by Baltimore Electronics follow. Component 543 789 Direct materials $0.40 $8.00 Direct conversion cost 2.60 5.50 Sales price 5.00 15.00 Yearly demand (units) 6,000 8,000 Machine hours per unit 4 2 In past years, Baltimore
12.39 Quicksilver's management has been reviewing company profitability and is attempting to improve per- formance through better planning. The company manufactures three products in its jewelry line: neck- laces, bracelets, and rings. Selected data follow. Selling price Contribution margin
12.37 Chicago Consulting Group, which uses an activity-based costing (ABC) system, offers a software- training seminar to companies for $12,000 per seminar for 100 students; unit-level activities cost $30 per student; and facility costs total $180,000 per year. Additional data follow: Batch-level
12.36 Concord Manufacturing, which uses an activity-based costing system, sells 20,000 units per year of Glaxo containers at $40 each. Unit-level activities cost $25 per unit; facilities costs total $125,000 per year. Additional data follow: Batch size is 1,000 units at a cost of $2,000 per batch.
12.35 Ken's Bicycle Shop sells mountain bikes. For purposes of a cost-volume-profit analysis, the shop owner has divided sales into two categories, as follows: Product Category High quality Sales Price $700 Invoice Cost $375 Sales Commissions 20% of sales 500 Medium quality 235 20% of sales The
12.34 Aqua Systems Engineering provides consulting services to city water authorities. A recent income state- ment revealed variable costs of $740,000 on a sales level of $1,000,000. Annual fixed expenses are $200,000, and the firm's income tax rate is 35 percent.Requireda. Calculate the firm's
12.33 Choose the best answer for each of the following: 1. A firm has a negative contribution margin. To reach break-even, it must:a. Increase unit-selling price.b. Increase sales volume. 2.c. Decrease sales volume.d. Decrease fixed cost.e. Increase fixed cost. If the firm decreases total
12.32 Superior Manufacturing produced and sold 50.000 temperature gauges last year at $42 each. This level of activity amounted to 80 percent of the firm's total productive capacity. The costs related to this level of activity follow: Unit level Facility level Manufacturing $600,000 Selling
12.31 Delta Safety Systems manufactures a component used in aircraft radar systems. The firm's fixed costs are $3,000,000 per year. Delta's variable cost of each component is $3,000, and it sells the components for $5,000 each. The company sold 2,000 components during the prior year. Requireda.
12.30 Canyon Escape sells individual tickets for $75 for walking tours of the Grand Canyon. Unit-level costs. including lunch, are $15 per ticket; fixed costs total $200,000 per year. Requireda. How many tickets must be sold to break even?b. What level of revenue is needed to earn a target income
12.29 (Appendix A) Provide possible reactions to recommen- dations to implement the Theory of Constraints from the perspective of an employee in a:a. Bottleneck process.b. Nonbottleneck process.c. Sales organization.d. Customer service organization.
12.28 One of your company's top salespersons approaches you and says. "I just heard that I am not allowed in the pro- duction area anymore because you have outlawed our efforts to push customers' orders through the process. Listen, my sales performance is the best in the company because my
12.27 Respond to this comment: "We are unable to meet demand for our product, yet you refuse to let us operate all our processes at least at practical capacity. I think that is a waste of equipment and personnel. What am I sup- posed to do, have them sweep the floors and let this expensive
12.26 (Appendix A) Proponents of the Theory of Constraints approach to managing processes argue that managers should review every task or operation performed in an organization and ask, Does completing this task help the organization achieve its goal? If the answer is no, managers should find a way
12.25 You and your cost-management team spent months build- ing and testing a financial planning model of your organi- zation's operations. When you previewed the model to a long-time manager, her reaction was, "I don't trust com- puter models any more than I trust manual election counts. Garbage
12.24 You have built a fairly complex financial planning model for your organization. It contains many parameters and assumptions about how the parameters are related. When you presented the base-case results of the model to your planning committee, the general response was, "Well, I guess we need
12.23 A sporting goods retailer is running a monthly special that prices tennis balls and golf balls to yield a negative contribution margin. What causes a negative contribu- tion margin? What is the likely motive behind the retailer's actions?
12.22 Management notes that the contribution from one prod- uct is higher than the contribution from a second product. Hence, management concludes that the company should concentrate on manufacturing the first product. Under what, if any, conditions will this approach result in maxi- mum profits?
12.21 Picture the cost-volume-profit (CVP) model. Explain how the model can be used to evaluate the performance of an organization's (1) divisions and (2) divisional man- agers. The managers are evaluated annually for purposes of pay raises and promotions. What are the inherent dan- gers in using
12.20 "Cost-volume-profit (CVP) analysis is an oversimplifi- cation of the real world. For this reason, it has little to offer a decision maker." Comment.
12.19 A company recently constructed a financial planning model to predict monthly cash inflows and outflows. The model is based on various financial relationships includ- ing collection patterns of receivables, inventory outflows, expense payments, and so forth, all obtained by analyzing monthly
12.18 In a strategy meeting, a manufacturing company's presi- dent said, "If we raise the price of our product, the com- pany's break-even point will be lower." The financial vice president responded by saying, "Then we should raise our price. The company will be less likely to incur a loss." With
12.17 (Appendix A) How is the Theory of Constraints as much a cost-management attitude as a modeling method?
#!# 12.16 Briefly describe the proper approach to making a produc- tion decision when a single limited resource is involved..
12.15 What is sensitivity analysis? Scenario analysis? What are their purposes?
12.14 Briefly explain how financial planning models benefit from activity-based costing (ABC).
12.13 What is the difference between using throughput or con- tribution margin as the contribution toward profit in financial planning models?
12.12 What is the meaning of the term "weighted-average unit contribution margin?" What does this amount contribute toward covering?
12.11 Explain the sales mix assumption in financial planning analysis. Why is this assumption made?
12.10 When is using the average tax rate desirable in modeling the effects of taxes in a financial model?
12.9 Why should a financial model's parameters be located as numbers in only one place?
12.8 What are the advantages of computerized financial mod- els compared to manual financial models?
12.7 Explain how a cost-volume-profit (CVP) graph is also a financial model.
12.6 Explain the difference between break-even point and tar- get break-even point.
12.5 What are the elements of a cost-volume-profit (CVP) model? Is this the best name for this type of model?
12.4 What are the objectives of financial modeling?
12.3 What benefits do financial models provide to users?
12.2 What are the characteristics of a good financial planning model?
12.1 Review the chapter's key terms and define them.
11.50 The accounting department of Insecurity Protection Services, a company that provides security ser- vices for rich, famous, and insecure people (and anyone else who can afford them) is analyzing the costs of its accounting services. Analysts have selected the following cost drivers: number of
11.49 Lerner, Inc., is accumulating data to prepare its annual profit plan for the coming year. The behav- ior pattern of the maintenance costs must be determined. The accounting staff has suggested using regression to derive an equation in the form of y = a + bx for maintenance costs. Monthly data
11.48 Your company, Local Express Services, makes special deliveries to real estate and law firms. It is esti- mating its costs for the coming period. The controller's office estimated overhead costs at $9,000 per month for fixed costs and $12 per delivery for variable costs. Your nemesis on the
11.47 Refer to Problem 11.45. Requireda. Use multiple regression to estimate monthly total overhead cost behavior.b. As a group, decide which method you think is best to estimate costs: simple regression, multiple regression, or account analysis. Also recommend whether management should use just
11.46 Refer to the data in Problem 11.45. Required Use simple regression to estimate total overhead costs in months with 6,000 or 4,000 tests.
11.45 University Hospital has prepared a schedule of actual overhead costs for its blood test unit for the past year.In the past, the overhead costs have been related to the number of tests. Following management instructions, data were gathered on past costs and past test levels and technician
11.44 Unsafe Insurance Company needs to forecast its personnel department costs. The following output was obtained from a regression program used to estimate the department's costs as a function of the number of employees: SUMMARY OUTPUT Dependent variable = Personnel costs Regression Statistics
11.43 Use the engineering cost estimates for C.C. Catering presented in Exhibit 11-13. Required What are the estimated total costs in a month in which there are: 3,500 meals sold 50 jobs 5 new products 8 new customers
11.42 Use the account analysis results for C.C. Catering in Exhibit 11-12. Required What are the estimated total costs in a month in which there are: 3,000 meals sold 30 jobs 4 new products 10 new customers
11.41 Highland Music records and sells music. Every month, it produces several new products in batches. The costs of making the master CD, including hiring musicians and studio costs, are product-level costs. The costs of materials and packaging are unit-level costs. The costs of setting up the
11.40 Farout Cards makes and produces greeting cards. Every month, it produces from 5 to 15 new products in batches. At the end of the month, the company destroys the master copy of all existing cards so that it produces new card products each month. The costs of designing the card, including
11.39 Mimi's Dance Studio estimates studio (noninstruction) costs based on student hours of instruction, where I student receiving a private lesson for 1 hour is "1 student hour." Data were gathered for the past 24 months and entered into a regression program. The following output was obtained:
11.38 The advertising manager of Leonine Company wants to know whether the company's advertising pro- gram is successful. The manager used a spreadsheet to estimate the relationship between number of advertisements (the independent variable) and sales dollars. Monthly data for the past two years
11.37 Customers 'R First Bank is planning to offer a new debit card for which it expects to charge $1 per trans- action. The following cost estimates have been made assuming I million transactions during the first month that the card is used. Direct labor $500,000 (the labor rate is $25 an hour x
11.36 Refer to the data for Phenomeno's Pizza in Exercise 11.35. Required Build your own spreadsheet. Using pizzas produced as the cost driver, what are the simple regression results for Phenomeno's Pizza?
11.35 Feno Menn, the owner of Phenomeno's Pizza, wishes to estimate the committed and variable costs per pizza production. Feno collected the following data from the accounting records: Pizza Number of Pizzas Month 1. Production Costs Produced $28,560 8,600 2. 31,400 9.800 3. 33,200 12,600 4.
11.34 Refer to the data for Fast Eddie's Limousine Service in Exercise 11.33. Required Build your own spreadsheet. Using miles as the cost driver, what are the simple regression results and estimated total cost for Fast Eddie's Limousine Service?
11.33 Fast Eddie's Limo Service operates a fleet of limousines. Management wants to estimate the fixed and variable costs per mile. A recent trade publication indicated that variable costs should be no more than $.25 per mile. To check his costs against those indicated in the trade journal, Fast
11.32 Use the best regression results for C.C. Catering in Exhibit 11-11: Required What are the estimated total costs in a month in which there are: 3,000 meals sold 40 jobs 4 new products 8 new customers
11.31 Use the best multiple regression results for C.C. Catering in Exhibit 11-11. Required What are the estimated total costs in a month in which there are: 2,000 meals sold 30 jobs 1 new product 2 new customers
11.30 Use the regression results for C.C. Catering in Exhibit 11-8. Requireda. What are the estimated total costs for a month in which 2,100 meals will be sold?b. What are the estimated committed costs for a month in which 2,100 meals will be sold? C. What are the estimated total variable costs for
11.29 Use the regression results for C.C. Catering in Exhibit 11-8. Requireda. What are the estimated total costs for a month in which 2,200 meals will be sold?b. What are the estimated committed costs for a month in which 2,200 meals will be sold?c. What are the estimated total variable costs for
11.28 Use the regression results for C.C. Catering in Exhibit 11-8. Requireda. What are the estimated total costs for a month in which 3,000 meals will be sold?b. What are the estimated committed costs for a month in which 3,000 meals will be sold?c. What are the estimated total variable costs for
11.27 1. R. Esse Tax Consultants has developed a regression equation to analyze the behavior of its tax return preparation costs (C) as a function of the number of returns prepared (TR). The following equation was developed to estimate tax return preparation costs. Analysts used 24 observations of
11.26 Aliens, Inc., has developed a regression equation to analyze the behavior of its maintenance costs (C) as a function of machine hours (MH). The following equation was developed using 30 months of data: C = $6,000+ $5.25MH Requireda. Using this cost equation, what are the estimated total
11.25 You have performed a simple regression analysis using the natural log (Ln) of cumulative production as the X-variable and the natural log of cumulative average cost as the Y, variable with the following results: LY 5.2983 0.2345 Ln X Requireda. Explain the meanings of the intercept and slope
11.22 Select the following graph that best matches the description of each of the following cost items.a. A telephone bill where the amount charged has two components: (1) a fixed amount for the first 60 minutes per month and (2) a variable cost for usage greater than 60 minutes per month. The
11.21 Label each of the following graphs as to cost pattern: variable, fixed, step, mixed. a. b.
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