Questions and Answers of Management Accounting 4th edition

Check over each of the transactions described in sections 7.4.1 to 7.4.12. Make sure you understand each one. Using a pencil, tick each entry in Table 7.3 to check that you have understood the entry
The following transactions relate to a dairy, converting milk to cheese, for the month of May.Prepare ledger accounts which record the transactions.1 May Bought 600 drums of milk from supplier on
Starting again with the data of Exhibit 8.2, close the book and check that you are able to produce the process cost information ending with the value of finished output and the value of
A souvenir shop makes the following forecast for one year’s sales and costs.Required Prepare tables showing the sensitivity of the profit forecast to each of the following:(a) a 1 percent change in
Write down five ways in which budgets appear to benefit an organisation. Then read the next section. How does your list compare with the text? Have you identified benefits additional to those
These first three sections of the chapter have explained the meaning of a standard and the various different approaches to the creation of a standard. Read the sections again and satisfy yourself
Read this section again to make sure that you understand fully the formulae in Table 15.2.Try to produce a diagram for direct labour similar to that drawn in Figure 15.4 for direct materials. Note
This case study shows a typical situation in which management accounting can be helpful.Read the case study now but only attempt the discussion points after you have finished studying the
Look back to the variance report on Brackendale presented in Chapter 14. Comment on the good and weak points of that report, in the light of the first two sections of this chapter, and suggest ways
Read the case study again and identify the points at which Fiona McTaggart’s actions match the principles of reporting set out in this chapter. Case study: evaluating and reporting performance
How useful are performance targets of the type set out in Exhibit 16.3? How easy or difficult would it be for the organisations involved to be selective in presenting actual results that fall within
The G Group has a divisionalised structure. One of the divisions manufactures engines and one of the other divisions assembles motor cycles. The performance of the Divisional Managers, and
Commenting on the results and the outlook, David Suddens, Non-executive Chairman said: ‘Last year was a very challenging one for the Company. We have since made a number of difficult decisions in
Border Electric/Mechanical (Border) is a wholly owned subsidiary of EMCOR Group, Inc. As a leader in electrical, mechanical, plumbing, and HVAC commercial construction, Border serves the El Paso,
The following extract is taken from publicity material for a company called My.N.Once you have turned a quote into a job, you will need to book costs in a number of different ways. The integration of
Compare the control account of Table 7.4 with the materials inventory account of Table 7.3 to satisfy yourself that they are the same. Then satisfy yourself that the separate job accounts in Table
Compare the control account of Table 7.6 with the production overhead account of Table 7.3 to satisfy yourself that they are the same. Then satisfy yourself that the separate wages accounts in Table
Compare the control account of Table 7.7 with the work-in-progress account of Table 7.3 to satisfy yourself that they are the same. Then satisfy yourself that the separate job accounts in Table 7.7
Compare the control account of Table 7.8 with the finished goods account of Table 7.3 to satisfy yourself that they are the same. Then satisfy yourself that the separate job accounts in Table 7.8 add
Look at a major development contract under way somewhere near you. Write down some items of costs that relate to the project. Then think about the time scale to complete the project and how the costs
Reducing heat production costs The main markets for New Zealand’s forest industry are either dry or treated timber. In both cases heat energy is required. This heat demand comprises the larger part
Clorox is the global leader in the production of bleach. Clorox also makes laundry and cleaning items (Formula 409, Pine-Sol, Tilex), cat litter (Fresh Step), car-care products (Armor All, STP), the
The following features are advertised by SAGE as being available within its ‘job costing’ software module.Is this right for me?l Keep track of job-specific information including job and customer
Compare the control account of Table 7.5 with the wages account of Table 7.3 to satisfy yourself that they are the same. Then satisfy yourself that the separate job accounts in Table 7.5 add up to
Marlane Villa-Real, chairman and chief executive officer of Buena Mano Crafts, Inc., a manufacturer and exporter of handicraft, said that while export sales declined to stiff competition from China
The following extract is taken from a report prepared for the Auditor General for Scotland in November 2008. It analyses the case for a change to a rail service.Additional North Berwick services and
(a) A manufacturing company is considering its pricing policy for next year. It has already carried out some market research into the expected levels of demand for one of its products at different
Write down two products or services where the pricing might be based on cost plus a percentage to cover profits. Write down two products or services where the prices are determined in a highly
Check that 1,400 units at a contribution of 50 pence each gives a total contribution of £700. It is always a useful precaution to check the arithmetic of a calculation as a safeguard against
Before reading the analysis of Table 9.2, calculate the contribution made by each product, work out the break-even point of each, and then explore the effect on the break-even point of:(a) changes in
Those who comment on the applications of cost–volume–profit analysis always emphasise that it is a short-run decision-making tool. Write a 200-word note explaining this view.
A retail company has a number of individual retail outlets in different towns. Each outlet has its own manager who can make decisions about the individual retail outlet, provided these decisions are
The following table shows the number of patients treated and the total costs for a hospital for each of the past four months:Applying the high-low method to the above information, an equation that
Think of a decision you have made recently, such as going on holiday or renting a new flat. What were the relevant costs and benefits that you considered in making the decision?
A company is considering a short-term pricing decision for a contract that would utilise some material P that it has held in inventory for some time. The company does not foresee any other use for
Think of a decision you have taken recently where there was some uncertainty at various stages of the process. How did you deal with the uncertainty? Could you represent the decision as a decision
The following extract is taken from a report prepared for the Auditor General for Scotland in November 2008. It analyses the case for a change to a rail service.Additional North Berwick services and
Check that you understand fully the calculation of the payback period and its interpretation. Check also that you can explain the meaning and usefulness of the payback period as a means of evaluating
Marlane Villa-Real, chairman and chief executive officer of Buena Mano Crafts, Inc., a manufacturer and exporter of handicraft, said that while export sales declined to stiff competition from China
Think again about the road repair company described in Activity 17.1 It has set up two divisions: one being motorway repairs and the other being town street repairs.The division carrying out town
Before proceeding further, make sure that you understand fully the calculation and usefulness of the accounting rate of return. Check also that you understand the limitations of relying on the
Use your calculator to check the discount factors for the present value of £1 at the end of one year, two years and three years for a discount rate of 10%. Write a parallel table for 8 per cent and
If you have access to a spreadsheet package, find out whether it has a net present value (NPV) function. If so, use the data in Table 11.3 to satisfy yourself that the spreadsheet produces answers
A company is considering investing $100,000 in a new machine that will reduce its annual cash operating costs as follows:Calculate the payback period to the nearest 0.1 years. Year 1234 Operating
Although in some markets we have moderated our rate of growth in space, overall we have chosen to sustain strong growth in selling area – and this will continue. With reductions in site, build and
Explain how a project having a positive net present value will also have a profitability index greater than 1.0.
Explain to a production manager the joint cost problems raised by the following description of a process producing glass bottles.A typical mixture might be sand 60 per cent; limestone 8 per cent;
NLM uses a common process to manufacture three joint products: X, Y and Z. The costs of operating the common process total $75,400 each month. This includes $6,800 of apportioned head office costs.
Consider a project to start a business selling shoes from a chain of shops. Explain how the business would plan its working capital requirements.
Write a list of key points to be made in a recommendation to the board of directors on the implementation of an expenditure control process for capital investment plans.
A company has an annual post tax money cost of capital of 18%.If inflation is 5% per annum, the company’s annual post tax real cost of capital is closest to:A 12%.B 13%.C 23%.D 24%.
A restaurant company is considering further investment in order to increase its seating capacity.The company prepares its accounts to 31 December each year and, if accepted, the proposed investment
The table below summarises data that have been extracted from the cost accounting records of SV Limited. The data show the cost and the inflation index relevant to the period in which the costs were
A company has only $700,000 available for investment during the coming year. It has identified the following four investment opportunities, all of which are divisible, and have the same
You are the financial manager of a school where some teaching departments are spending more than their budget allowance on materials and others are being frugal and spending less. It is six months
A manufacturing company pays its employees a constant salary for working 35 hours each week.The production process is highly specialised and the quality of output is a critical factor. All completed
Which of the following is the best description of ‘management by exception’?A Using management reports to highlight exceptionally good performance, so that favourable results can be built upon to
Write out five non-financial performance measures which could be reported by an organisation which delivers parcels to the general public and to businesses.
Imagine that you are planning to start a business operating a taxi service. Write a Balanced Scorecard containing two goals and two measurements of achieving the goals for each of the four sections
Write down two types of business that sell goods on credit and two types of business that sell only for cash. What explanations might be given for these different strategies?
Which of the following would be the most appropriate measure to monitor the performance of the manager of a profit centre?A Gross profit margin.B Revenue minus all costs.C Revenue minus controllable
Look back at the calculations of ROI and RI and make sure that you understand and can explain each of them.
Look back to the example of Allerdale in section 15.6. The following information relates to the month of July which had the same budgeted profit as that of June but saw an unexpected increase in
You are the team leader for a group of social workers who specialise in dealing with the needs of elderly persons in their homes. You have been told by your line manager that your team’s budgeted
Holyrood Products Ltd makes DVD recorders. The management accountant has produced the following summary of the company’s trading in the year ended 30 June Year 3:The following additional
Which ONE of the following would NOT explain a favourable direct materials usage variance?A Using a higher quality of materials than that specified in the standard.B A reduction in materials wastage
The sales volume profit variance is defined as the difference between the:A actual and budgeted sales volumes valued at the actual profit per unit.B actual and budgeted sales volumes valued at the
A company has the following total cost data available for two levels of production of one type of product:The current supervisor can cover production levels up to and including 5,000 units. For
State four factors that should be considered before the cause of a variance is investigated.
Write down your personal budget for(a) the week ahead, and(b) the month ahead. Show money coming in and money going out. How difficult is it to prepare a budget? What problems did you encounter? To
Suggest one activity (or a collection of activities) for which PPBS would be particularly useful.
What is the name given to a budget that has been prepared by re-evaluating activities and comparing the incremental costs of those activities with their incremental benefits?A Incremental budget B
In the following extract, the College of Charleston, USA, describes on its website how it estimates the standard cost of attendance in respect of a student.To consider a student for federal financial
The US government has strict accounting rules for those involved in defence contracts. This extract outlines the process and then sets out the rules for applying Standard Costing. Administratively a
Suggest three situations in which a business organisation might decide to revise standards, as indicated in Figure 15.1, following calculation and analysis of variances. Is revision equally likely
A road repair company has set up two divisions: one is motorway repairs and the other is town street repairs. Write down the advantages and disadvantages of establishing these divisions.
As Jon said, our cash and cost results have been excellent. Going forward, we will generate consistent cash flows by closely managing operating expenses, capital spending and of course working
Write down two types of business that buy goods on credit and two types of business that buy only for cash. What explanations might be given for these different strategies?
Write down two types of expense that might be unpaid at the accounting date and so recorded as accruals.
Write down two benefits and two risks of using just-in-time purchasing. Think of one type of business for which just-in-time purchasing would be useful and one type of business for which it would be
Covidien (NYSE: COV), a leading global provider of healthcare products, today announced definitive agreements to sell its Sleep Diagnostics and Oxygen Therapy product lines and a proposal to sell its
Use the specialist searches available through your college library or information service to find two recent articles or research papers covering ‘strategic management accounting’.Write a
The directors of Coatings plc have decided that specialist paints for use on buses and lorries should become the focus of a new e-business strategy. ‘All we have at present is a call centre where
The survey shows that the principles of lean accounting are not well understood by most UK manufacturers and this may be the reason for the low take up. ‘But at its heart lean accounting is about
Use the specialist searches available through your college library or information service to find two recent articles or research papers covering ‘target costing’. From the papers write down one
You are the Management Accountant of a small engineering company, which is a member of a large engineering group. The Managing Director has recently joined the company and has little experience of
The following extract is taken from an article discussing research into the costs of ‘outsourcing’. We found that companies commit two common mistakes when deciding to source components from
Use the specialist searches available through your college library or information service to find two recent articles or research papers covering ‘kaizen costing’. From the papers write down one
Write down two benefits of e-business and two possible problems of applying accounting controls to e-business.
Ltd processes and purifies a basic chemical which is then broken down by reaction to give three separate products. Explain the approaches to joint cost allocation using the following
What is incremental analysis?
What are the limitations of the decision-relevant approach?
What is ‘external capital rationing’?
What is the profitability index?
How may the effect of inflation be included in capital budgeting?
Explain what is meant by post-completion audit.
Explain why present value techniques may not be suitable for project evaluation where a business uses Advanced Manufacturing Technologies.
What is the sequence of the budgeting process?
Why is profit not a suitable measure of divisional performance?
Explain, in terms of divisional performance evaluation, the difference between using ‘profit’ and ‘profitability’.

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