Questions and Answers of Management Accounting

Are direct material price variances generally recognized when the materials are purchased or when they are used? Why?
"A standard is one point in a band or range of acceptable outcomes." Criticize.
What are two possible interpretations of currently attainable standards?
Differentiate between ideal standards and currently attainable standards.
Who is usually responsible for sales-volume variances? Why?
Differentiate between a master budget variance and a flexible-budget variance.
"Effectiveness and efficiency go hand in hand. You can’t have one without the other." Do you agree? Explain.
Explain the role of understanding cost behaviour and costdriver activities for flexible budgeting.
"We want a flexible budget because costs are hard to predict. We need the flexibility to change budgeted costs as input prices change." Does a flexible budget serve this purpose? Explain.
You have been asked to prepare an analysis of the overhead costs in the order processing department of a mail-order company. As an initial step, you prepare a summary of some events that bear on
Consider the following data for a manufacturing company: 1. Compute the price, quantity, and flexible-budget variances for direct materials and direct labour. Use U or F to indicate whether the
Consider the following data for David Skold Tax Services, a firm much like H&R Block: Master (static) budget data: sales, 2,500 clients at $350 each; variable costs, $250 per client; fixed
Barber Brass manufactures trumpets, trombones, tubas, and other brass instruments. The following standards were developed for a line of trumpets. During April, Barber scheduled 550 trumpets for
The systems consulting department of Bennett Baseball Products designs systems for data collection, encoding, and reporting to fit the needs of other departments within the company. An overall cost
Ivan Sharpova is trying to decide whether he is going to need to take a loan in January to buy a new microcomputer system for his business. The microcomputer will cost $10,800. Sharpova has collected
Part A: Millie Bandes, a successful entrepreneur, is setting up a new division for the manufacture of three new products that will complement her current line of business. Millie is currently
George Brown, a self-employed management consultant, had just settled down to work when he received a call from Ray Sharma, vice president of Software Corporation (SC), a software distributing and
Tom’s Outdoor Experience (TOE) is a sporting goods store owned by Tom Dennison. Tom handles limited product lines. Summer sales centre on bicycles, camping gear, and clothing for both activities.
Own the Podium 2010 (OTP) was an Olympic funding organization comprising Sport Canada, the Canadian Olympic Committee, the Canadian Paralympic Committee, and the Vancouver Organizing Committee
The DVD division (DVDD) of Micro Storage Inc. produces DVD drives for personal computers. The drives are assembled from purchased components. The costs (value) added by DVDD are indirect costs (which
The Speedy-Mart Store has the following budgeted sales, which are uniform throughout the month: Excel Spreadsheet Template May $450,000 June 375,000 July 330,000 August
Suppose you are the controller of Ryerson University. The university president is preparing for her annual fundraising campaign for 2010 2011. To set an appropriate target, she has asked you to
Grace Hospital provides a wide range of health services in its community. The board of directors has authorized the following capital expenditures: The expenditures are planned for October 1,
Jane Myers is the manager of an extremely successful gift shop, Jane’s Gifts, which is operated for the benefit of local charities. From the data below, she wants a cash budget showing expected
Consider the following information for the month ending June 30, 2012, for the Johnson Company: The cash balance, May 31, 2012, is $15,000. Sales proceeds are collected as follows: 80 percent
All sales of Dunn’s Building Supplies (DBS) are made on credit. Sales are billed twice monthly, on the 10th of the month for the last half of the prior month’s sales and on the 20th of the month
Mathew Philp, president of Ontario Mining Ltd., has made budgets a major focus for managers. Making budget was such an important goal that the only two managers who had missed their budgets in 2011
A recent directive from Eugenia Yu, CEO of Comtel, has instructed each department to cut its costs by 10 percent. The traditional functional budget for the shipping and receiving department was as
The Ritz-Carlton has four hotels and resorts in the Caribbean and Mexico. Suppose that for one of these hotels, management expects occupancy rates to be 95 percent in December, January, and February;
Prepare the estimated cash receipts and disbursements section of a cash budget (not including the financing section) for October 2011 for the Botanica Company, which sells one product, herbal soap,
The inventory of the Manchester Appliance Company was £200,000 on May 31. The manager was upset because the inventory was too high. She has adopted the following policies regarding merchandise
Renovation Lighting Supply plans inventory levels (at cost) at the end of each month as follows: May, $275,000; June, $220,000; July, $200,000; and August, $240,000. Sales are expected to be
Northwest Equipment offers a 2 percent discount to customers who pay cash at the time of sale and a 1 percent discount to customers who pay within the first 10 days of the month after sale. Past
A Kyoto clothing wholesaler was preparing its sales budget for the first quarter of 2012. Forecast sales are: January ¥200,000 February ¥220,000 March
Suppose a Zellers store has the following data: Accounts receivable, May 31: (0.3 × May sales of $350,000) = $105,000 Monthly forecast sales: June, $430,000; July, $440,000; August,
All sales of Jenny’s Jeans and Uniforms (JJU) are made on credit. Sales are billed twice monthly, on the 5th of the month for the last half of the prior month’s sales and on the 20th of the month
Ronco Products, a wholesaler of fishing equipment, budgeted the following sales for the indicated months: All merchandise is marked up to sell at its invoice cost plus 25 percent. Target
Enter the word or phrase that best completes each sentence. 1. The financial budget process includes the following budgets: a.___________________b.___________________c.___________________2.
What are financial planning models?
What factors influence the sales forecast?
Differentiate between a sales forecast and a sales budget.
What is the principal objective of a cash budget?
Explain the relationship between the sales (or service) forecast and cost-driver activity.
"Budgeting is an unnecessary burden on many managers. It takes time away from important day-to-day problems." Do you agree? Explain.
"Pro forma statements are those statements prepared in conjunction with continuous budgets." Do you agree? Explain.
“Capital budgets are plans for managing long-term debt and common shares. Do you agree? Explain.
“Budgets are primarily a tool used to limit expenditures." Do you agree? Explain.
Is budgeting used primarily for scorekeeping, attention directing, or problem solving?
Wallaby Kite Company, a small Melbourne firm that sells kites on the Web, wants a master budget for the three months beginning January 1, 2012. It desires an ending minimum cash balance of $20,000
You are the new manager of the Rapidbuy Electronics store in West Edmonton Mall. Top management of Rapidbuy Electronics is convinced that management training should include the active participation
Calgary Pipefitters Ltd. (CPL) is considering the purchase of a new fabricating machine for $40,000. The new machine will replace an old machine that has a book value of $10,000 but can be sold for
In November 2006 Charles Bird, President of Bird Packaging Co. in Guelph, Ontario, was trying to decide whether the company should purchase a new scoringprinting machine. The attraction of the new
Desteur Plastics Limited (DPL) manufactures a wide range of household plastic products for kitchens and bathrooms. The company’s products are sold primarily to large retailers, including department
Tube and Pipe Ltd. (T&P) was founded in the early 1970s and its sales grew very rapidly until the beginning of the 1980s. At that time, several competitors expanded their operations and sales by
Steve Hammer started his contracting business, Hammer Contractors (HC), six years ago and now owns three machines: a bulldozer, an excavator, and a front-end loader. His business is primarily
Ydeeps Limited was incorporated under the Ontario Business Corporations Act four months ago. The owner of Ydeeps, Mr. M. Sadim, incorporated the company because he believed that he would be investing
Refer to the preceding problem, E7-12. Using FIFO, answer the same questions.Data From Exercises 12Earthtones Paint Company uses a process-cost system. Materials are added at the beginning of a
Earthtones Paint Company uses a process-cost system. Materials are added at the beginning of a particular process, and conversion costs are incurred uniformly. Work-in-process at the beginning of the
Position Company manufactures an automotive GPS product. The manufacturing costs of the Assembly Department were:For simplicity, assume that this is a two-department company— assembly and
Consider the following data for 2010:
Fill in the unknowns:* Degree of completion: direct materials, 80%; conversion costs, 40%.† Degree of completion: direct materials, 40%; conversion costs, 10%. (Step 2) Equivalent Units (Step 1)
The production department of Garcia Paints Inc. had the following flow of litres of latex paint for the month of April:Litres completed:From work-in-process on April
Roxbury Clinic has been under pressure to keep costs down. The clinic administrator has been managing various revenue-producing centers to maximize contributions to the recovery of the operating
Suppose the Norlo Canadian Pacific Railway is considering replacement of a power jack tamper, used for maintenance of track, with a new automatic raising device that can be attached to a production
Assume that new equipment will cost $100,000 in cash and that the old machine cost $84,000 and can be sold now for $16,000 cash. Annual cash savings of $15,000 are expected for 10 years. 1.
Study Exhibit 10-2. Suppose the annual cash inflow will be $2,500 rather than $2,000. What is the internal rate of return? Exhibit 10-2 Oniginal investment, $6,075. Useful lif,for yar. Anual csh
Fill in the blanks. Number of Years 28 18 $ 7,000 Amount of annual cash inflow* $10,000 $ $ 80,000 Required initial investment $29,099 Internal rate of return 18% 16% Minimum desired rate of return
Sally’s Subs is considering a proposal to invest in a speaker system that would allow its employees to service drive-through customers. The cost of the system (including installation of special
Suppose the Thunder Bay Parks Department is considering the purchase of a new, more efficient pool heater for its Moorcroft Swimming Pool at a cost of $15,000. It should save $3,000 in cash operating
De Luca Company is considering two possible investments, each of which requires an initial investment of $12,000. Investment A will provide a cash flow of $3,000 at the end of each year for 4 years.
Zielinsky Company has an opportunity to invest $5,000 in a new automated lathe that will reduce annual operating costs by $1,000 per year and will have an economic life of seven years. 1.
The Halifax Office Equipment Company has offered to sell some new packaging equipment to the Bernard Company. The list price is $36,000, but Halifax has agreed to allow a trade-in allowance of
Fill in the blanks. Number of Years 18 20 28 Amount of annual cash $ 9,000 $ 8,000 $12,000 $ inflow* $80,000 $65,000 $27,000 Required initial investment $ Minimum desired rate of 14% 20% 25%
Banerjee Company expects to receive $200 at the end of each of the next five years and an additional $1,000 at the end of the fifth year. Therefore, the total payments will be $2,000. What is the NPV
1. Suppose you borrow $100,000 now at 12 percent interest, compounded annually. You will repay the borrowed amount plus interest in a lump sum at the end of eight years. How much must you repay? Use
Suppose Honda Canada wishes to borrow money from BMO. They agree on an annual rate of 10 percent. 1. Suppose Honda agrees to repay $500 million at the end of four years. How much will BMO lend
Chinn Wong wishes to purchase a $600,000 house. She has accumulated a $120,000 down payment, but she wishes to borrow $480,000 on a 30-year mortgage. For simplicity, assume annual mortgage payments
Name three ways to recognize risk in capital budgeting.
“We can’t use sensitivity analysis because our cash-flow predictions are too inaccurate." Comment.
Capital investments are always more profitable in inflationary times because the cash inflows from operations generally increase with inflation. Comment on this statement.
How much CCA is taken in the first year if a $10,000 asset is depreciated on a 20 percent declining-balance schedule? How much in the second year?
What are the major influences on the present value of a tax deduction?
Distinguish between average and marginal tax rates
What is the basic flaw in the payback model?
"The higher the interest rate, the less I worry about errors in predicting terminal values." Do you agree? Explain.
Why should the differential approach to alternatives always lead to the same decision as the total project approach?
"Not-for-profit organizations do not use DCF because their cost of capital is zero." Do you agree? Explain.
"The higher the minimum rate of return desired, the higher the price that a company will be willing to pay for cost-saving equipment." Do you agree? Explain.
Can net present value ever be negative? Why?
Why is discounted cash flow a superior method for capital budgeting?
The president of E-Games, an online gaming company, is considering the purchase of some equipment used for the development of new games. The cost is $400,000 and the economic life is five years.
A manager of Olympic Mutual Funds is contemplating acquiring servers to operate its Web site. The servers will cost $660,000 cash and will have zero terminal salvage value. The useful life will be
Panadagan Vacuums Limited (PVL) is a worldwide leader in the manufacturing of industrial vacuums. The company is located in Thorold, Ontario. PVL sells vacuums to distributors in North America,
Maxim Auto Parts Ltd. has operated three automobile parts manufacturing plants in Ontario for many years. Two produce engine parts, and the third makes seats (“the seat division”). In recent
“I will give you my decision in about a week,” said Georges Villedary, director-general of the Le Centre Sheraton, Montreal, as he put down the phone and looked pensively at the letter before
JOB, PROCESS, AND HYBRID COSTING Form groups of three to six students. For each of the following production processes, assess whether a job-cost, process-cost, or hybrid cost system is most likely to
Sonor Instruments Co. uses three operations in sequence to make two models of its depth finders for sport fishing. Consider the following:1. Operation 2 was highly automated. Product costs depended
Oak Furniture Co. manufactures a variety of wooden chairs. The company’s manufacturing operations and costs applied to products for June wereThree styles of chairs were produced in June. The
A Birmingham, UK, company manufactures and sells digital voice recorders. Business is booming. Various materials are added at various stages in the assembly department. Costs are accounted for on a
The following data pertain to the Blending Department at Fasten Chemicals for April:Units:Work-in-process, March 31

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