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Management Accounting Information For Creating And Managing Value 9th Edition Kim Langfield Smith, David Smith, Paul Andon, Ronald W. Hilton - Solutions
19.6 'Accounting systems should produce only relevant data and forget about the irrelevant data. Then I'd know what was relevant and what wasn't!' Comment on this remark made by a company managing director. LO 19.3
19.7 Why might a manager want to consider sunk costs in making a decision? Provide two examples of sunk costs and explain why they are irrelevant in decision making. Lo 19.4
19.8 Is money spent on production machinery a relevant cost when analysing a special order decision? Explain your answer. LO 19.4
19.9 Explain the term opportunity cost. Provide two specific examples of relevant opportunity costs to be considered In the case of a farmer deciding whether to exclusively grow corn on her land next season. LO 19.4
19.10 Select two decisions-one common to a manufacturer and the other common to a service organisation- and give two examples of irrelevant future costs for each decision. Why are they irrelevant? LO 19.4
19.11 In considering whether to accept or reject a special order, explain why it is important to know whether this a one-off decision. LO 19.5
19.12 Explain how the existence of spare production capacity can affect the choice of whether to accept or reject a special order. LO 19.5
19.13 Using examples from the first Real Life in 'Relevant information for some common decisions', outline some of the advantages and disadvantages of outsourcing. Can you think of any other potential advantages or disadvantages? LO 19.6 REAL LIFE
19.14 Briefly describe the approach a sports goods manufacturer should take in deciding whether to delete a longstanding product line. Outline three longer-term issues that should be considered as part of this decision. Explain the importance of each issue. LO 19.7
19.15 Are allocated joint processing costs relevant when making a decision about whether to either sell a joint product at the split-off point or to process it further? Explain your answer and describe the correct approach to making this decision. LO 19.8
19.16 'Classifying an output as a product or as a by-product has implications for the allocation of joint production costs. Explain this statement, drawing on one of the examples provided in the second Real Life in 'Relevant information for some common decisions'. LO 19.8 REAL LIFE
19.17 Are the concepts underlying relevant cost analysis still valid in an advanced manufacturing environment? Are these concepts valid when activity-based costing is used? Explain. LO 19.9
19.18 'There is an important link between the topics of decision making and managerial performance evaluation. Explain. LO 19.10
19.19 What are unitised fixed costs, and how can these cause errors in decision making? LO 19.11
19.20 (appendix) Explain briefly how to use the physical units, relative sales value, net realisable value and constant gross margin methods of joint cost allocation. Which method is the best? LO 19.12
20.1 List and describe the major influences on pricing decisions.
20.2 Explain and use the economic profit-maximising pricing model.
20.3 Explain value-based, economic-value and cost-plus pricing strategies, and use these methods to calculate prices.
20.4 Determine prices using the time and material pricing approach.
20.5 Explain how product cost distortions can undermine a firm's pricing policy.
20.6 Discuss the issues involved in the strategic pricing of new products.
20.7 Select and analyse relevant information and set prices in special order or competitive bid situations.
20.8 Describe the legal restrictions on setting prices in Australia.
20.9 Select and analyse relevant information for tactical and long-term product mix decisions.
20.10 After studying the appendix, use linear programming in short-term (tactical) product mix decisions.
20.1 Comment on the following remark made by an airline executive: 'Let's not overcomplicate things. Our ticket prices are influenced by our costs. Other factors are irrelevant.' LO 20.1
20.2 Think of an industry in which competitor behaviour is particularly important in price setting. Explain its importance to the pricing of products or services sold in that industry. LO 20.1
20.3 'When setting prices, it is important to define the product and market correctly. Do you agree with this statement? Provide an example to illustrate your answer. LO 20.1
20.4 Briefly explain the concept of economic profit-maximising pricing. It may be helpful to use graphs in your explanation. LO 20.2
20.5 Explain the difference between value-based pricing and cost-plus pricing. LO 20.3
20.6 In the Real Life titled 'Ticket pricing in the Australian Football League' in the section 'Pricing strategies', the AFL's variable ticket pricing strategy was discussed. Explain why this is an example of value-based pricing. LO 20.3 REAL LIFE
20.7 Explain the key differences between absorption cost and variable cost approaches to defining cost for pricing purposes. LO 20.3
20.8 In the example of return on investment pricing provided in this chapter, the markup percentage was different, depending on which definition of product cost was used. Explain why the markup was different. LO 20.3
20.9 Explain the rationale behind the time and material pricing approach. Why is this approach used in some industries? LO 20.4
20.10 Why is a focus on the customer such a key principle of target costing and pricing? LO 20.4
20.11 How is activity-based costing helpful when setting prices through a cost-plus pricing approach? LO 20.5
20.12 Describe the skimming pricing and penetration pricing approaches to pricing new products. Explain the intention behind each of these approaches. LO 20.6
20.13 In competitive bidding the submitted bid may differ, depending on whether or not the supplier organisation has spare capacity. Explain why this is the case. LO 20.7
20.14 The identification of relevant costs and benefits in decisions to accept or reject a special order and the selection of a price for a competitive bid may be based on similar principles. Explain. Lo 20.7
20.15 Explain what is meant by resale price maintenance and price fixing. LO 20.8
20.16 The Real Life titled 'Proving predatory pricing: a challenge for the ACCC' in the section 'Legal restrictions on setting prices' outlines challenges involved in proving predatory pricing. Search the media for examples of alleged predatory pricing. Choose one example and explain the key
20.17 Explain why different costs and revenues may be relevant when making short-term product mix decisions compared with making long-term product mix decisions. Lo 20.9
20.18 What is meant by the term contribution margin per unit of scarce resource? How is this concept used in making product mix decisions? LO 20.9
20.19 (appendix) Explain how linear programming can be used in making a long-term product mix decision. LO 20.10
20.20 (appendix) Explain the meaning of the following terms: constraints, decision variables, feasible region and objective function. Explain their relevance to product mix decisions. Lo 20.10
21.1 Explain the characteristics of capital expenditure decisions.
21.2 Describe the stages of a typical capital expenditure approval process.
21.3 Use the net present value and internal rate of return methods to evaluate a capital expenditure proposal.
21.4 Compare the net present value and internal rate of return methods and their underlying assumptions.
21.5 Use the net present value, the internal rate of return and profitability index to compare alternative capital expenditure proposals.
21.6 Describe how real-options analysis can be used to account for uncertainty and future managerial options.
21.7 Use the payback and accounting rate of return methods to evaluate capital expenditure proposals, and evaluate their usefulness.
21.8 Explain the potential conflict between using discounted cash flow analysis for evaluating capital expenditure projects and using accrual accounting data for evaluating managers' performance.
21.9 Determine the after-tax cash flows in a capital expenditure analysis.
21.10 Calculate the effects of depreciation, profits and losses on disposal of non-current assets, and working capital on after-tax cash flows.
21.11 Incorporate the effects of income taxes in the calculation of the payback method and the accounting rate of return.
21.12 Explain the value of post-completion audits.
21.13 Describe the process of justifying investments in advanced technologies in manufacturing and service firms.
21.14 Explain the limitations of traditional cash flow expenditure analysis for evaluating investments in technologies.
21.1 How do capital expenditure decisions differ from tactical decisions? Give two examples of each type of decision. LO 21.1
21.2 Outline the six stages of the typical capital expenditure process and explain the likely role of the management accountant in this process. LO 21.2
21.3 'Time is money' is an old saying. Relate this statement to the evaluation of capital investment projects. Lo 21.3
21.4 Explain the essential difference between the two common methods of discounted cash flow analysis. LO 21.3
21.5 'The higher the discount rate, the higher the present value of a future cash flow.' Is this statement true or false? Explain your answer. LO 21.3
21.6 List and explain briefly the advantages that the net present value (NPV) method has over the internal rate of return (IRR) method. LO 21.4
21.7 Compare and contrast the assumptions underlying the NPV and IRR methods of discounted cash flow analysis. LO 21.4
21.8 Define the term profitability Index. Why would managers calculate the profitability Indices of different investment proposals? Is calculating the profitability index useful in all circumstances? LO 21.5
21.9 In the initial presentation of MMC's decision relating to the purchase of a new CT scanner (see 'Capital expenditure decisions at the Meadowleigh Medical Centre'), two alternatives were proposed. When a real-options analysis approach was considered, a further two scenarios were proposed (see
21.10 What are the limitations of the payback method for evaluating capital investments and why do many businesses continue to use it despite its limitations? LO 21.7
21.11 What are the advantages and disadvantages of using the accounting rate of return to evaluate capital investments? LO 21.7
21.12 'My annual salary bonus is based on my business unit's return on investment. There is no way that I will approve capital expenditure projects which do not generate an accounting profit each year.' Discuss the implications of this statement. LO 21.8
21.13 Explain how to calculate the after-tax amount of an increase in sales and an increase in expenses in capital expenditure analysis. LO 21.9
21.14 Give two examples of cash flows relevant to capital expenditure decisions that are not included in a firm's income statement. Explain why these cash flows are omitted from the income statement. LO 21.9, 21.10
21.15 'Depreciation on a non-current asset is an accounting entry and not a cash flow. But, it should be considered in analysing capital expenditure decisions. True or false? Explain your answer. LO 21.10
21.16 Why is it useful to conduct a post-completion audit of an investment project? Why do so few businesses complete post-completion audits of their capital expenditure decisions? LO 21.12
21.17 The Real Life titled 'What influences technology Investment?' in the section 'Justification of investments in advanced technologies' explains factors that influence companies' intentions to invest in new technology. Explain the difficulties that arise when traditional cash flow methods and
21.18 The Real Life titled 'Airline fleet planning: a major capital investment challenge' in the section 'Comparing two alternative investment projects' explained the difficulties associated with making major acquisition decisions years in advance. Describe the strategic issues that an airline may
21.19 In an investment proposal involving new technology, the cash flows related to the proposed investment are sometimes compared to the wrong baseline. Explain this statement. LO 21.13
21.20 'Managers evaluating capital expenditure projects only need to consider social and environmental concerns to the extent that they affect the firm's cash flows. Do you agree? Discuss. LO 21.13, 21.14
7.1 Explain the nature of overhead costs and other indirect costs.
7.2 Describe the general principles for allocating indirect costs to cost objects.
7.3 Allocate overhead costs to products, using a plantwide rate.
7.4 Use the two-stage allocation process to estimate departmental overhead rates and allocate overhead costs to products.
7.5 Use activity-based costing principles to assign overheads to products.
7.6 Recognise the costs and benefits of choosing alternative approaches to assigning overhead costs to products.
7.7 Explain the relevant issues in estimating overhead rates, including identifying cost drivers, choosing volume-based and non-volume-based cost drivers, and deciding between budgeted and actual overhead rates.
7.8 Explain the effect of alternative capacity measures on overhead rates.
7.9 Discuss the general principles and reasons for allocating indirect costs to responsibility centres.
7.10 Allocate support department costs to production departments using the direct method, the step-down method and the reciprocal services method.
7.11 After studying the appendix, understand and evaluate variable and absorption costing and prepare Income statements using both approaches.
7.1 Explain the differences between manufacturing overhead, upstream and downstream costs, and the indirect costs of responsibility centres. LO 7.1
7.2 What are cost objects, cost pools and allocation bases? What role do they play in cost allocation? What is the difference between cost allocation bases and cost drivers? LO 7.2
7.3 In estimating the cost of a cost object, how are direct costs and indirect costs assigned to the cost object? Using the NGOs involved in the tsunami relief efforts (described in the Real Life titled 'Measuring tsunami recovery costs: an overhead or not?' in the section 'Allocating indirect
7.4 What does the term cost allocation base mean? What is a suitable cost allocation base for assigning IT costs to the various departments within a university? LO 7.2, 7.3
7.5 Describe the process of two-stage cost allocation in the development of departmental overhead rates, using the terms overhead cost distribution, support department cost allocation and overhead application. Lo 7.4
7.6 Distinguish between a support department and a production department. Give an example of a production department in a bank and a support department in a university. LO 7.4
7.7 Explain the difference between activity-based costing for manufacturing overhead and a traditional costing system that uses departmental overhead rates. LO 7.5
7.8 Describe some costs and benefits of using (a) departmental overhead rates and (b) activity-based costing, for product costing. LO 7.6
7.9 What is meant by the term cost driver? What is a volume-based cost driver? What is a non-volume-based cost driver? Give three examples of non-volume-driven costs in a university and suggest a possible driver for each of those costs. Lo 7.7
7.10 Refer to the Real Life titled 'How should the Pacific Islands Forum Fisheries Agency allocate its overheads?' in the section 'Issues in estimating overhead rates' and evaluate the FFA's decision to allocate overhead costs to self-funded projects based on salary costs. LO 7.7 REAL LIFE
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