Questions and Answers of Management Accounting

Laurel Company has assets of $2 million and long-term, 10 percent debt of $900,000. Hardy Company has assets of $2 million and no long-term debt. The annual operating income (before interest) of both
Consider the following data. 1. Prepare a similar tabular presentation, filling in all blanks. 2. Which division is the best performer? Explain. Division J K $280,000 $ Income 2$ Revenue
Footwear has assets of $2 million and a long-term, 10 percent debt of $800,000. Shirley Shoes has assets of $2 million and no long-term debt. The annual operating income (before interest) of both
Consider the following data: 1. Prepare a similar tabular presentation, filling in all blanks. 2. Which division is the best performer? Explain. 3. Suppose each division is assessed an
Fill in the blanks: Division А в с % Income percentage of revenue Rate of return on invested capital 7% 3% Capital turnover 3 % 24% 20%
You are given the following data. Sales...................$120,000,000 Invested capital..$ 60,000,000 Net income...........$ 6,000,000 Compute the following: 1. Turnover of
Northland Company makes bicycles. Components are made in various divisions and transferred to the Western division for assembly into final products. The Western division can also buy components from
A desk calendar’s variable cost is $5 and its market value is $6.25 at a transfer point from the Printing division to the Binding division. The Binding division’s variable cost of adding a
Describe management by objectives (MBO).
Company X uses net book value as a measure of invested capital when computing ROI. A division manager has suggested that the company change to using gross book value instead. What difference in
“Managers who use a historical-cost accounting system look backward at what something cost yesterday, instead of forward to what it will cost tomorrow.” Do you agree? Why?
Give four possible definitions of invested capital that can be used in measuring ROI or residual income.
Division A’s ROI is 20 percent, and B’s is 10 percent. Each manager is paid a bonus based on his or her division’s ROI. Discuss whether each division manager would accept or reject a proposed
“Both ROI and residual income use profit and invested capital to measure performance. Therefore, it really doesn’t matter which we use.” Do you agree? Explain.
What two major items affect ROI?
What is the major benefit of the ROI technique for measuring performance?
According to agency theory, employment contracts trade off three factors. Name the three.
Discuss two factors that affect multinational transfer prices but have little effect on purely domestic transfers
“We use variable-cost transfer prices to ensure that no dysfunctional decisions are made.” Discuss.
Why is it necessary to include opportunity cost in the general rule for transfer pricing?
Why are transfer-pricing systems needed?
What kinds of organizations find decentralization to be preferable to centralization?
Why is decentralization more popular in profit-seeking organizations than in non-profit organizations?
“The essence of decentralization is the use of profit centresa.” Do you agree? Explain.
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 2012
Ogopogo Enterprises runs a chain of drive-in ice cream stands in the Okanagan Valley during the summer season. Managers of all stands are told to act as if they owned the stand and are judged on
A A company that uses EVA reported the following results for 2011 and 2012 (in millions): Average adjusted invested capital was $20,308 million in 2011 and $19,591 million in 2012, and the cost
Consider the following data regarding budgeted operations for 2012 of the Winnipeg division of Machine Products: a.1. What average unit sales price does the Winnipeg division need to obtain its
Omar Efenti is manager of the Pacific division of Zenna Inc. His division makes a single product that is sold to industrial customers. Demand is seasonable but is readily predictable. The
On your first day as assistant to the president of Harold Systems Inc. (HSI), your in-box contains the following memo. To: Assistant to the President From: The President Subject:
Current River is a medium-sized city that has experienced rapid growth in the last two decades. For several of those years the city had the highest growth rate in the country. Much of the growth has
The discovery of vast petroleum reserves in the country of Atlantis has led to massive expenditures on government services. Several years ago, the Minister of Communications had automated the
Ron Miron, president of Champion’s Sporting Goods (CSG), was concerned about the profits earned by CSG during the fiscal year ending July 31, 2012. He had expected to sell 4,400 ski packages and
Sam Leaf, the president of Ginkgo Manufacturing Limited, was very pleased but puzzled by the 2012 operating results (Exhibit 12A-1). He knew that both manufacturing and marketing had problems during
The Holcomb Hotel is a 200-room hotel located in a residential section of Kingston, Ontario. It is an older hotel of distinction that is very popular with those who appreciate the amenities of the
Manchester Machining Company (MMC) produces and sells three main product lines. The company employs a standard cost-accounting system for recordkeeping purposes. At the beginning of 2010, the
Distributors reported the following budget and actual data for the month of March. Calculate the total sales-volume variance, the market-share variance, and the market size variance.
Materials support cost for the Industrial Equipment Manufacturing Company depends on the weight of material (plate steel, castings, etc.) moved. For actual production in the current budget period,
Consider the following data: Compute the price, quantity, and flexible-budget variances for direct materials and direct labour. Use U or F to indicate whether the variances are unfavourable or
Standard direct labour rate.....................................................$14.00 Actual direct labour rate...........................................................$12.20 Standard
Shanghai Toy Company produced 10,000 stuffed bears. The standard direct material allowance is 1.75 kilograms per bear, at a cost per kg of $3. Actually, 16,500 kg of materials (input) were used to
The manager of the City of Sydney road maintenance shop uses standards to judge performance. Because a clerk mistakenly discarded some labour records, however, the manager has only partial data for
Tailored Shirt Company (TSC) uses a special fabric in the production of dress shirts. During August TSC purchased 10,000 square metres of the fabric at $6.90 per metre and used 7,900 square metres in
Western Power is considering the replacement of an old billing system with new software that should save $5,000 per year in net cash operating costs. The old system has zero disposal value, but it
Toyland Company was one of the original producers of “Transformers. An especially complex part of “Sect-a-con needs special tools that are not useful for other products. These tools were
The head of the consulting division of a major firm has proposed investing $300,000 in personal computers for the staff. The useful life of the computers is five years. Computers qualify for Class
G. Esteban, the president of a Toronto trucking company, is considering whether to invest $410,000 in new semi-automatic loading equipment that will last five years, have zero scrap value, and
The City of Prince George is considering the purchase of a photocopying machine for $7,300 on December 31, 2010, useful life five years, and no residual value. The cash operating savings are expected
Luxon Company produces industrial and residential lighting fixtures at its manufacturing facility in Calgary. Shipment of company products to an eastern warehouse is handled by common carriers at a
The Sea Pines Company is planning to spend $45,000 for modernized production equipment. It will replace equipment that has zero book value and no salvage value, although the old equipment would last
Assume that income tax rates are 30 percent and that the asset qualifies for a 25 percent declining balance CCA, and the required rate of return is 10 percent. 1. The book value of an old
Tsumagari Company, an electronics company in Kobe, Japan, is planning to buy new equipment to produce a new product. Estimated data are: Assume a 60 percent flat rate for income taxes. All
South Chemicals Corporation was adversely affected by a tax ruling that certain selling and administrative expenses must be treated as product costs instead of period costs for reporting to the tax
Thirdgill has a small sewing and tailoring shop in the basement of her home. She uses the single telephone line into the home for both business and personal calls. She estimates that 50 percent of
Goladen Vineyards is a successful small winery. The owner, Gino Colucchio, is considering an additional line of business: selling wind generated electricity to the local utility. Tax law requires
An asset with an accounting book value of $50,000 was sold for cash on January 1, 2010. Assume two selling prices: $65,000 and $30,000. For each selling price, prepare a tabulation of the accounting
The president of a software company is contemplating acquiring some computers used for designing software. The computers will cost $150,000 cash and will have zero terminal salvage value. The
Dominique’s Frozen Food Company makes frozen dinners and sells them to retail outlets near London. Dominique has just inherited £10,000 and has decided to invest it in the business. She is trying
Anika Paar, the owner of a nine-hole golf course on the outskirts of Hamilton, Ontario, is considering the proposal that the course be illuminated and operated at night. Ms. Paar purchased the course
Suppose Simon Fraser University is considering replacing some Xerox copiers with faster copiers purchased from Kodak. The administration is very concerned about the rising costs of operations during
Evergreen Outdoor School (EOS) has a chance to invest $10,000 in a project that is certain to pay $4,500 at the end of each of the next three years. The minimum desired rate of return is 10
Suppose the University of Toronto Faculty of Applied Science and Engineering is considering the purchase of a special-purpose machine for $60,000. It is expected to have a useful life of three years
Bowden Institution currently has its laundry done by a local cleaners at an annual cost of $46,000. It is considering a purchase of washers, dryers, and presses at a total installed cost of $52,000
“Sometimes direct labour cost is the best cost driver for overhead allocation even if wage rates vary within a department. ?Do you agree? Explain.
The budgeted prices for materials and direct labour per unit of finished product are $11 and $5, respectively. The production manager is delighted about the following data. Is the manager’s
Scottish Designs has a department that makes high-quality leather cases for iPods. Consider the following data for a recent month. Budget Formula per Various Levels of Output Unit 6,000 7,000
The Calgary Chief of Police is attempting to predict the costs of operating a fleet of police cars. Among the items of concern are fuel, $0.15 per kilometre, and depreciation, $6,000 per car per
Stang Sports Equipment Company made 40,000 basketballs in a given year. Its manufacturing costs were $256,000 variable and $95,000 fixed. Assume that no price changes will occur in the following year
Lean accounting and value stream management are related costing and management techniques that differ radically from flexible budgeting, standard costing, and variance analysis as presented in this
Imperial Mills is a small flour company in the West. Claude Laurent became president in 2010. He is concerned with the ability of his production manager to control costs. To aid his evaluation,
The new printing department of Shark Advertising Inc. provides printing services to the other departments. Prior to the establishment of the in-house printing department, the departments contracted
Belfair Kayak Company makes moulded plastic kayaks. Standard costs for an entry-level whitewater kayak are Direct materials, 60 kilograms @ $5.50 per kilogram......$330 Direct labour, 1.5
Sung Park owns and operates Transpac Machining, a subcontractor to several aerospace-industry contractors. When Mr. Park wins a bid to produce a piece of equipment, he sets standard costs for the
Study the format of the analysis of variances in Exhibit 12-12. Suppose production is 156,000 units. Also assume the following: Prepare an analysis of variances similar to that shown in Exhibit
The expected activity of the paper-making plant of Leventhal Paper Company was 45,000 machine-hours per month. Practical capacity was 60,000 machine-hours per month. The standard machine-hours
The Mendoza Company is installing an absorption standard costing system and a flexible overhead budget. Standard costs have recently been developed for its only product and are as
Kronos Shipping Company’s general manager reports quarterly to the company’s president on the firm’s operating performance. The company has used a budget based on detailed expectations for the
Horst Company is a chemical manufacturer that supplies industrial users. The company plans to introduce a new solution and needs to develop a standard product cost for this new solution. The new
Pandosy Company reported the following sales and factory overhead variances for fiscal 2010, a year in which sales and production in units were both 18 percent greater than expected. The company uses
Consider the following data: From the information given, fill in the blanks below. The flexible-budget variance is $ Fixed $
Cost behaviour analysis for the four activity centres in the Billing Department of Great Lakes Power Company is as follows: The Billing Department constructs a flexible budget for each activity
The L. Ming Company has had great difficulty controlling costs in Singapore during the past three years. Last month a standard cost and flexible-budget system was installed. Results for a department
Suppose Parks Canada prepared the following budget for one of its national parks for 2010: Revenue from fees...............$5,000,000 Variable costs
Woodstock Precision Machining (WPM) has a highly automated manufacturing process for producing a variety of auto parts. Through the use of computer-aided manufacturing and robotics, the company has
The Zurich Chocolate Company uses standard costs and a flexible budget to control its manufacture of fine chocolates. The purchasing agent is responsible for material price variances, and the
The University of Liverpool offers an extensive continuing education program in many cities throughout Britain. For the convenience of its faculty and administrative staff and to save costs, the
The emergency room at University Hospital uses a flexible budget based on patients seen as a measure of activity. The hospital must maintain an adequate staff of attending and on-call physicians at
The performance (in thousands of dollars) of Kenmore Airlines for the most recent year is shown in the following table. The master budget had been based on a budget of $0.20 revenue per
Suppose a chain of KFC franchises in Beijing had budgeted sales for 2010 of RMB7.3 million (where RMB stands for the Chinese unit of currency, officially the renminbi, also called the yuan). Cost of
Damerow Credit Services produces reports for consumers about their credit ratings. The company’s standard contribution margins average 70 percent of dollar sales, and average selling prices are $50
Higgins Company produced 80,000 units, 8,000 more than budgeted. Production data are as follows. Except for physical units, all quantities are in dollars. 1. Fill in the unknowns. 2. Give a
What is the most commonly used method for disposing of standard cost variances?
“Overhead variances arise only with absorption-costing systems." Do you agree?
"Fixed overhead volume variances arise with normal absorption and standard-absorption costing, but not with actual costing." Explain.
"An unfavourable fixed overhead volume variance means that fixed manufacturing costs have not been well controlled. ?Do you agree" Explain.
Why is there no fixed overhead volume variance for direct labour?
"The dollar amount of the fixed overhead volume variance depends on what expected volume of production was chosen to determine the fixed overhead rate." Explain.
"In a standard absorption-costing system, the amount of fixed manufacturing overhead applied to the products rarely equals the budgeted fixed manufacturing overhead." Do you agree? Explain.
When should managers investigate variances?
How does the variable overhead spending variance differ from the direct labour price variance?

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