Managerial Accounting 2nd Edition James Jiambalvo - Solutions

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PROBLEM 13-11. Additional Information Related to Problem 10 In 2006, Mandrake Motorcycles declared bankruptcy. Subsequently, it was determined that in fiscal 2005, the company produced more units than needed to fill pending orders. The result was a substantial decrease in production cost per unit.
PROBLEM 13-10. Comprehensive Financial Statement Analysis Problem Marty"Monk" Fisher owns the largest motorcycle dealership in southern Ohio. Recently, he was approached by Bob Sherman, founder of Mandrake Motorcycles and offered the opportunity to be the sole distributor of Mandrake cycles in the
PROBLEM 13-9. Dell's MD&A—Follow Up to Problem 8 from Dell's Management Discussion and Analysis:Below is an excerpt Gross margin decreased during fiscal 2002 across all geographies and product categories.This erosion began in the fourth quarter of fiscal 2001, when the Company saw industry demand
PROBLEM 13-8. Comparing Dell and Gateway Financial information for Dell and Gateway follows:(In Millions) Dell Gateway 2/1/02 2/1/01 12/31/01 12/31/00 Sales $31,168 $31,888 $6,079 $9,601 Cost of sales 25,661 25,445 5,241 7,542 Gross margin $ 5,507 $ 6,443 $ 838 $2,059 Inventory $ 278 $ 400 $ 120 $
PROBLEM 13-7. Gross Margin Percentage and Inventory Turnover for Longs Drug Stores Corp; MD&A Longs is a West coast company with more than 400 drug stores. Financial information for fiscal 2002 and 2001 follows.Fiscal Fiscal(In Thousands) 2002 2001 Sales $4,304,704 $4,027,132 Cost of merchandise
PROBLEM 13-6. Analyzing Financial Ratios and Cash Flows Venture Auto Parts is a chain of 35 stores offering a full line of auto parts and supplies to consumers and independent auto repair shops. Danny's Brake and Muffler has over 80 stores in the cities serviced by Venture. Recently, Danny Morton,
PROBLEM 13-5. Comparing Income to Cash Flow from Operations; Ethics Alex Rembol is the CEO of Antura Corporation, a company that manufactures and sells contact lenses, lens cleaning and wetting solutions, and other miscellaneous eye care products. Alex's annual bonus depends on meeting a profit
PROBLEM 13-4. Debt-to-Equity Ratio HG Lang is planning on opening a new store in Miami that will be financed in part by a new bank loan of $1,000,000.Requireda. Assuming debt was $1,000,000 higher in 2005, what would the debt-to-equity ratio have been?b. Assume that the additional debt will add
PROBLEM 13-3. Assessing the Ability of a Company to Pay Its Liabilities Mode Milano is a bridal gown manufacturing company in Milan. Recently, the company received an order for $400,000 of merchandise from HG Lang with payment to be made within 60 days of delivery. Mode asked Lang to provide a copy
PROBLEM 13-2. Inventory Turnover Assume you are the vice president of operations of HG Lang. To prepare for a meeting with Adrienne Aiello, the company president, you are in the process of analyzing inventory.Requireda. Compute inventory turnover and days' sales in inventory.b. Based on your
PROBLEM 13-1. Vertical Analysis of the Income Statement Assume you are the vice president of operations for HG Lang and you are preparing for a meeting to discuss the 2005 financial results with Adrienne Aiello, the company president.Requireda. Prepare a vertical analysis of the income statements
PROBLEMS 1-4 HG Lang Designs operates an exclusive bridal boutique in Manhattan.All gowns are designed by Lang but are manufactured by various small firms in France and Italy. The following financial information for the company relates to Problems 1 through 4.HG Lang Designs December 31, December 3
EXERCISE 13-12. Inventory Turnover for Safeway Safeway, Inc. is a large food and drug retailer with more than 1,700 stores in the U.S. and Canada. The following financial information relates to fiscal 2001 and 2000.(In Millions) 2001 2000 Sales $34,301.0 $31,976.9 Cost of goods sold 23,696.7
EXERCISE 13-11. Net Income Versus Cash Flow from Operations Cash flow from operations was $645,590 for 2004 and $795,823 for 2005. Does this suggest that management of Westfield Furniture has manipulated earnings upward in these years?
EXERCISE 13-10. Debt Related Ratios Calculate the current ratio, the acid-test ratio, the debt-to-equity ratio and times interest earned for 2004 and 2005.
EXERCISE 13-9. Turnover Ratios Calculate asset turnover, accounts receivable turnover, days' sales in receivables, inventory turnover, and days' sales in inventory for 2004 and 2005.
EXERCISE 13-8. Profitability Ratios Calculate earnings per share, the price-earnings ratio, the gross margin percentage, return on total assets and return on common stockholders' equity for 2004 and 2005. There were 100,000 shares of common stock outstanding at the end of both 2004 and 2005. The
EXERCISE 13-7. Vertical Analysis Perform a vertical analysis of the balance sheets and income statements for Westfield Furniture. Are there any major changes between 2004 and 2005?
EXERCISE 13-6. Horizontal Analysis Perform a horizontal analysis of the balance sheets and income statements for Westfield Furniture. Highlight changes that are greater than 1 percent.
EXERCISES 6-11. The following information for Westfield Furniture, a retail furniture and design firm, relates to exercises 6 through 1 1.Westfield Furniture December 31, December 3 1, Balance Sheets 2005 2004 Assets Current assets:Cash $ 35,684 $ 45,850 Accounts receivable 523,489 410,378
EXERCISE 13-5. Reading the MD&A Section of the Annual Report For a company recommended by your instructor, go to the company's corporate Web site and obtain its annual report (most likely, you will have to click through to investor relations).Briefly summarize how information in the management
EXERCISE 13-4. Financial News and Analysis For a company recommended by your instructor, read current financial news articles (available on Yahoo! Finance) and summarize how the stories relate to the financial condition of the company.
EXERCISE 13-3. Internet Assignment Go to the Web site of Yahoo! Finance(http://finance.yahoo.com). Enter the ticker symbol for Home Depot (HD) and Lowe's(LOW). For each firm, click on Profile and note the ratio for Profit Margin (the ratio we called Gross Margin Percentage) and the Debt/Equity
EXERCISE 13-2. Writing Assignment Write a paragraph explaining why net income substantially higher than cash flow from operations may indicate manipulation of earnings.
EXERCISE 13-1. Group Assignment Explain why companies are concerned about the financial viability of suppliers and customers.
7. List three debt-related ratios.
6. List three turnover ratios.
5. List three profitability ratios.
4. In addition to the three basic financial statements, what other information sources can be used to gain insight into a company's current and future financial performance?
3. Suppose net income is much higher than cash flow from operations. Why is this potentially indicative of earnings management?
2. Explain what is meant by horizontal and vertical analysis of the balance sheet and the income statement.
1. List three reasons why managers analyze financial statements.
10. Which of the following items is not included in the calculation of income from operations?a. Gains on the sale of short-term investments.b. Interest income.c. Interest expense.d. None of the above are included in the calcula- tion of income from operations.
9. The efficient use of assets is indicated by:a. Turnover ratios.b. Debt-related ratios.c. The ratio of debt to equity.d. The ratio of current assets to current liabilities.
8. The ratio times interest earned can be used to evaluate:a. The amount of debt versus equity financing.b. The extent to which interest income exceeds in- terest expense.c. The extent to which interest expense exceeds interest income.d. The likelihood that a company will be able to make required
7. Day's sales in inventory is equal to:a. 365 -J- inventory turnover.b. Sales * inventory turnover.c. 365 X inventory -5- sales.d. 365 X sales -s- inventory.
6. A primary difference between the current ratio and the acid-test (quick) ratio is:a. The current ratio takes into account depreciation expense.b. The acid-test ratio is computed using monthly data.c. The acid-test ratio excludes inventory from the numerator.d. All of the above.
5. The fact that the return on common stockholders'equity is higher than the return on total assets suggests that a company:a. Has made good use of financial leverage.b. Has funded asset acquisition primarily with debt.c. Has excessive debt financing.d. Has good control of operations.
4. In connection with a company's annual report. MD&A stands for:a. Management discussion and analysis.b. More depreciation and amortization.c. Monthly depreciation and amortization.d. Monthly discounts and advertising.
3. Net income substantially higher than cash flow from operations may indicate:a. Exceptional profitability.b. Manipulation of income.c. Exceptional control of expenses.d. That a company has a lot of depreciation expense.
2. Horizontal analysis analyzes:a. Comparable companies.b. Changes in expenses as a percent of sales.c. Changes in expenses as a percent of total assets.d. Changes in balances from one year to another.
1. Why do managers analyze financial statements?a. To evaluate and control operationsb. To evaluate vendors and customers.c. To anticipate questions from shareholders and creditors.d. All of the above.
PROBLEM 12-16. (Appendix) Transfer Pricing Celtic Woolen Products has two divisions: a Fabric division that manufactures woolen fabrics, and a Clothing division that manufactures woolen dresses, coats, shirts, and accessories. All fabric used by the Clothing division is supplied by the Fabric
PROBLEM 12-15. (Appendix) Decentralization and Transfer Pricing The city of Medina Park operates a plumbing and electrical maintenance department, responsible for maintaining all water and electric service functions in buildings owned by the city.The city administration is concerned about the
PROBLEM 12-14. (Appendix) Transfer Pricing The Century Steel Company has a coal mining subsidiary in West Virginia. A substantial amount of the coal produced by the subsidiary is used by Century's steel foundries located in Pennsylvania.Requireda. Recommend and defend a transfer price (market
PROBLEM 12-13. You Get What You Measure and a Balanced Scorecard Jarrett Company produces custom molds that are used by producers of molded products(e.g., ski boots and snowboards). Many of its customers use just-in-time (JIT) manufacturing and on-time delivery of the molds is critical because
PROBLEM 12-12. The Balanced Scorecard The strategy for success at Vamp Jeans calls for rapid growth, a limited number of units for each design to enhance exclusivity, perfect fit, on-time delivery to commercial customers, retaining employees who contribute to innovation, and control of
PROBLEM 12-11. Growth in Profit, Overinvestment, and ROI Consider the following data related to the financial performance of Sanders Company.2003 2004 2005 2006(in 000s)Net income $1,000 $1,150 $1,360 $1,630% change in income 15% 18% 20%Total assets $10,000 $12,780 $17,000 $23,290 Between 2003 and
PROBLEM 12-10. Economic Value Added and the Balanced Scorecard Mountain Book Company has two divisions—the Brick and Mortar division sells books through more than 100 bookstores throughout the United States; the Internet division was formed 16 months ago and sells books via the Internet. Data for
PROBLEM 12-9. EVA and Control of the Investment in Company Assets Optimum Electronics is a new public company that operates ten stores in Washington, Oregon, and California selling consumer electronics including stereo equipment and home theater systems. The following financial information is
PROBLEM 12-8. EVA Phillips Electronics is considering instituting a plan whereby managers will be evaluated and rewarded based on a measure of economic value added (EVA). Before adopting the plan, management wants you to calculate what EVA will be in 2006 based on financial forecasts for 2006 and
PROBLEM 12-7. ROI and EVA Eastern Waste Management has a subsidiary that disposes of hazardous waste and a subsidiary that collects and disposes of residential garbage. Information related to the two subsidiaries follows:Hazardous Waste $10,000,000 2,000,000 1,500,000 1,000,000 14%35%Residential
PROBLEM 12-6. Return on Investment, Profit Margin, and Investment Turnover Consider the following information for Vulcan Stores for 2005 and 2006.Total assets Noninterest-bearing current liabilities Net income Interest expense Sales Tax rate 2005$80,000,000 7,000,000 6,000,000 4,000,000 120,000,000
PROBLEM 12-5. Return on Investment, Effect of Depreciation The Chief Operating Officer of the Baldwin Corporation is considering the effect of depreciation on company ROI. In the most recent year, net operating profit after taxes was$10,000,000 and investment (total assets of $120,000,000 less
PROBLEM 12-4. Residual Income/Economic Value Added Consider the following information for Everett Electronics.12/31/05 12/31/06 Total assets $20,000,000 $19,540,000 Noninterest-bearing current liabilities 800,000 900,000 Net income 1,240,000 1,586,800 Interest expense 4,000,000 1,000,000 Tax rate
PROBLEM 12-3. Return on Investment Consider the following information for Binder and Conners, Inc.12/31/05 12/31/06 Total assets $80,000,000 $85,000,000 Noninterest-bearing current liabilities 3,000,000 3,200,000 Net income 5,510,000 5,600,000 Interest expense 1,000,000 1,200,000 Tax rate 35%
PROBLEM 12-2. Investment Centers and Performance Measures SEI Corporation has five divisions, each of which is managed by a divisional president who reports to the chief executive officer (CEO) of SEI. SEI is decentralized, and divisional presidents are granted authority to make investments under
PROBLEM 12-1. Cost Centers and Performance Measures Magnus Materials manufactures metal and plastic gutters for use in commercial and residential construction.Production occurs in two separate plants. Distribution is from a central warehouse and there is a centrally managed sales office. Both
EXERCISE 12-18. (Appendix) Transfer Pricing, Full Cost Plus Profit National Chemical Company has a number of divisions that produce and market paints, varnishes, and other chemical products. The company also has a small plant that manufactures metal containers for the divisions' various products.
EXERCISE 12-17. (Appendix) Transfer Pricing in Healthcare, Market Price Northeast Medical Services has two outpatient clinics and a pathology laboratory, which are organized as separate profit centers. When the pathology laboratory conducts tests ordered by the clinics, the clinics are charged the
EXERCISE 12-16. Customer-Focused Measures for a Balanced Scorecard Olympic Health Club operates a 20,000 square foot facility in Dallas. For the coming year, the company is considering development of a Balanced Scorecard.Required Help the company by identifying three customer-focused measures that
EXERCISE 12-15. Balanced Scorecard Some advocates of the Balanced Scorecard have argued that managing a company with just financial performance measures is like driving a car and just looking in the rearview mirror. That's why they recommend customer, internal process, and learning and growth
EXERCISE 12-14. Adjusting NOPAT and Adjusting Investment in the Calculation of EVA The following income statements and other information are available for Norris Company:2005 2004 2003 Sales $200,000,000 $180,000,000 $150,000,000 Less cost of goods sold 80,000,000 72,000,00 65,000,000 Gross margin
EXERCISE 12-13. Overinvestment and Underinvestment Consider two companies.Criterion Products and Vulcan Products. Senior managers at Criterion Products are evaluated in terms of increases in profit. In fiscal 2006, Criterion Products had a net operating profit after taxes of $2,000,000 and invested
EXERCISE 12-12. Evaluating Investment Centers; ROI Versus RI Consider the following data, which relate to the two divisions of MBR Products.Division 1 Division 2 Total assets $40,000,000 $20,000,000 Noninterest bearing current liabilities 2,000,000 1,000,000 NOPAT 5,500,000 3,000,000 Required
EXERCISE 12-11. Evaluating Investment Centers with Residual Income Midwest Hospital is a division of Nationwide Healthcare organized as an investment center.In the past year, the hospital reported an after-tax income of $3,000,000. Total interest expense was $1,000,000, and the hospital's tax rate
EXERCISE 12-10. Calculating Residual Income For fiscal year 2006, Zander's Department Store had net income of $1,950,000. Interest expense was $2,000,000 and the company's tax rate on income was 35 percent. Total assets were $65,000,000 and noninterest-bearing current liabilities were $4,000,000.
EXERCISE 12-9. Calculating ROI For fiscal year 2005, Kitchencraft Products had income as follows:Sales $40,000,000 Less:Cost of goods sold 25,000,000 Selling and administrative expense 5,000,000 Interest expense 1,000,000 Income before taxes 9,000,000 Less income taxes 3,150,000 Net income $
EXERCISE 12-8. Calculating ROI Lowery Mills is a division of Spencer Woolen Products, Inc. For the most recent year, Lowery had net income of $10,000,000.Included in income was interest expense of $1,000,000. The operation's tax rate is 35 percent.Total assets of Lowery Mills are $200,000,000,
EXERCISE 12-7. Responsibility Centers Mayfield Software operates a training facility that offers classes in the use of its software products. Historically, the classes have been offered at a modest charge that covers the cost of the instructor's salary but not overhead related to the training
EXERCISE 12-6. Responsibility Centers A major software company has established customer service centers in India, Ireland, and Israel to provide support to its U.S. customers with foreign operations. The prices that the company charges for software reflect estimated costs in operating the centers
EXERCISE 12-5. Responsibility Centers and Performance Measures Department managers at Engstrom Department Stores are allowed considerable discretion in sourcing and pricing products based on local tastes and competition. They are also responsible for staffing their departments.Required Suggest two
EXERCISE 12-4. Why Firms Decentralize Malcort Glass Company is a manufacturer of automotive glass and glass products used in the home. Discuss the advantages of forming two divisions (an Automotive division and a Home Products division) and allowing the division managers substantial decision making
EXERCISE 12-3. Internet Assignment Go to the Web site of Art Schneiderman, a consultant, at (http://www.schneiderman.com/AMS.htm). Art worked for Analog Devices when it became the first company to develop and use a Balanced Scorecard.Click on the link to his electronic article that documents the
EXERCISE 12-2. Writing Assignment Write a paragraph explaining why, in the calculation of a company's EVA, noninterest-bearing current liabilities are subtracted from total assets to determine investment.
EXERCISE 12-1. Group Assignment Explain why, in the calculation of EVA, the profit measure used (NOPAT) excludes interest expense.
18. (Appendix) How do the taxes affect transfer prices when goods are transferred between countries?
17. (Appendix) When would a variable-cost transfer price measure opportunity cost?
16. (Appendix) Explain the advantages of using market price as a transfer price.
15. What problem may be created by evaluating managers using market share?
14. Provide two measures for each perspective of a Balanced Scorecard.
13. What is the problem with using only financial measures of performance?
12. What is NOPAT?
11. What is the difference between residual income and EVA?
10. What is the formula for residual income?
9. What is the formula for return on investment?
8. Why is it not advisable to hold production supervisors responsible for depreciation on equipment used by workers they supervise?
7. Discuss why evaluation in terms of profit may lead to overinvestment, whereas evaluation in terms of ROI may lead to underinvestment.
6. Distinguish between cost centers, profit centers, and investment centers.
5. Discuss goal congruence and how it impacts the decision to decentralize.
4. How could costly duplication of activities occur in a decentralized operating environment?
3. What is empire building in a managerial context?
2. List two disadvantages associated with decentralization of a firm's operations.
1. List four advantages related to decentralization of a firm's operations.
22. (Appendix) The transfer price that motivates the best decisions is one that measures:a. The full cost of goods produced.b. The opportunity cost of producing and transferring an item.c. The selling division's variable cost.d. None of the above.
21. (Appendix) In an international context, there is an incentive to set a high transfer price when:a. Goods are transferred from a high-tax country to a low-tax country.b. Goods are transferred from a low-tax country to a high-tax country.c. Goods are transferred to an international subsidiary.d.
20. (Appendix) When a ready market exists, the best transfer price will probably be the:a. Market price.b. Variable cost.c. Full cost plus profit.d. Negotiated transfer price.
19. Which of the following is not a dimension of the Balanced Scorecard?a. Customer.b. Internal processes.c. Innovation.d. Stakeholder.
18. What is the difference between residual income and EVA?a. Residual income is a new concept.b. EVA makes adjustments for "accounting distortions."c. Residual income excludes research and development as an expense.d. EVA includes a capital charge.
17. Which of the following are included in the calculation of net income but excluded in the calculation of NOPAT?a. Interest expense.b. Gains on investments.c. Losses on investments.d. All of the above.

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