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business
management accounting

Management Accounting 3rd Edition Anthony A. Atkinson, Robert S. Kaplan, S. Mark Young, Rajiv D. Banker, Pajiv D. Banker - Solutions

Controllability and motivation Give an example of a situation when invok¬ ing the controllability principle would have a desirable motivational effect and an example of a situation when suspending the controllability principle would have a desirable motivational effect.(LO 1)
Domestic and international transfer pricing Organizations might desire to use one transfer pricing system designed to support international transfer pric¬ ing and another domestic transfer pricing system designed to achieve motiva¬ tional objectives. Give a reason why you think that organizations
Choosing transfer prices How might a transfer price be chosen for logs in an organization that cuts down trees and processes the logs in a sawmill to make lumber or in a pulp mill to make paper?(LO 1)
Choosing transfer prices In a fishing products company, the harvesting divi¬ sion catches and delivers the fish to the processing division that, in turn, deliv¬ ers the processed fish to the selling division to sell to customers. How can you determine the appropriate transfer price between
Using market-based transfer prices What is the main advantage and the main obstacle in using market-based transfer prices?(LO 1)
Soft numbers Why did accountants develop the expression "soft number"?(LO 1)
Allocating costs A store is divided into four departments: automotive prod¬ ucts, home products, paint, and lumber. How would you assign the building costs such as depreciation to each of these departments?(LO 1)
Return on investment A business reports an income of $1 million. How would you compute the return on investment for this business?(LO 1)
Characteristic financial ratios All organizations face a requirement to earn at least a minimum-level return on investment. Some businesses rely on high ratios of income to sales; other businesses rely on high ratios of sales to in¬ vestment. Give an example of each of these types of businesses
Productivity ratio Give an example of why using units rather than the value of the products produced in the numerator of a productivity ratio may give a misleading picture of the process that produced that output.(LO 1)
Computing economic value added A business whose investors require a re¬ turn on investment of 8% after taxes reports an after-tax income of $1 million on an investment of $20 million. What is the economic value added for this business?(LO 1)
Economic value added in a multiproduct company Based on an analysis of operations, a company making sporting goods has determined that the income provided by its golf, ski, tennis, and football product lines are $3 5 million, $7.8 million, $2.6 million, and $1.7 million, respectively. The
Single ratio values Give an example of why looking at a single value of a fi¬ nancial ratio may give either a misleading or a meaningless result.(LO 1)
Variance analysis The Sudbury, South Carolina, plant of Saldanha Sports Company has the following standards for its soccer ball production.REQUIRED Determine the following variances for October:(a) Total direct material cost variance (b) Total direct labor cost variance (c) Total flexible support
Variance analysis The Milwaukee, Wisconsin, plant of Englehart Electronics Company has the following standards for component C93:REQUIRED Determine the following variances for May:(a) Total direct material cost variance (b) Total direct labor cost variance (c) Total flexible support cost variance
Standard versus actual costs For each of the following two jobs manufactur¬ing two different products, determine the missing amounts for items (a) through (h).(LO 1) ITEM Units produced JOB 321 JOB 322 200 (e) Standards per unit Material quantity 5 lb (f) Material price Labor hours $2 per lb $3
Computing flexible budget variables For Moncton Carpet Products, analyze the flexible budget variances for products 2, 3, and 4 using an analysis similar to that used for product 1 in the text on pages 524-526.(LO 1)
Variances and motivation Discuss the possible effect on human behavior of a preoccupation with variances in financial control.(LO 1)
Choosing responsibility center type For each of the following units, identify whether the most appropriate responsibility center form is a cost center, a profit center, or an investment center and why you have made that choice.(a) A laboratory in a hospital(b) A restaurant in a department store(c)
Allocating common costs to cost centers You have decided to divide a fac¬tory into cost centers. How would you allocate depreciation expense on the factory building to its individual cost centers?LO 5
Implementing the controllability principle One of the most widely accepted and longest held beliefs is the controllability principle, which says that organi¬ zation units and people should be held accountable only for things that they can control. 1 REQUIRED(a) For any job you choose, give one
Segment margins Information on Aragon Company's three product lines is LOS provided below.REQUIRED Construct a segment margin statement for Aragon Company. Use the segment margin statement to explain why the segment margins reported for an organi¬ zation unit must be interpreted carefully.(LO 1)
Transfer prices and division autonomy You are a government controller. A LO 6 division manager being audited objects to the transfer price he is being charged by the audit group for the audit services. The manager observes, "If I have to pay for these services, I should be allowed to buy them from
Transfer pricing and outside opportunities Deseronto Electronics manufac- LQ 6 tures motherboards for computers. The company is divided into two divi¬ sions—-manufacturing and programming. The manufacturing division makes the board and the programming division makes the adjustments required to
Return on investment and economic value added The Newburg Flyers oper¬ate a major sports franchise from a building in downtown Newburg. The build¬ ing was built in 1940 at a cost of $5,000,000 and is fully depreciated so that it is shown on the company's balance sheet at a nominal value of $1.
Problems in computing economic value added A bank is thinking of using economic value added analysis to identify services that require improvement or elimination. What problems may the bank have in computing the eco¬ nomic value added of any of the services that it offers to its customers?(LO 1)
Evaluating the potential of economic value added The owner of a chain of fast-food restaurants has decided to use economic value added to evaluate the performance of the managers of each of the restaurants. What do you think of this idea?(LO 1)
Using economic value added As a result of an economic value added analy¬ sis, the owner of a company that makes and installs swimming pools has de¬ cided to shut down the manufacturing operations which show a negative economic value added for the current year. Is this necessarily the proper re¬
Conflicting organization and individual objectives Strathcona Paper rewards its managers based on the return on investment of the assets that they man- age—the higher the reported return on investment, the higher the reward. The company uses net book value to value the assets employed in the
Strategy and control Many people believe that in a successful organization LO 1, 3, 4, 8 the focus of control reflects the strategic initiatives in the organization. For each of the following organizations, identify what you think are the three most important items assessed by the organization's
Variance analysis; material, and labor Trieste Toy Company manufactures LO 1 only one product, called Robot Ranger. The company uses a standard cost system and has established the following standards per unit of Robot Ranger.During November, the following activity was recorded by the company for
Variance analysis, hospital (Adapted from CMA, June 1989) Mountain View Hospital has adopted a standard cost accounting system for evaluation and control of nursing labor. Diagnosis related groups (DRGs), instituted by the U.S. government for health insurance reimbursement, are used as the output
Variance analysis Asahi USA, Inc. is a Denver, Colorado, based subsidiary LO 1 of a Japanese company manufacturing specialty tools. Asahi USA employs a standard cost system. Presented below are standards per unit of one of its products, tool KJ79. This tool requires as direct materials a special
Organic and mechanistic organizations Researchers have defined two ex- LO 2, 5 treme forms of organizations. Organic organizations are highly decentralized with few rules. Most people agree that software development companies are very organic. Mechanistic organizations are highly centralized and
Group and individual conflict Think of an example of an organization where it is important that the various functional areas be closely coordinated to promote the organization's overall success. Show how performance mea¬ sures that focus solely on the performance of an individual unit could create
Coordinating divisional activities For many years, automobile companies have been highly decentralized in terms of functions. The most obvious effect of this heavy decentralization of function is apparent when all the groups must work together to accomplish a goal. The highest order of integration
Choices in financial control Bennington Home Products sells home prod¬ucts. It buys products for resale from suppliers all over the world. The products are organized into groups. A few examples of these groups are floor care prod¬ ucts, kitchen products, tool products, and paper products. The
Assigning responsibility for uncontrollable events Some people and organi- LO 5 zations believe that the discussion of controllable and uncontrollable events is distracting in the sense that it encourages finger pointing and an excessive preoccupation with assigning blame. These observers argue
New product opportunities and transfer pricing Plevna Manufacturing LO 6 makes and distributes small prefabricated homes in kits. The kits contain all the pieces needed to assemble the home—all that is required is that the builder erect the home on a foundation.Plevna Manufacturing is organized
General Motors and economic value added Since the firm of Stern Stewart LO 7 & Co. began ranking firms based on market value added, General Motors has generally been at, or near, the bottom of the list. Undertake an investigation to determine the circumstances that led to this ranking and whether
Decision making with return on investment You are the controller of a chain of dry-cleaning establishments. You are computing the return on invest¬ ment for each outlet.Outlet A, located in a city core, reported a net profit of $130,000. The land on which Outlet A is located was essentially rural
Market value added, economic value added, and net income If you look through Fortune, you will find articles that rank organizations by market value added and economic value added. Find one such article and identify three firms: the one with the highest economic value added, the one with the high¬
Variance and cost analysis Peterborough Food produces a wide range of breakfast cereal foods. Its granola products are two of its most important prod¬ uct lines.Because of the complexity of the granola production process, the manu¬ facturing area in the plant that makes these two product lines is
Choosing an organization structure You are a senior manager responsible for overall company operations in a large courier company. Your company has 106 regional offices (terminals) scattered around the country and a mainoffice (hub) located in the geographical center of the country. Your operations
Computing objectives and organization responsibility Baden is a city with a LO 2, 3, 4, population of 450,000. It has a distinct organization group, called the Public 5, 8 Utilities Commission of the City of Baden (called the Baden PUC), whose re¬ sponsibility is to provide the water and
"Prices must cover both variable and fixed costs of production." Do you agree with this statement? Explain. (LO 2, 3)
Why is the evaluation of short-term pricing and product mix decisions different from the evalu¬ ation of long-term pricing and product mix de¬ cisions? (LO 1, 2, 3, 4)
What distinguishes a commodity-type business from other businesses? (LO 1)
What two considerations complicate short-term product mix decisions? (LO 1, 2)
What firms are likely to behave as price-taker firms? (LO 1, 4)
What firms are likely to behave as price-setter firms? (LO 2, 3)
"When production capacity is constrained, de¬ termine what products to make by ranking them in order of their contribution per unit." Do you agree with this statement? Explain. (LO 1)
"When production capacity is limited and it is possible to obtain additional customer orders, then a firm must consider its opportunity costs to evaluate the profitability of these new orders." Do you agree with this statement? What are the opportunity costs in this context? (LO 1, 2)
What additional costs should a firm consider when making a short-term pricing decision when surplus production capacity is not avail¬ able and it must employ overtime, extra shifts, subcontracting, or other means to augment the limited capacity? (LO 1, 2)
Should a firm consider business-sustaining costs in making a short-run pricing decision? Give two examples to illustrate your answer.(LO 1,2)
Describe three situations in which there is eco¬ nomic justification for using full costs for pric¬ ing decisions. (LO 3)
How do price markups over costs relate to the strength of demand, the elasticity of demand, and the intensity of competition? (LO 3)
Why do short-run prices fluctuate over time?(LO 1, 2)
What strategic reasons may influence the level of markups? (LO 3)
What options should firms consider when long- run market prices are below full costs? (LO 3, 4)
Why is full-cost information useful for long-run product mix decisions? (LO 3, 4)
Special order pricing Healthy Hearth specializes in lunches for the health con¬scious. The company produces a small selection of lunch offerings each day. The menu selections may vary from day to day, but Healthy Hearth charges the same price per menu selection because it adjusts the portion sizes
Special order pricing Shorewood Shoes Company makes and sells a variety of leather shoes for children. For its current mix of different models and sizes, the average selling price and costs per pair of shoes are as follows:Shoes are manufactured in batch sizes of 100 pairs. Each batch requires five
Shelf mix decision Superstore is a large discount supermarket. Profits have de¬ clined, so the manager has collected data on revenues and costs for different food categories. The data below pertain to some of the frozen foods that Super¬ store sells. To facilitate comparisons, the manager has
Product mix decision Boyd Wood Company makes a regular and a deluxe grade of wood floors. Regular grade is sold at $16 per square yard, and the deluxe grade is sold at $25 per square yard. The variable cost of making the regular grade is $10 per square yard. It costs an extra $5 per square yard to
Export order Berry Company produces and sells 30,000 cases of fruit preserves each year. The following information reflects a breakdown of its costs:Berry marks up its prices 40% over full costs. It has surplus capacity to pro¬ duce 15,000 more cases. A French supermarket company has offered to
Extra shift decision The manufacturing capacity of Ritter Rotator Company's plant facility is 60,000 rotators per quarter. Operating results for the first quarter of 2000 are as follows:A foreign distributor has offered to buy 30,000 units at $9 per unit during the second quarter of 2000. Domestic
Pricing with elastic demand Sunny Valley Orchards is reevaluating the pricing LO 3 of its fresh-squeezed orange juice in half-gallon containers. Variable costs per half-gallon container of fresh-squeezed orange juice are $1.50. Based on Sunny Valley's market study, the management has determined
Pricing and impact on demand Columbia Bicycle Company manufactures and sells 12 different models of bicycles. Columbia is contemplating a 5% price cut across the board for all 12 models. It expects the price cut to result in an 8% in¬ crease in the number of units sold of models Ml24, Ml26, Ml28,
Pricing and impact on demand Andrea Kimball has recently acquired a fran¬ chise of a well-known fast-food and restaurant chain. She is considering a spe¬ cial promotion for a week during which there would be a $0.40 reduction in hamburger prices from the regular price of $1.09 to $0.69. Local
Appendix Carver Company has a demand function given by this equation:(LO 2, 3) where: Q = 400 (5 x P) - P = price Q quantity produced and sold Carver Company's cost function is given by this equation: C = 2000+ (20 Q) Determine the optimal price and the corresponding demand quantity and prod- uct
Product mix and overtime decisions Excel Corporation manufactures three L0 1,2 products at its plant. The plant capacity is limited to 120,000 machine hours per year on a single-shift basis. Direct material and direct labor costs are variable.The following data are available for planning
Capacity and pricing decision Hudson Hydronics, Inc. is a corporation based LO 1, 2 in Troy, New York, that sells high-quality hydronic control devices. It manufac¬ tures two products, HCD1 and HCD2, for which the following information is available:The average wage rate including fringe benefits
Activity-based costing and markup pricing Based on its 1999 activity, the Moose Jaw Manufacturing Company estimates the following manufacturing sup¬ port costs for 2000 for its plant in Moose Jaw, Saskatchewan.REQUIRED (a) Determine the product costs using an activity-based costing system.(b) If
Capacity and product mix decision Barney Toy Company manufactures large LO 1, 2 and small stuffed animals. It has a long-term contract with a large chain of dis¬ count stores to sell 3000 large and 6000 small stuffed animals each month. The following cost information is available for large and
Capacity and product mix decision Chang Company makes two types of L0 1,2 wood doors: standard and deluxe. The doors are manufactured in a plant con¬ sisting of three departments: cutting, assembly, and finishing. Both labor and machine time are spent on the two products as they are worked on in
Client mix decision Loren Lee, a financial planner, contacts and meets with °ca individuals to assist with financial planning and investments in Loren's employer's investment services company. Loren receives no fee for financial planning advice, but receives a commission on client investments in
Short-term pricing True Image Printers, Inc. is a corporation based in Oberlin, Ohio, that sells high-quality printers in the Midwest regional market. It manufactures two products, L8011 and L8033, for which the following information is available:The average wage rate including fringe benefits is
Bid price (Adapted from CMA, June 1991) Marcus Fibers, Inc. specializes in the manufacture of synthetic fibers that the company uses in many products such as blankets, coats, and uniforms for police and firefighters. Marcus has been in business since 1975 and has been profitable each year since
Product mix and overtime decisions Refer to the data for Crimson Components LO 1, 2 Company presented in Problem 5-42. The following additional information is available:■ The company believes that it cannot change its selling prices.■ All manufacturing support costs described in Problem 5-42
Product mix and special order decisions Orion Outdoors Company produces a standard model and a high-quality deluxe model of lightweight tents. Orion's workforce is organized into production teams responsible for cutting, stitching, and inspection activities. Orion has determined that its labor and
Appendix Colway Company estimates the relation between the demand for its LO 3 products and the price it sets, in terms of this equation where:The marketing manager, Trisha Colway, conducted a market research study in fall 1999 that indicated that b = 500 and a = 8400 on average for the first
Special order pricing (Adapted from CMA, December 1988) The Sommers Company, located in southern Wisconsin, manufactures a variety of industrial valves and pipe fittings that are sold to customers in nearby states. Currently, the company is operating at about 70% capacity and is earning a
Product mix decisions (Adapted from CMA, December 1991) Bakker Industries sells three products (products 611, 613, and 615) that it manufactures in a fac¬ tory consisting of four departments (departments 1 through 4). Both labor and machine time are applied to the products in each of the four
Product m,x decision (Adapted from CMA, June 1990) Sportway, Inc is a wholesale distributor supplying a wide range of moderately priced sporting equipment to large chain stores. About 60% of Sportway's products are pur chased from other companies while the remainder of the products are manufac¬
Process or sell decision The Troy Company manufactures electronic subcompo¬ nents that can be sold at the end of process A or can be processed further in process B and sold as special parts for a variety of electronic appliances. The en¬ tire output of process A can be sold at a market price of
Product mix decision Aramis Aromatics Company produces and sells its product AA100 to well-known cosmetics companies for $940 per ton. The marketing manager is considering the possibility of refining AA100 further into finer perfumes before selling them to the cosmetics companies. Product AA101 is
Pricing decision Refer to the data for Sweditrak Corporation presented in LO 4 Case 5-47. The following additional information is now available.The production volume budgeted for each product in weeks 47 to 52 is the same as the volume level in week 46. In early December, the company is considering
Pricing experiment This is a pricing experiment in which you will work with a team using cost accounting information in pricing decisions. Each team rep¬ resents one firm in a market. Each market is completely independent of other markets. Your market has four firms that use similar production
recognize the nature and importance of long-term (capital) assets LO1
understand why organizations control long-lived assets and short-term assets differently LO1
use the basic tools and concepts of financial analysis: investment, return on investment, future value, present value, annuities, and required rate of return LO1
use capital budgeting to evaluate investment proposals and recognize how the concepts of payback, accounting rate of return, net present value, internal rate of return, and economic value added relate to capital budgeting LO1
evaluate the effect of income taxes on investment decisions and show how to incorporate tax considerations in capital budgeting LO1
use what-if and sensitivity analyses in capital budgeting LO1
recognize how to include strategic considerations in capital budgeting LO1
use post-implementation audits in capital budgeting LO1
What is the defining feature of a long-term, or capital, asset? (LO 1)
What is capital budgeting? (LO 2)
What are the attributes of long-term assets? Why do organizations use capital budgeting to evalu¬ ate the acquisition of long-term assets? (LO 1)

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