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Principles Of Accounting Volume 2 Chapters 12-25 1st Edition Robert Libby, Patricia Libby, Fred Phillips, Stacey Whitecotton - Solutions

1. Budgets help companiesa. Meet short-term objectives.b. Meet long-term objectives.c. Both a andb. d. None of the above.
14. What are the components of the financial budget?
13. What are the components of the operating budget?
12. What sources does a company utilize to determine its sales forecast? What could happen if one of the sources used is inaccurate?
11. Explain why the sales budget is the starting point for a company’s budgeting process. Which budgets does the sales budget affect? Which budgets does the sales budget not affect?
10. What is the master budget? What are its components?
9. Briefly explain how each of the following helps to minimize dysfunctional behaviors caused by budgeting:a. Different budgets for different purposes.b. Continuous budgeting.c. Zero-based budgeting.
8. Explain the concept of budgetary slack. How might budgetary slack be detrimental to a company?
7. What are the advantages and disadvantages of participative budgeting over top-down budgeting?
6. Suppose a company chooses not to develop budgets. Describe three potential negative consequences of this decision.
5. Identify and briefly discuss the benefits of budgeting.
4. Suppose that your strategic plan is to retire comfortably at the age of 55. List several long-term objectives, short-term objectives, and tactics that will enable you to accomplish this goal.
3. What is a strategic plan? How does a strategic plan involve both short- and long-term goals?
2. What role do budgets play in the planning and control cycle?
1. Briefly describe why budgetary planning is crucial to companies.
CP22-4 Analyzing a Personal Decision to Pursue a Graduate Degree Assume that your friend Greg Ellis is thinking of getting an MBA. He is a resident of Arizona and is currently earning $45,000 per year. One of the schools Greg is considering is Brigham Young University (BYU) in Provo, Utah. He went
CP22-3 Researching Outsourcing Issues in the National and Local Press Outsourcing, particularly to overseas companies, is a hot-button topic that has garnered much attention in the academic, national, and local business media. Required: 1. Do a quick search at www.wikipedia.org for a high-level
C22-2 Evaluating Wal-Mart’s Decision to Eliminate Product Offerings: Quantitative and Qualitative Considerations During 2006 and 2007, Wal-Mart decided to eliminate two long-standing components of its business: merchandise layaway and by-the-bolt sales of fabric. Each of these decisions was met
CP22-1 Evaluating a University’s Decision to Eliminate Collegiate Sports Programs: Quantitative and Qualitative Considerations Due to budget cutbacks, colleges and universities across the country are struggling to cut expenses. Frequent casualties of these money-saving decisions are organized
PB22-5 Calculating the Accounting Rate of Return, Payback Period, and Net Present Value Titan Production Co. is considering an investment in new machinery for its factory. Various information about the proposed investment follows. Initial investment $750,000 Useful life 6 years Salvage value
PB22-4 Calculating the Accounting Rate of Return, Payback Period, and Net Present Value Ted’s Taxi Company (TTC) is considering the purchase of four new taxi cabs. Various information about the proposed investment follows. Initial investment (for 4 vehicles) $220,000 Useful life 5 years Salvage
PB22-3 Analyzing a Keep-or-Drop Decision Woodchuck Corp. (see PB22-1 and PB22-2) is considering eliminating a product from its line of outdoor tables. Two products, the Oak-A and Fiesta tables, have impressive sales. However, sales for the Studio model have been dismal. Information related to
PB22-2 Analyzing a Make-or-Buy Decision Woodchuck Corp. (see PB22-1) is considering the possibility of outsourcing the production of upholstered chair pads that are included with some of its wooden chairs. The company has received a bid from Padalong Co. to produce 1,000 units per year for $9 each.
PB22-1 Analyzing a Special-Order Decision Woodchuck Corp. makes several varieties of wooden furniture. It has been approached about producing a special order for rocking chairs. A local senior citizens group would use the special-order chairs in a newly remodeled activity center. The senior
PA22-5 Calculating the Accounting Rate of Return, Payback Period, and Net Present Value Wing Walker Aces (WWA), Inc., is considering the purchase of a small plane to be used in its wingwalking demonstrations and aerial tour business. Various information about the proposed investment follows.
PA22-4 Calculating the Accounting Rate of Return, Payback Period, and Net Present Value Hot Air Highlights (HAH) is considering the purchase of two new hot air balloons so that it can expand its desert sunset tours. Various information about the proposed investment follows. Initial investment (for
PA22-3 Analyzing a Keep-or-Drop Decision Sunblocker Corp. (see PA22-1 and PA22-2) is considering eliminating a product from its Happy Sand line of beach umbrellas. This collection is aimed at people who spend time on the beach or have an outdoor patio near the beach. Two products, the Happy Day and
PA22-2 Analyzing a Make-or-Buy Decision Sunblocker Corp. (see PA22-1) is considering the possibility of outsourcing production of the umbrella tote bag included with some of its products. The company has received a bid from CarryAll Co. to produce 8,000 units per year for $6 each. Sunblocker has
PA22-1 Analyzing a Special-Order Decision Sunblocker Corp. makes several varieties of beach umbrellas and accessories. It has been approached about producing a special order for custom umbrellas. The special-order umbrellas with logo of Randolph Industries would be distributed to participants at an
E22-9 Analyzing the Relationship between Net Present Value and Internal Rate of Return Consider the relationship between a project’s net present value (NPV), its internal rate of return (IRR), and a company’s cost of capital. For each scenario that follows, indicate the relative value of the
E22-8 Calculating the Accounting Rate of Return, Payback Period, and Net Present Value Lenny’s Limousine Service (LLS) is considering the purchase of two Hummer limousines. Various information about the proposed investment follows. Initial investment (2 limos) $600,000 Useful life 8 years Salvage
E22-6 Calculating the Accounting Rate of Return and Payback Period Midway Printing Co. is considering the purchase of new electronic printing equipment. The new equipment would allow Midway to increase its annual before-tax profit by $100,000. Midway has a 40 percent tax rate. Other information
E22-5 Identifying Qualitative Factors in Short-Term Decision Making Refer to E22-2 through E22-4. Required: Identify at least three qualitative factors that EPI should consider when making each decision.
E22-4 Analyzing a Keep-or-Drop Decision EPI is considering eliminating a product from its ToddleTown Tours collection. This collection is aimed at children one to three years of age and includes “tours” of a hypothetical town. Two products, The Pet Store Parade and The Grocery Getaway, have
E22-3 Analyzing a Make-or-Buy Decision EPI is considering outsourcing the production of the handheld control module used with some of its products. The company has received a bid from Control Freak Co. (CFC) to produce 10,000 units of the module per year for $15 each. The following information
E22-2 Analyzing a Special-Order Decision EPI has been approached by a fourth-grade teacher from Phoenix about the possibility of creating a specially designed game that would be customized for her classroom and environment. The teacher would like an educational game to correspond to her classroom
E22-1 Identifying Relevant Costs and Calculating Differential Costs Maria Turner has just graduated from college with a degree in accounting. She had planned to enroll immediately in the master’s program at her university but has been offered a lucrative job at a well-known company. The job is
M22-8 Calculating Net Present Value and Predicting the Internal Rate of Return Otis Company has the following information about a potential capital investment: Initial investment $400,000 Annual cash inflow $ 70,000 Expected life 10 years Cost of capital 11% 1. Calculate and evaluate the net
M22-7 Calculating the Accounting Rate of Return and Payback Period Milo Company is considering purchasing new equipment for its factory. The equipment will cost $250,000 and have a $50,000 salvage value in five years. The annual net income from the equipment is expected to be $30,000, and
M22-6 Analyzing a Make-or-Buy decision Flyaway Company also has the Cyclone fan model. It is the company’s top-selling model, with sales of 30,000 units per year. This model has a dual fan as well as a thermostat component that causes the fan to cycle on and off depending on the room temperature.
M22-5 Analyzing a Keep-or-Drop Decision Suppose that Flyaway Company also produces the Windy model fan, which currently has a net loss of $40,000 as follows:Sales $ 160,000 Variable costs (130,000) Contribution margin 30,000 Allocated fixed costs (70,000) Profit (Loss) $ (40,000) Dropping the Windy
M22-4 Analyzing a Special-Order Decision Flyaway Company has just received a one-time offer to purchase 10,000 units of its Breezy model for a price of $20 each. The Breezy model costs $25 to produce ($17 in variable costs and $8 of fixed overhead). Because the offer came during a slow production
M22-3 Identifying Relevant and Irrelevant Costs The local summer baseball league wants to buy new uniforms for its teams. The current uniforms are quite old and will require $400 in repairs before they can be handed out to players next week for the upcoming season. The old uniforms will be replaced
M22-2 Identifying Relevant and Irrelevant Costs Sarah Ramirez is considering taking a part-time job at a local clothing store. Sarah loves the store and shops there often, but unfortunately, employee discounts are given only to full-time employees. If Sarah takes this job, she will have to withdraw
M22-1 Matching Key Terms and Concepts to Definitions A number of terms and concepts from this chapter and a list of descriptions, definitions, and explanations follow. For each term listed on the left, choose at least one corresponding item from the right. Note that a single term may have more than
10. Jennings Company has evaluated a project and found that its internal rate of return is approximately 13.5 percent.Suppose Jennings’ cost of capital is 12 percent. What, if anything, can you infer about the net present value (NPV) of this project?a. The NPV is less than zero.b. The NPV is more
9. Discounting methods of capital budgeting are considered superior to nondiscounting methods becausea. Discounting methods recognize the time value of money.b. Discounting methods are simpler to calculate.c. Discounting methods are always based on accounting measurements of net income and
8. ABC Company is considering a $500,000 investment to automate its production process. The new equipment will allow ABC to save $75,000 each year in labor costs. What is this project’s payback period?a. 4.00 years.c. 6.67 years.b. 5.67 years.d. 8.00 years.
7. Which of the following requires managers to determine whether a proposed capital investment meets some minimum criteria?a. Preference decision.c. Cash payback period.b. Screening decision.d. None of the above.
6. Which of the following costs is not likely to be completely eliminated by a decision to drop a product line?a. The variable overhead traced to that product line.b. The cost of direct materials used to produce the product.c. The portion of fixed overhead allocated to that product line.d. All of
5. When making make-or-buy decisions, managers should considera. Alternate uses for any facility currently being used to make the item.b. The costs of direct materials included in making the item.c. Qualitative factors such as whether the supplier can deliver the item on time and to the company’s
4. When making a one-time special-order decision, a company can ignore fixed overhead becausea. The cost is not avoidable.b. The cost is avoidable.c. The cost cannot be determined.d. None of the above.
3. Sunk costs are alwaysa. Opportunity costs.c. Relevant.b. Avoidable.d. Irrelevant.
2. Which of the following is not a step of the management decision-making process?a. Review results of the decision-making process.b. Contact competitors who have made similar decisions.c. Evaluate the costs and benefits of the alternatives.d. Determine the decision alternatives.
1. The decision-making approach in which a manager considers only costs and benefits that differ for alternatives is called:a. Incremental analysis.b. Outsourcing.c. Differential analysis.d. Either a or c.
26. Explain how the internal rate of return and net present value are related. If a project has a net present value of $50,000 using a 10 percent discount factor, what does this imply about that project’s IRR?
25. When would you use an annuity factor in a net present value calculation instead of a present value factor for a single cash flow?
24. What do a positive net present value (NPV) and a negative NPV indicate about an investment?
23. In everyday terms, explain what information the payback period provides about an investment.
22. What is a company’s hurdle rate? How is it relevant to capital budgeting?
21. Briefly explain what the time value of money means.
20. How do nondiscounting methods and discounting methods of capital budgeting differ? Which is considered superior, and why?
19. Explain the difference between screening decisions and preference decisions.
18. Identify three opportunity costs that might be involved in a keep-or-drop decision.
17. Briefly explain what happens to total variable costs when a product line is dropped.
16. How might the decision to drop a product line affect a company’s remaining products?
15. When a product line is eliminated, why are the fixed costs allocated to that line not automatically eliminated as well?
14. How do opportunity costs affect make-or-buy decisions? How are opportunity costs shown in a make-or-buy analysis?
13. Briefly describe three problems that might result from a decision to buy a component part from an external supplier. For each problem, identify one way to avoid or correct it.
12. Suppose that you are a manager of a local deli and sandwich shop. Give an example of each of the following decisions that you might have to make and identify three factors that would be relevant to each decision.a. Special order.b. Make or buy.c. Keep or drop.
11. Briefly explain what excess capacity means. How does it impact a special-order decision?
10. How might the acceptance of a special order have negative consequences for a company?
9. What is a special-order decision? Why can managers ignore fixed overhead costs when making special-order decisions?
8. Why should opportunity costs be factored into the decisionmaking process and why is it often difficult to do?
7. Explain opportunity cost and give two opportunity costs of your decision to enroll in classes this semester.
6. How is an avoidable cost related to a relevant cost?
5. What are the criteria for a cost to be considered relevant to any decision?
4. Tom Ellis recently bought a plasma television and has since stated that he would not recommend that brand to others. This indicates that Tom has completed which step of the decision-making process?
3. Suppose you are considering a part-time job to earn some extra spending money. List four factors that could affect that decision and would be included in Step 3 of your decisionmaking process.
2. Briefly describe the five steps of the management decisionmaking process.
1. How do incremental analysis and capital budgeting differ? How are they similar?
CP21-4 Researching a Company Web Site and Performing Cost-Volume-Profit Analysis Pink Jeep Tours offers off-road tours to individuals and groups visiting the Southwestern U.S. hotspots of Sedona, Arizona, and Las Vegas, Nevada. Take a tour of the company’s Web site at www.pinkjeep.com. Suppose
CP21-3 Researching the Cost of Operating a Vending Machine and Performing Cost-VolumeProfit Analysis Suppose that you have decided to start a small business selling snacks from vending machines. You have secured a location for one candy vending machine in a local bookstore. Rental for the space
CP21-2 Evaluating the Effect of Decisions on Contribution Margin, Break-Even, and Margin of Safety Companies must make many decisions regarding day-to-day business activities. For each of the following decision-making situations, discuss the impact on a company’s contribution margin (both total
CP21-1 Analyzing Cost Behavior and the Impact on Break-Even Ink Spot, Inc., is a new business located in upstate New York. It offers local businesses the service of printing and distributing promotional flyers at public places or events in the area. The flyers are either placed on the windshield of
PB21-5 (Supplement) Determining Variable Costing Refer to the information for CoverUp in PB21-4. Additional information available for CoverUp’s most recent year of operation follows.Number of units produced 3,000 Number of units sold 2,800 Sales price per unit $ 30.00 Direct materials per unit
PB21-4 Calculating Contribution Margin, Contribution Margin Ratio and Break-Even Point CoverUp, Inc. produces one model of seatcover. Partial information for the company follows: Number of seatcovers produced and sold 1,500 1,700 2,100 Total costs Variable costs $? $? $15,750 Fixed costs per year ?
PB21-3 Preparing a CVP Graph and Calculating Contribution Margin, Contribution Margin Ratio and Break-Even Point Hot Dog, Inc. makes one type of doggie sweater that it sells for $25 each. Its variable cost is $11 per sweater and its fixed costs total $8,600 per year. Hot Dog currently has the
PB21-1 Analyzing Mixed Costs Using High-Low Method, Preparing a Contribution Margin Income Statement, Analyzing Break-Even Point, and Setting Target Profit Tina Sutton delivers flowers for several local flower stores. She charges clients $0.85 per mile driven. Tina has determined that if she drives
PA21-5 (Supplement) Determining Income Using Variable Costing Refer to the information for Overhill, Inc., in PA21-4. Additional information available for Overhill’s first year of operations follows.Number of units produced 2,000 Number of units sold 1,300 Sales price per unit $ 650.00 Direct
PA21-4 Calculating Contribution Margin, Contribution Margin Ratio, and Break-Even Point Overhill, Inc. produces one model of mountain bike. Partial information for the company follows.Required: 1. Complete the table. 2. Calculate Overhill’s contribution margin ratio and its total contribution
PA21-3 Preparing a CVP Graph and Calculating Contribution Margin, Contribution Margin Ratio, and Break-Even Point Cardinal Castles, Inc. makes one type of birdhouse that it sells for $30 each. Its variable cost is $14 per house, and its fixed costs total $13,840 per year. Cardinal currently has the
PA21-2 Preparing a Contribution Margin Income Statement and Analyzing Break-Even Point Simpson Company produces one model of golf cart. A partially complete table of company costs follows.Required: 1. Complete the table. 2. Simpson sells its carts for $1,200 each. Prepare a contribution margin
PA21-1 Analyzing Mixed Costs, Using High-Low Method, Preparing a Contribution Margin Income Statement, Analyzing Break-Even Point, and Setting Target Profit Fred Carson delivers parts for several local auto parts stores. He charges clients $0.75 per mile driven. Fred has determined that if he
E21-9 (Supplement) Comparing Full Absorption Costing and Variable Costing The following information pertains to Sonic Boom Radios, Inc. for its first year of operation: Number of units produced 3,000 Number of units sold 2,500 Unit sales price $ 350 Direct materials per unit 70 Direct labor per
E21-8 Identifying Target Profit and Margin of Safety Refer to the information regarding Peggy’s Ribbon World in E21-7. Required: 1. Suppose Peggy would like to generate a profit of $800. Determine how many rosettes she must sell to achieve this target profit. 2. If Peggy sells 1,100 rosettes,
Determine how many rosettes Peggy must sell to break even. 2. Calculate the break-even point in sales dollars. 3. Prepare a CVP graph for Peggy assuming the relevant range is zero to 1,500 rosettes.
E21-7 Analyzing Break-Even Point and Preparing CVP Graph Peggy’s Ribbon World makes award rosettes. Following is information about the company. Variable cost per rosette $ 1.10 Sales price per rosette 2.50 Total fixed costs per month 889.00 Required: 1.
E21-6 Analyzing Break Even and Preparing Contribution Margin Income Statement Cory Bryant runs a courier service in downtown Phoenix. He charges clients $0.50 per mile driven. Cory has determined that if he drives 3,000 miles in a month, his total operating cost is $875. If he drives 4,000 miles in
E21- 5 Identifying Break-Even Point and Margin of Safety Refer to the information in E21-4 regarding Paddle Away. Required: 1. Calculate Paddle Away’s break-even point in units and in sales dollars. 2. If Paddle Away sells 650 canoes, compute its margin of safety in units and as a percentage of

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