Questions and Answers of Introduction To Management Accounting

Suppose you are on a cross-functional team that is discussing how to allocate the costs of a purchasing department. One team member suggested that ‘number of purchase orders issued’ is the best
Louder Is Better Company makes two speaker models –standard (S) and deluxe (D). The following diagrams show how ABC and traditional allocation systems allocate overhead costs to the deluxe model.
In a meeting among company executives and cost accountants, the CEO asked for the product costs for the company’s newest product line. The cost accountant replied, ‘Product cost depends on the
Malta Building Maintenance provides cleaning services for a variety of clients. The company has two producing divisions, residential and commercial, and two service departments, personnel and
Review the section Allocation of service department costs, p. 522–529, especially the example of the use of the computer by the university. Recall that the budget formula was €100,000 fixed cost
Study Appendix 12, especially the ‘Summary problem for your review’ on p. 554–558. Exhibit 12.20 shows the MSABC system of the billing department. What costs would be included in the billing
Hernandez Chemical Company’s production process for two of its solvents can be diagrammed using a process map as shown in Exhibit 12.24. The cost of the joint input, including processing costs
Montenegro Apple Company buys apples from local orchards and presses them to produce apple juice. The pulp that remains after pressing is sold to farmers as livestock food. This livestock food is
This case compares cost–volume–profit-based calculations to absorption-based costing profit figures. It deals also with standard costing problems. The behavioural issues gain significance in
Yamaguchi Company makes printed circuit boards in a suburb of Kyoto. The production process is automated with computer-controlled robotic machines assembling each circuit board from a supply of parts
The carpool of a major city provides cars for the use of various city departments. Currently, the carpool has 50 cars. A recent study showed that it costs £2,400 of annual fixed cost per car plus
Louis Wholesale Distributors uses an ABC system to determine the cost of handling its products. One important activity is receiving shipments in the warehouse. Three resources support that
When making decisions, it is important for managers to distinguish between gross margin and contribution margin. List the ways in which these two margins differ.
Review the Enriquez illustration. Suppose Enriquez had sales in 20X0 of €5,000,000. There were no beginning or ending inventories. That is, Enriquez sold everything it produced in 20X0.The company
A company that uses EVA reported the following results for 20X4 and 20X5 (in millions):Average adjusted invested capital was €20,308 million in 20X4 and €18,091 million in 20X5, and the cost of
Use the appropriate interest table from Appendix B to complete the following exercises. The answers appear at the end of the assignment material for this chapter, p. 516–517.1. It is your sixtieth
Why do managers like accelerated depreciation for tax purposes? Consider an investment of £100,000 in an asset with a 10-year economic life. The asset has no salvage value at the end of 10 years.
Fill in the blanks: Return on sales Capital turnover Rate of return on invested capital A 7% 3 _% Division B 3% 18% C _% 4 20%
You are given the following data:Compute the following:1. Turnover of capital.2. Return on sales.3. Return on investment (ROI). Sales Invested capital Net income €120,000,000 € 60,000,000 €
The Tokyo division of Kaycee Toy Company manufactures units of the game Shogi and sells them in the Japanese market for ¥7,200 each. The following data are from the Tokyo division’s 20X8
ISCTE Enterprises runs a chain of drive-in ice cream stands in Lisbon during the summer season.Managers of all stands are told to act as if they owned the stand and are judged on their profit
Review the example shown in Exhibit 11.2, p. 486. Conduct three independent sensitivity analyses as indicated next.Exhibit 11.21. Compute the difference in the NPV of the alternatives if the minimum
Consider the following data:1. Prepare a similar tabular presentation, filling in all blanks.2. Suppose each division is assessed a capital charge based on a cost of capital of 12% ofinvested
The St Cloud division of Upcraft Company just purchased an asset for €180,000. The asset has a 3-year life. Upcraft’s top management evaluates Freida Ramirez, manager of the St Cloud division,
For major capital investments, managers usually prepare a detailed NPV analysis. For smaller items, sometimes they make a quick calculation or use intuition. Suppose you are in charge of a
Laurel Company has assets of €2 million and long-term, 10 per cent debt of €1,200,000. Hardy Company has assets of €2 million and no long-term debt. The annual operating income (before
The shocks and struts division of Transnational Motors Company produces strut assemblies for cars. It has been the sole supplier of strut assemblies to the automotive division and charges €45 per
American Medical Instruments produces a variety of medical products at its plant in Minneapolis. The company has sales divisions worldwide. One of these sales divisions is located in Uppsala,
1. Reconsider Exhibits 13.3 and 13.4 on pp. 592 and 593. Suppose production in 20X1 was 14,500 units instead of 14,000 units, but sales remained at 16,000 units. Assume that the net variances for all
Donald Aeronautics Company uses a budgeted overhead rate in applying overhead to products on a machine-hour basis for department A and on a direct-labour hour basis for department B. At the
Some accountants claim that the production-volume variance is a good measure of how well a company uses its capacity: favourable (unfavourable) variances imply effective (ineffective) use of
Examine the Trahn Company’s simplified income statement based on variable costing. Assumethat the budgeted volume for absorption costing in 20X0 and 20X1 was 1,400 units and that totalfixed costs
Penski Precision Tooling applies factory overhead using machine hours and number of component parts as cost-allocation bases. In 20X0, actual factory overhead incurred was €125,000 and applied
MacLachlan Manufacturing had underapplied overhead of €40,000 in 20X0. Before adjusting for overapplied or underapplied overhead, the ending inventories for direct materials, WIP and finished goods
The Bellevue Clinic computes a cost of treating each patient. It allocates costs to departments and then applies departmental overhead costs to individual patients using a different budgeted overhead
Consider the following information pertaining to a year’s operations of Youngstown Manufacturing:There are no work-in-process inventories.1. What is the ending finished-goods inventory cost under
Consider the cooking department of Middleton Foods, a British food-processing company. Compute the cost of work completed and the cost of the ending inventory of work in process using the
The Hatch Manufacturing Company has the following budgeted overhead cost and other data for its machining department for the month of December:Compute the total budgeted machine hours, total applied
Liz’s Cosmetics uses a normal cost system and has the following balances at the end of its first year’s operations.Compute cost of goods sold for two different ways to dispose of the year-end
The Balakrishnan Corporation began business on 1 January 20X0, to produce and sell a single product. Reported operating income figures under both absorption and variable costing for the first 4 years
The Gibraltar Company has built a massive water-desalting factory next to an ocean. The factory is completely automated. It has its own source of power, light, heat and so on. The saltwater costs
The Trapani Company had the following actual data for 20X0 and 20X1:Fixed factory overhead was budgeted at €98,000 per year. The expected volume of production was 14,000 units so the fixed overhead
Assume the same facts as in the preceding problem. In addition, consider the following actual data for 20X1:1. For 20X1, prepare income statements based on standard variable (direct) costing and
The expected activity of the paper-making plant of Goldberg Paper Company was 45,000 machine hours per month. Practical capacity was 60,000 machine hours per month. The standard machine hours allowed
Rosanne McIntire is a consultant to Georgia Paper Products Company. She is helping one of the company’s divisions to install a standard cost system for 20X0. For product-costing purposes, the
In January 20X0, Lisbon Garden Equipment Company started a division for making grass clippers. Management hoped that these grass clippers were significantly better than most competitors in the
Review the Enriquez illustration, especially Exhibit 14.2 on p. 634. Prepare an income statement for 20X1 through the gross profit line. Use the immediate write-off method for overapplied or
Refer to Exhibit 14.3. One of the primary purposes of an ABC system is to increase the accuracy of product costs so that managers can make better cost-based decisions. Assume that you are a manager
Consider Nally & Gibson’s plant operations in Georgetown. The plant processes limestone rock that is quarried in a nearby mine. Exhibit 14.6 (p. 645) shows the various processing steps. Process
Manchester University uses job-cost records for various research projects. A major reason for such records is to justify requests for reimbursement of costs on projects sponsored by the federal
A department of Jamestown Textiles produces cotton fabric. All direct materials are introduced at the start of the process. Conversion costs are incurred uniformly throughout the process. In April,
Process-costing systems are used in all business sectors. For each example listed, indicate whether the company is in the manufacturing or service sector.(a). Beverage bottling at
‘Law firms use job-costing to cost engagements. Thus, the markup required to cover overhead costs is not as great as in companies that use a process-costing system.’ Do you agree? Explain.
The most extreme (and simplest) version of backflush costing makes product costing entries at only one point. Suppose STI had no Materials Inventory account (in addition to no WIP Inventory account).
Consider the following data for Cambridge Printing Company (in thousands):Summarized transactions for 20X9 are as follows:1. Prepare summary journal entries for 20X9 transactions. Omit
Job costing systems are used in all business sectors. For each example listed, indicate whether the company is in the manufacturing, merchandising or service sector:(a). Audit engagements by Ernst &
For each of the following independent cases, fill in the blanks (in millions of euros): Direct-materials inventory, 31 December 20X0 Purchased Used Direct-materials inventory, 31 December
Tucson Co. uses normal absorption costing. Factory overhead is applied to production at a budgeted rate based on direct labour cost. At the end of the period, there are two unfinished jobs.
Refer to the Chapter 4 discussion (Appendix 4, pp. 140–9) of the billing department at a customer care centres. Suppose the billing department has designed an MSABC system. Exhibit 12.20 shows the
San Marino Metals buys raw ore on the open market and processes it into two products, A and B. The ore costs €10 per kilo, and the process separating it into A and B has a cost of €4 per kilo.
Hogenson Company makes three product lines and has two customer types. The following table gives sales, product cost and cost-to-serve data for Hogenson:The cost to serve all customers is €10,000
Slovenia Cleaning provides cleaning services for a variety of clients. The company has two producing departments, residential and commercial, and two service departments, personnel and
Des Moines Milling buys oats at €.60 per kilo and produces CRM Oat Flour, CRM Oat Flakes and CRM Oat Bran. The process of separating the oats into oat flour and oat bran costs €.30 per kilo. The
The Reliable Insurance Company processes a variety of insurance claims for losses, accidents, thefts and so on. Account analysis using one cost driver has estimated the variable cost of processing
The Reetz Company has its own photocopying department. Reetz’s photocopying costs include costs of copy machines, operators, paper, toner, utilities and so on. We have the following cost and
Explain linear-cost behaviour.
Comtell makes computer peripherals (disk drives, tape drives and printers). Until recently, managers predicted production scheduling and control (PSC) costs to vary in proportion to labour costs
(Appendix 3) What can we learn from R2, the coefficient of determination?Data from Appendix 3coefficient of determination, R2 (or R-squared), which measures how much of the fluctuation of a cost is
The following cost function is a mixed cost. Explain why it is a mixed cost and not a fixed, variable, or step cost. Total cost = €8,000+ €52 x units produced
Manchester Musical Education Company (MME) provides instrumental music education to children of all ages. Payment for services comes from two sources: (1). A contract with Country Day School to
Refer to the Lopez Plastics illustration, starting with the financial reports based on the traditional cost accounting system in panel B of Exhibit 4.6, p. 131. Based on these reports, a marketing
Lockyear Window Company makes and sells three product lines – custom detailed windows, large standard windows and small standard windows. The statement of operating income for the most recent
This case requires students to consider the merits of activity-based costing in an altered production environment. It also deals with behavioural and organisational culture issues.The Tankmaster
Suppose you have been asked to attend a meeting of top management of your company. When the meeting begins, you are asked to explain in general terms the main differences and similarities in
Refer to the billing department illustration. Suppose that management at BT’s York area customer care center is implementing an ABC system. The center has 98,000 residential customers and 25,000
Orinoco, SA, produces and sells wireless reading devices. A competitor, Nile Electronic Products (NEP) sells similar wireless reading devices that it purchases at wholesale fromSonex for €97 each.
Athens Tool Company (ATC) is a supplier that assembles purchased parts into components for three distinct markets – scooter parts, lawn mower parts and hand tool parts. Following is the statement
The Kyoto Manufacturing Company has two departments, machining and finishing. For a given period, the following costs were incurred by the company as a whole: direct material, ¥200,000; direct
1. Suppose Nike produces and sells 500,000 units of the LeBron James ‘Six Chalk Edition’ shirt. The selling price is €35 and there is excess capacity to produce an additional 300,000 shirts.
The Irish-based Independence Company had the following manufacturing data for the year 20X1 (in thousands of euros):Selling expenses were €300,000 (including €80,000 that were variable) and
Suppose you are at a meeting of Cordell Company managers, and someone asked the following questions. Some of the answers given by your colleagues follow:Q What will be the change in the contribution
Custom Graphics is a London printing company that bids on a wide variety of design and printing jobs. The owner of the company, Janet Solomon, prepares the bids for most jobs. Her cost budget for
Consider the following details of the income statement of the Manteray Pen Company (MPC) for the year ended 31 December 20X0:MPC’s fixed manufacturing costs were €3.0 million, and its fixed
We have presented two key lessons so far in this chapter: relevant information and misuse of unit costs. We cannot stress enough how important it is to clearly understand the definition and concept
Randy Azarski, a building contractor, builds houses in tracts, often building as many as 20 homes simultaneously. Azarski has budgeted costs for an expected number of houses in 20X0 as follows:The
Lowest Cost Corporation uses target costing to aid in the final decision to release new products to production. A new product is being evaluated. Market research has surveyed the potential market for
Suppose that BT used benchmarking to compare the activity-based costs among its various divisions. As part of its benchmarking efforts, BT compared the activity cost per driver unit for similar
The Pierce Company had the following data (in thousands) for a given period:There was no beginning or ending inventories. Compute the(1). Manufacturing cost of goods sold, (2). Gross profit, (3).
Following is the income statement of Danube Company, a manufacturer of men’s blue jeans:Danube had manufactured 2 million pairs of jeans, which had been sold to various clothing wholesalers and
List three popular markup formulas for pricing.
Yoko Ltd, had the following data (in millions of yen) for a given period:There was no beginning or ending inventories. Compute the (a). Variable manufacturing cost of goods sold,(b). Contribution
Suppose Wilton College, a private sixth form college with excellent International Baccalaureate results, charges a comprehensive annual fee of ₤14,500 for tuition, room and board, and it has
The budget for the Oxford University Printing Company for 20X1 follows:The company typically uses a so-called cost-plus pricing system. Direct-material and directlabour costs are computed, overhead
The ROCG bookstore bought more ‘Buckeye Champs’ calendars than it could sell. It was nearly June and 200 calendars remained in stock. The store paid €4.50 each for the calendars and normally
This case focuses on the design of a management control system in a company where ‘control by observation’ is no longer deemed appropriate and where management by objectives is being implemented.
The Country Store is a retail outlet for a variety of hardware and housewares. The owner is eager to prepare a budget and is especially concerned with her cash position. The company will have to
Consider L3C Company, which provides a range of integrated communications services. The company has had losses for a number of years, which it attributes to a difficult competitive environment. The
Some managers focus on the operating budget, while others are more concerned with the financial budget. How does the operating budget differ from the financial budget?
Blake Henderson and Anna Kraft are preparing a plan to submit to venture capitalists to fund their business, Music Masters. The company plans to spend €380,000 on equipment in the first quarter of
Thomas Ahrens, United Arab Emirates University and Christopher Chapman, Imperial College London I’d love to know where I am as an area manager. I don’t know what to do with food margin. Shall I

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