Questions and Answers of Management Accounting

Yoha Petroleum Ltd has evaluated an investment proposal to manufacture a petroleum product. After evaluation, the company has decided to buy equipment to help manufacture this product. The initial
How can the payback method be useful to the manager?
Notren Solutions is a retail company. In recent years, the company has received orders from its neighbouring cities. The company’s transport fleet does not currently have the capacity to handle the
Mutrine Solutions Ltd is a food-processing company. Mutrine is planning to invest in freezer rooms. The initial investment required in this setup is £1,500,000. The annual revenue from this freezer
Dazzle Builders is considering an opportunity to set up a block of flats close to its corporate office. It is evaluating the following two options:Option 1: Buy a plot, construct a block of flats on
During a board meeting, the management of Oxiflite Networks Ltd assesses various risks and uncertainties involved in its capital investments for the current year. Because of high volatility in the
Wemake Machinery Ltd is evaluating the profitability of buying one of three machines. The machinery industry is currently unstable, and there is stiff competition within the industry. One poor
Nobic Enterprises has received a special order from an esteemed client. The company needs Machine C to fulfil the order. The company has the option to either purchase the machine or lease it from one
Top-Quality Stores Ltd owns a nationwide chain of supermarkets. The company is going to open another store soon, and a suitable building site has been located in an attractive and rapidly growing
Flexiplite Technologies Ltd has been doing extremely well in terms of revenue in its domestic market and is now considering setting up a manufacturing unit outside the country. The technology
Given below are actual costs of Rubik Corporation, a plastic bottle manufacturing company, for the first quarter of the current year. Rubik Corporation sells its bottles in packs of 24.Given below is
Lexiplex Switches Corporation is a low-tension switch manufacturing company. Lexiplex manufactures rotary switches, micro switches and toggle switches. Lexiplex produces and sells the switches in
Kranberry Networks Ltd had implemented a standard costing system to aid it in assessing the performance of its operations. In the first quarter of the current year, the company had the following
Creamy Mist Ltd is an ice cream parlour. It started operations two years ago. Creamy Mist prepares its ice creams by combining two or three flavours and its secret milk sauce. Creamy Mist's parlour
Refer to the data in Exercise 13.1. Lavage Rapide’s owner-manager would like to prepare a budget for August assuming an activity level of 8,800 cars.RequiredPrepare a static budget for August. Use
Refer to the data in Exercise 13.1. Lavage Rapide’s actual level of activity during August was 8,900 cars, although the owner had constructed his static budget for the month assuming the level of
The cost formulas for Emory Company’s manufacturing overhead costs are given below. These cost formulas cover a relevant range of 15,000 to 25,000 machine-hours each year.RequiredPrepare a flexible
The variable portion of Murray Company’s flexible budget for manufacturing overhead is given below:The budgeted activity for the period had been 12,000 machine-hours.Required1. Prepare a variable
Operating at a normal level of 30,000 direct labour-hours, Lasser Company produces 10,000 units of product each period. The direct labour wage rate is £6 per hour. Two-and-a-half metres of direct
Norwall Company’s flexible budget for manufacturing overhead (in condensed form) is given below:The following information is available for a recent period:1. A denominator activity of 60,000
Several years ago, Westmont Company developed a comprehensive budgeting system for profit planning and control purposes. The line supervisors have been very happy with the system and with the reports
Why might sensitivity analysis be a useful technique in a linear programming problem?
Which point defines the optimal output in a linear programming problem?
Under what circumstances is linear programming appropriate for the analysis of decision making under constraints?
What are six ways of relaxing a constraint?
The book value of a machine (as shown on the balance sheet) is an asset to a company, but this same book value is irrelevant in decision making. Explain why this is so.
Why is ABC particularly suitable for managing costs in service industries?
Distinguish between departments arranged in a sequential pattern and departments arranged in a parallel pattern.
Give examples of companies that might use operation costing.
On the cost reconciliation part of the production report, the weighted-average method treats all units transferred out in the same way. How does this differ from the FIFO method of handling units
Listed below are a number of activities that you have observed at Vapo Ingman Oy, a Finnish manufacturing company. The company makes a variety of products at its plant outside Helsinki.(a) Machine
What are unit-level, batch-level, product-level, customer-level and organization-sustaining activities?
Bofors AB is a Swedish company that incurs the following costs to produce and sell a single product. During the last year, 30,000 units were produced and 25,000 units were sold. The Finished Goods
Xico Ltd produces and sells bricks. The manager of the company wants to assess the profitability of the company and he asked the accountant to prepare the profit and loss statement based on
Folegandros Ltd produces and sells souvenirs for all Greek islands. The costing information from the last three years is as follows:Required1. Calculate the cost per unit under variable costing and
How does the use of JIT inventory methods reduce or eliminate the difference in reported profitbetween absorption and variable costing?
‘That commercial market has been dragging us down for years,’ complained Shanna Reynolds, managing director of Morley Products. ‘Just look at that anaemic profit figure for the commercial
The statement of profit or loss for Huerra Company for last year is given below:The company had average operating assets of £2,000,000 during the year.Required1. Compute the company’s ROI for the
Raddington Industries produces tool and die machinery for manufacturers. The company expanded vertically several years ago by acquiring Reigis Steel Company, one of its suppliers of alloy steel
‘At last, I can see some light at the end of the tunnel,’ said Steve Adams, managing director of Jelco Products. ‘Our losses have shrunk from over £75,000 a month at the beginning of the year
Harrison and Son Ltd is a small company that produces snowboarding equipment. The company makes three products, A, B and C, but they have decided to discontinue product C because of low market
A group of university students set up a new society for students interested in all things accounting. It was an nprecedented success, and the University Business School saw an opportunity to involve
Listed below are a number of activities that you have observed at Ming Company, a manufacturing company. Each activity has been classified as a unit-level, batch-level, product-level or
You have a client who operates a large upmarket grocery store that has a full range of departments. The management has encountered difficulty in using accounting data as a basis for decisions as to
FysiQ is a chain of fitness centres in South Africa. The managers of the centres, who have authority to make investments as needed, are evaluated based largely on return on investment (ROI). One of
How does the contribution approach assign costs to segments of an organization?
Financial data for Joel de Paris plc for last year follow:The company paid dividends of £15,000 last year. The ‘Investment in Buisson’ on the balance sheet represents an investment in the shares
A business whose investors require a return on investment of 8% reports an income of $1 million on an investment of $20 million. What is the residual income for this business?
A store is divided into four departments: automotive products, home products, paint, and lumber. How would you assign the building costs, such as depreciation, to each of these departments?
Give an example of a responsibility center that is properly treated as a cost center.
What control problem does decentralization create in organizations?
How is residual income computed?
How does productivity (the ratio of sales to investment) affect return on investment?
How does efficiency (the ratio of income to sales) affect return on investment?
How does efficiency (the ratio of income to sales) affect return on investment?
What is return on investment?
What are the four bases for setting a transfer price?
What is an investment center?
When do organizations use profit centers?
What is a cost center?
What does control mean in a decentralized organization?
Judd’s Reproductions makes reproductions of antique tables and chairs and sells them through three sales outlets. The product line consists of two styles of chairs, two styles of tables, and three
Budgeting allows an organization to compare its projected operating and financial results with those of competitors as a general test of the efficiency of the organization’s operating processes.
You are willing to donate to worthy organizations. However, you believe strongly that each request for a donation should be evaluated on the basis of its own merits. You would not feel bad in any
You are planning your expenditures for the upcoming school semester. You assume that this year’s expenditures will equal last year’s plus 2%. What approach to budgeting are you using?
What is a periodic budget?
What is an example of a capacity-related expenditure?
What does a capital spending plan do?
A student develops a spending plan for a school semester. Is this budgeting? Why?
What is the difference between flexible and capacity-related resources?
Frits Seegers, President of Citibank California, was meeting with his management team to review the performance evaluation and bonus decisions for the California branch managers. James McGaran’s
What distinguishes data falsification from gaming activities?
What is gain sharing?
What is a cash bonus?
What is incentive compensation?
What is an extrinsic reward?
What is an intrinsic reward?
What is a stretch target?
What is the most motivating type of budget with respect to targets?
What is data falsification?
What is meant by gaming a performance indicator?
What two broad technical considerations must designers of management and control systems address?
Mercedes-Benz All Activity Vehicle (AAV)*IntroductionDuring the recession beginning in the early 1990s, Mercedes-Benz (MB) struggled with product development, cost efficiency, material purchasing,
Refer to Exhibit 8-14 regarding Greyson Technology’s launch of a new digital communications device. Suppose that Greyson reduced the quarterly spending on product development in panel A, which
What is the profitability measure most widely used to develop the target profit margin under target costing?
In which stage of the total life cycle of a product is target costing most applicable?
Precision Systems, Inc. (PSI)*Precision Systems, Inc. (PSI) has been in business for more than 40 years and has generally reported a positive net income. The company manufactures and sells
Some firms in the fashion industry have adopted lean or just-in-time approaches to maintain or increase their competitive advantage. Read the following articles or other resources to address the
Kaizen costing is a method that many Japanese companies have found effective in reducing costs.
Under what condition will the cost savings due to kaizen costing not be applied to production?
According to the kaizen costing approach, who has the best knowledge to reduce costs? Why is this so?
Read “Everyone Likes to Laud Serving the Customer; Doing It Is the Problem,” by Carol Hymowitz (Wall Street Journal, February 27, 2006, p. B1).Required (a) According to the article, what
What is the additional cost if a unit rejected at inspection can be reworked to meet quality standards by performing some additional operations?
What is a benchmarking (performance) gap?
What are the two general methods of information gathering and sharing when undertaking a benchmarking exercise?
What stage of the benchmarking process is the most important for benchmarking management accounting methods? Why?
Why is it said that a kaizen costing system operates “outside the standard costing system”?
When is a cost variance investigation undertaken under kaizen costing?
What is kaizen costing?
Why are production cycle time and the level of work-in-process inventory positively related?

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