Questions and Answers of Management Cost Accounting

Under what circumstances is it considered appropriate to use (a) The budget-constrained(b) The profit-conscious style of performance evaluation?
Distinguish between budget-constrained, profit-conscious and non-accounting styles of performance evaluation.
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 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
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
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
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.
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,
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
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
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
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
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
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
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
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
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
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
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
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.
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)
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
(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
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,
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
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
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
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
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
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
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
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
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
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

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