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management cost accounting
Management and Cost Accounting 10th edition Colin Drury - Solutions
Flosun plc makes and sells a range of products. Management has carried out an analysis of the total cost of production. The information in Appendix 3.1 reflects this analysis of budgeted costs for the six-month period to 30 June. The analysis has identified that the factory is organized in order to
The Drinks Group (DG) has been created over the last three years by merging three medium sized family businesses. These businesses are all involved in making fruit drinks. Fizzy (F) makes and bottles healthy, fruit-based sparkling drinks. Still (S) makes and bottles fruit-flavoured non-sparkling
Designit is a small company providing design consultancy to a limited number of large clients. The business is mature and fairly stable year on year. It has 30 employees and is privately owned by its founder. Designit prepares an annual fixed budget. The company’s accounts department consists of
What are the limitations of participation in the budget process?
Describe the factors influencing the effectiveness of participation in the budget process.
Distinguish between participation and top-down budget setting.
Describe the effect of the level of budget difficulty on motivation and performance.
What is meant by the term ‘aspiration level’?
What are flexible budgets? Why are they preferred to fixed (static budgets)?
What is the ‘controllability principle’? Describe the different ways in which the principle can be applied.
What factors must be taken into account when operating a responsibility accounting system?
Explain what is meant by the term ‘responsibility accounting’.
Distinguish between ‘controls’ and ‘control’.
Describe the four different types of responsibility centre.
Explain the circumstances in which it is appropriate or inappropriate to use personnel/cultural, behavioural/action and results/output controls.
Describe some of the harmful side-effects that can occur with output/results controls.
Distinguish between feedback and feed-forward controls. Provide an example of each type of control.
Describe the different stages that are involved with output/results controls.
Provide examples of behavioural, action, social, personnel and cultural controls.
Identify and describe three different types of control mechanism used by companies.
Some commentators argue that: ‘With continuing pressure to control costs and maintain efficiency, the time has come for all public sector organization to embrace zero-based budgeting. There is no longer a place for incremental budgeting in any organization, particularly public sector ones, where
The modern dynamic business environment has been described as a ‘buyer’s market’ in which companies must react to the rapidly changing characteristics of the market and the needs of customers. Many managers have criticized traditional forms of budgeting for being too restrictive and for being
Newtown School?s head teacher has prepared the budget for the year ending 31 May. The government pays the school $1050 for each child registered at the beginning of the school year, which is June 1, and $900 for any child joining the school part-way through the year. The school does not have to
CH is a building supplies company that sells products to trade and private customers. Budget data for each of the six months to March are given below: Eighty percent of the value of credit sales is received in the month after sale, 10 percent two months after sale and 8 percent three months after
A company produces two products, A1 and A2 that are sold to retailers. The budgeted sales volumes for the next quarter are as follows:Product .....................UnitsA1 ............................32 000A2 ............................56 000 The inventory of finished goods is budgeted to increase
X Co uses rolling budgeting, updating its budgets on a quarterly basis. After carrying out the last quarter’s update to the cash budget, it projected a forecast cash deficit of $400 000 at the end of the year. Consequently, the planned purchase of new capital equipment has been postponed. Which
Distinguish between zero-based budgeting and priority-based incremental budgeting.
What are discretionary costs?
How does zero-based budgeting differ from traditional budgeting?
What are line item budgets?
What are the distinguishing features of budgeting in non-profit-making organizations?
Describe the five different stages that are involved with activity-based budgeting.
What are the distinguishing features of activity-based budgeting?
Define incremental budgeting.
Describe the different stages in the budgeting process.
Distinguish between continuous and rolling budgets.
Describe how the different roles of budgets can conflict with one another.
Describe the different purposes of budgeting.
Distinguish between budgeting and long-range planning. How are they related?
Describe the different stages in the planning and control process.
Umunat plc is considering investing ?50 000 in a new machine with an expected life of five years. The machine will have no scrap value at the end of five years. It is expected that 20 000 units will be sold each year at a selling price of ?3.00 per unit. Variable production costs are expected to be
Banden Ltd is a highly geared company that wishes to expand its operations. Six possible capital investments have been identified, but the company only has access to a total of ?620 000. The projects are not divisible and may not be postponed until a future period. After the projects end it is
PT is a major international computer manufacturing company. It is considering investing in the production of microcomputers.These computers will be targeted at the education market with the specific aim of encouraging children to learn computer science at an early age.Sales of the microcomputers
Assume that you have been appointed finance director of Breckall plc. The company is considering investing in the production of an electronic security device, with an expected market life of five years.The previous finance director has undertaken an analysis of the proposed project; the main
LM is a supermarket chain that operates 500 stores. The company?s sales have fallen behind its competitors as it currently does not offer its customers an online shopping service.It is considering a proposal to establish an online shopping service using the technology of PQ, an existing online
The following data relate to both questions (a) and (b). A company is considering investing in a manufacturing project that would have a three-year life span.The investment would involve an immediate cash outflow of £50 000 and have a zero residual value. In each of the three years, 4 000
TS operates a fleet of vehicles and is considering whether to replace the vehicles on a one, two or three year cycle.Each vehicle costs $25 000. The operating costs per vehicle for each year and the resale value at the end of each year are as follows: The cost of capital is 6 percent per
A company is considering five investment projects as follows: The company has $40 000 available for investment. Projects C and D are mutually exclusive. All projects can be undertaken only once and are divisible. Required:Calculate the maximum net present value (NPV) that can be earned from the
A company is considering investing in a project with an expected life of four years. The project has a positive net present value of $280 000 when cash flows are discounted at 12 percent per annum. The project’s estimated cash flows include net cash inflows of $320 000 for each of the four
A capital investment project has the following estimated cash flows and present values: Required:(i) Calculate the sensitivity of the investment decision to a change in the annual fixed costs.(ii) State TWO benefits to a company of using sensitivity analysis in investment appraisal. Cash flow
A project requires an initial investment of $150 000 and has an expected life of five years. The required rate of return on the project is 12 percent per annum.The project’s estimated cash flows each year are as follows:..........................................$000Sales revenue
A company has a real cost of capital of 6 percent per annum and inflation is 3 percent per annum.The company’s money cost of capital per annum is:(a) 9.00%(b) 2.91%(c) 3.00%(d) 9.18%
Explain what a post-completion audit is and how it can provide useful benefits.
Describe the stages involved in the initiation, $#!#$authorization and review of projects.
Describe the different forms of sensitivity analysis.
How can sensitivity analysis help in appraising capital investments? What are the limitations of sensitivity analysis?
Explain how risk-adjusted discount rates are calculated.
Why is it necessary to use risk-adjusted discount rates to appraise capital investments?
How does the presence of inflation affect the appraisal of capital investments?
Define writing-down allowances (also known as depreciation tax shields or capital allowances), balancing allowances and balancing charges.
How does taxation affect the appraisal of capital investments?
Explain how the optimum investment programme should be determined when capital is rationed for a single period.
What is capital rationing? Distinguish between hard and soft capital rationing.
Stadler is an ambitious young executive who has recently been appointed to the position of financial director of Paradis plc, a small listed company. Stadler regards this appointment as a temporary one, enabling him to gain experience before moving to a larger organization. His intention is to
DP is considering whether to purchase a piece of land close to a major city airport. The land will be used to provide 600 car parking spaces. The cost of the land is $6 000 000 but further expenditure of $2 000 000 will be required immediately to develop the land to provide access roads and
A car manufacturer has been experiencing financial difficulties over the past few years. Sales have reduced significantly as a result of the worldwide economic recession. Costs have increased due to quality issues that led to a recall of some models of its cars.Production volume last year was 50
FG specializes in the manufacture of tablets, laptops and desktop PCs. FG currently operates a standard absorption costing system. Budgeted information for next year is given below: Fixed production overheads are currently absorbed based on a percentage of sales revenue.FG is considering changing
Duff Co manufactures three products, X, Y and Z. Demand for products X and Y is relatively elastic whilst demand for product Z is relatively inelastic. Each product uses the same materials and the same type of direct labour but in different quantities. For many years, the company has been using
Large service organizations, such as banks and hospitals, used to be noted for their lack of standard costing systems, and their relatively unsophisticated budgeting and control systems compared with large manufacturing organizations. But this is changing and many large service organizations are
The McIntyre Resort (MR), which is privately owned, is a world-famous luxury hotel and golf complex. It has been chosen as the venue to stage ‘The Robyn Cup’, a golf tournament which is contested by teams of golfers from across the globe, which is scheduled to take place during July 2019. MR
Thin Co. is a private hospital offering three types of surgical procedure known as A, B and C. Each of them uses a pre-operative injection given by a nurse before the surgery. Thin Co. currently rent an operating theatre from a neighbouring government hospital. Thin Co. does have an operating
Scenario for parts (a) and (b) Company WX manufactures a number of finished products and two components. Three finished products (P1, P2, and P3) and two components (C1 and C2) are made using the same resources (but in different quantities). The components are used internally by the company when
GF is a company that manufactures clothes for the fashion industry.The fashion industry is fast moving and consumer demand can change quickly due to the emergence of new trends.GF manufactures three items of clothing: the S, the T and the B using the same resources but in different amounts.Budget
A company manufactures two products A and B. The budget statement below was produced using a traditional absorption costing approach. It shows the profit per unit for each product based on the estimated sales demand for the period. It has now become apparent that the machine which is used to
X plc intends to use relevant costs as the basis of the selling price for a special order: the printing of a brochure. The brochure requires a particular type of paper that is not regularly used by X plc although a limited amount is in X plc’s inventory which was left over from a previous job.
A company has just secured a new contract which requires 500 hours of labour. There are 400 hours of spare labour capacity. The remaining hours could be worked as overtime at time-and-a-half or labour could be diverted from the production of product X. Product X currently earns a contribution of
Cardio Co manufactures three types of fitness equipment: treadmills (T), cross-trainers (C) and rowing machines (R).The budgeted sales prices and volumes for the next year are as follows: Labour costs are 60 percent fixed and 40 percent variable. General fixed overheads excluding any fixed labour
Toowomba manufactures various products and uses CVP analysis to establish the minimum level of production to ensure profitability.Fixed costs of £50 000 have been allocated to a specific product but are expected to increase to £100 000 once production exceeds 30 000 units, as a new factory will
(a) James is considering paying £50 into a fund on a monthly basis for ten years starting in one year’s time. The interest earned will be 1 percent per month. Once all of these payments have been made the investment will be transferred immediately to an account that will earn interest at 15
Augustine wishes to take out a loan for £2000. The interest rate on this loan would be 10 percent per annum and Augustine wishes to make equal monthly repayments, comprising interest and principal, over three years starting one month after the loan is taken out.What would be the monthly repayment
Sydney wishes to make an investment on a monthly basis starting next month for five years. The payments into the fund would be made on the first day of each month. The interest rate will be 0.5 percent per month. Sydney needs a terminal value of £7000. What should be the monthly payments into the
Sydney is considering making a monthly investment for her son who will be five years old on his next birthday. She wishes to make payments until his 18th birthday and intends to pay £50 per month into an account yielding an APR of 12.68 percent. She plans to start making payments into the account
PQ is purchasing the lease on a property which has an annual lease payment of $300 in perpetuity. The lease payments will be paid annually in advance.PQ has a cost of capital of 12 percent per annum.The present value of the lease payments is:(a) $2 500(b) $2800(c) $3600(d) $3900
A bond has a coupon rate of 6 percent and will repay its nominal value of $100 when it matures after four years. The bond will be purchased today for $103 ex-interest and held until maturity.Required:Calculate, to 0.01 percent, the yield to maturity for the bond based on today’s purchase price.
A $100 bond has a coupon rate of 8 percent per annum and is due to mature in four years’ time.The next interest payment is due in one year’s time. Similar bonds have a yield to maturity of 10 percent.Required:Calculate the expected purchase price of the bond at today’s date.
The details of four short-term investments are as follows:Investment A pays interest of 1.7 percent every 3 monthsInvestment B pays interest of 3.4 percent every 6 monthsInvestment C pays interest of 5.4 percent every 9 monthsInvestment D pays interest of 7.0 percent every 12 monthsThe investment
A company is considering offering its customers an early settlement discount. The company currently receives payments from customers on average 65 days after the invoice date. The company is considering offering a 2 percent early settlement discount for payment within 30 days of the invoice
Cab Co. owns and runs 350 taxis and had sales of $10 million in the last year. Cab Co. is considering introducing a new computerized taxi tracking system. The expected costs and benefits of the new computerized tracking system are as follows:(i) The system would cost $2 100 000 to
A company is considering investing in manufacturing equipment that has a three-year life. The purchase price of the equipment is $70 000 and at the end of the three-year period it will be sold for cash of $10 000. The equipment will be used to produce 6000 units each year of a product which earns a
What impact can the way in which a manager’s performance is measured have on capital investment decisions?
Distinguish between the payback method and discounted payback method.
Describe the accounting rate of return. What are its main strengths and weaknesses?
Why might managers choose to use IRR in preference to NPV?
Explain the theoretical arguments for preferring NPV to IRR when choosing among mutually exclusive projects.
Distinguish between independent and mutually exclusive projects.
Explain what is meant by the internal rate of return.
Describe the concept of net present value (NPV).
(a) The Alternative Sustenance Company is considering introducing a new franchised product, Wholefood Waffles. Existing ovens now used for making some of the present ?Half-baked? range of products could be used instead for baking the Wholefood Waffles. However, new specialized batch mixing
Gym Bunnies (GB) is a health club. It currently has 6000 members, with each member paying a subscription fee of $720 per annum. The club is comprised of a gym, a swimming pool and a small exercise studio.A competitor company is opening a new gym in GB’s local area, and this is expected to cause a
The Equine Management Academy (EMA) which was founded in 1990 is a privately owned organization located in Hartland, a developing country which has a large agricultural sector and where much transportation is provided by horses.EMA operates an equine college which provides a range of undergraduate
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