Managerial Accounting 2nd Edition James Jiambalvo - Solutions

16. Which of the following is a true statement regarding the evaluation of an investment center?a. Return on investment may be high because of old equipment that is fully depreciated.b. Residual income does not take into account the level of investment in fixed assets.c. Return on investment does
15. Which of the following is not a part of the calculation of residual income?a. NOPAT.b. Invested capital.c. Required rate of return.d. Interest expense.
14. Which of the following is a problem in using return on investment to evaluate managers?Managers of investment centers with high ROIs may not invest in some projects with returns greater than the required rate of return.b. Managers may overinvest in high ROI projects.c. Managers' morale may
13. Investment centers are often evaluated using:a. Standard cost variances.b. Return on investment.c. Residual income/EVA.d. Both b and c.
12. Profit centers are often evaluated using:a. Investment turnover.b. Income targets or profit budgets.c. Return on investment.d. Residual income.
11. Cost centers are often evaluated using:a. Variance analysis.b. Operating margin.c. Return on investment.d. Residual income.
10. Return on investment (ROI) is calculated as:a. Sales -j- Total assets.b. Gross margin -f- Invested capital.c. Investment center income -5- Invested capital.d. Income -s- Sales.
9. Use of profit as a performance measure:a. May lead to overinvestment in assets.b. Is appropriate for an investment centerc. Is appropriate as long as profit is calculated using GAAP.d. Encourages managers to finance operations with debt rather than equity.
8. A cost center is responsible for which of the following?a. Investing in long-term assets.b. Controlling costs.c. Generating revenues.d. All of the above.
7. A profit center is responsible for all of the following except:a. Investing in long term assets.b. Controlling costs.c. Generating revenues.d. All of the above are the responsibility of a profit center.
6. An investment center is responsible for:a. Investing in long term assets.b. Controlling costs.c. Generating revenues.d. All of the above.
5. Which of the following is not a cost center?a. An accounting department.b. A production department.c. A retail sales outlet.d. A maintenance department.
4. Responsibility accounting suggests that:a. A department manager should be held re- sponsible for the cost of computers used in his or her department even if the manager did not make the decision to purchase the computers.b. A department manager should be held respon- sible for a share of the
3. Which of the following should not be used to evaluate the performance of a plant manager in a decentralized organization?a. Direct labor expense in the plant.b. Depreciation expense on equipment the man- ager authorized.c. Variable overhead expenses in the plant.d. Interest expense on bonds used
2. Which of the following is most indicative of a decentralized organization?a. The physical facilities of the company are widely dispersed geographically.b. The organization is divided into several operating divisions.c. Accounting is performed, in part, in the several operating divisions.d. The
1. Which of the following is not a reason for having decentralized organizations?a. Better information at the local level leads to sur-^perior decisions.\b) Goal congruence is enhanced.c. Quicker response to changing circumstances.d. Increased motivation of managers.
PROBLEM 11-11. (Appendix) Recording Standard Costs Bechtel Technical Clothing produces parkas used by arctic explorers, mountain climbers, and people living in Minnesota. The company uses a standard costing system and standards call for three yards of material at $40 per yard for each parka. The
PROBLEM 11-10. Interpreting the Overhead Volume Variance; Calculating the Financial Impact of Operating Below Capacity National Battery Company produces a wide variety of batteries for home, automobile, and marine use. One example of its many products is the Road Guardian automobile battery. The
PROBLEM 11-9. Relationships Among Variances In her review of annual production variances, Taylor Abboud, CFO of Edwards Manufacturing, noted that there was an $80,000 favorable material price variance, a $65,000 unfavorable material quantity variance, a $90,000 favorable labor rate variance, and a
PROBLEM 11-8. Variance Analysis—Nonmonetary Measures XcomSoftware operates a 24-hour help line to answer customer questions. To control the cost of operations, the company compares the actual time required to answer customer questions with a standard time of five minutes per customer call.
PROBLEM 1 1-7. Variance Analysis Will Norton, the general manager of Cummings Manufactured Siding, is reviewing a monthly variance summary. The summary reveals a large favorable material price variance and large unfavorable material quantity and labor efficiency variances. All other variances are
PROBLEM 11-6. Labor Variances Northwest Medical Testing draws blood samples from approximately 2,000 clients each month. The standard time for a technician to draw and prepare a blood sample for testing is 9.5 minutes.The standard wage rate for technicians is $25 per hour. During August, Northwest
PROBLEM 11-5. Comprehensive Variance Problem Vulkan Company produces rubber seals used in the aerospace industry. Standards call for 3.5 pounds of material at $3.40 per pound for each seal. The standard cost for labor is .5 hours at $20 per hour. Standard overhead is $7 per unit. For the year 2006,
PROBLEM 11-4. Comprehensive Variance Problem Bowser Products operates a small plant in New Mexico that produces dog food in batches of 1,000 pounds. The product sells for $3 per pound.Standard costs for 2006 are:Standard direct labor cost = $15 per hour.Standard direct labor hours per batch = 8
PROBLEM 11-3. Comprehensive Variance Problem Dante's Statue Company produces lawn statues. The standard cost of producing one statue is:Material (2 pounds x $2.25) $ 4.50 Labor (.5 hours x $10) $ 5.00 Overhead $ 9.90 Total $19.40 Standard variable overhead is $5.40 per unit and fixed annual
PROBLEM 11-2. Comprehensive Variance Problem Hayes Chemical Company produces a chemical used in dry cleaning. Its accounting system uses standard costs.The standards per half gallon can of chemical call for .5 gallons of material and 1.5 hours of labor. The standard cost per gallon of material is
PROBLEM 11-1. Material Variances Hank's is a chain of 54 coffee shops. The standard amount of ground coffee per cup is .8 ounces. During the month of September, the company sold 324,000 cups of coffee (reported via electronic cash registers)and the 54 shops reported using 16,800 pounds of coffee.
EXERCISE 11-18. (Appendix) Closing Variance Accounts Refer to the summary of variances in Exercise 17. At Bell Computers, the ending balance in Finished Goods Inventory is $100,000; the ending balance in Work in Process Inventory is $50,000 and the balance in Cost of Goods Sold is $350,000.Required
EXERCISE 11-17. (Appendix) Closing variance accounts for Bell Computers is as follows The variance summary iber 31, 2006$(4,150) Favorable 3,250 Unfavorable(115) Favorable 2,600 Unfavorable 2,500 Unfavorable 4,500 Unfavorable$8,585 Unfavorable Bell Computer Company Variance Summary for the Year
EXERCISE 11-16. (Appendix) Recording Manufacturing Overhead Variances Menton Company uses a standard costing system. During 2006, the company incurred actual overhead of $381,000. The standard rate for applying overhead is $2.25 per unit and 180,000 units were produced in 2006. One-third of the
EXERCISE 11-15. (Appendix) Recording Labor Variances Reliance Company uses a standard costing system. In August, 9,328 actual labor hours were worked at a rate of $1 1.75 per hour. The standard number of hours is 9,400 and the standard wage rate is $1 1.90 per hour. Prepare a journal entry to
EXERCISE 11-14. (Appendix) Calculating Material Variances and Recording Material Costs Quality Cabinet Company uses a standard costing system and produced 2,200 cabinets during May. The standard cost of wood is $25 per linear foot, and the standard quantity for each cabinet is 30 linear feet.During
EXERCISE 11-13. Investigating Variances At the start of the year, Midwest Refrigeration estimated that the company would produce 504 refrigeration units during the year (42 per month). Annual fixed overhead costs were estimated to be $599,760($49,980 per month), and estimated variable overhead
EXERCISE 11-12. Calculating Labor and Overhead Variances At the start of 2006, Western Thread company determined its standard labor cost to be 1.5 hours per unit at $12.30 per hour. The budget for variable overhead was $6 per unit and budgeted fixed overhead was $135,000 for the year. Expected
EXERCISE 11-11. Calculating Overhead Variances—Service Example Barret Hospital is interested in analyzing overhead related to laundry services. The hospital administrator estimated that monthly fixed costs would be $80,000 and variable costs would be $1.20 per patient day.During the month of
EXERCISE 11-10. Calculating Material and Labor Variances Texas Boots uses a standard costing system. The standard material and labor costs for producing each pair of boots are as follows:Materials (1.5 yards X $9.00) $13.50 Direct labor (.5 hours X $15) 7.50 During May, the company produced 7,000
EXERCISE 1 1-9. Calculating Labor Variances The standard labor cost in the production of a pair of Tukor Brand athletic shoes is .5 hours at $18 per hour. During the month of June, 20,000 pairs were produced. Actual labor costs were $172,900 for 9,500 hours. Compute the labor rate and labor
EXERCISE 11-8. Calculating Material Variances Kent Space Products uses a standard costing system. For production of a fuel cell, standards call for four model K4Q valves per cell costing $2,000 each. During 2006, the company purchased 110 valves for $209,000. The company used 105 valves in the
EXERCISE 11-7. Calculating Material Variances Crown Jewelry produced 1,300 rings during March. The standard cost of each ounce of gold used in a ring is $295 per ounce. The standard quantity of material for each ring is a half ounce of gold per ring.The cost of gold purchased and used in March was
EXERCISE 11-6. Calculating Overhead Variances At the start of the year, Midwest Refrigeration estimated that the company would produce 504 refrigeration units during the year (42 per month). Annual fixed overhead costs were estimated to be$599,760 ($49,980 per month), and estimated variable
EXERCISE 11-5. Calculating Labor Variances At Midwest Refrigeration, the standard quantity of labor is 20 hours per refrigeration unit. The standard wage rate is$25. In July, the company produced 40 refrigeration units, and incurred 820 labor hours at a cost of $2 1 ,320.Required Calculate the
EXERCISE 11-4. Calculating Material Variances At Midwest Refrigeration, the standard price for the Z240 electrical relay (a component used in the production of a commercial refrigeration unit) is $25. Standards call for 2 relays per unit of finished product. In July, the company purchased 100
EXERCISE 11-3. Internet Assignment SAP provides enterprise resource planning software (discussed in Chapter 1 of this book). Go to the Web site(http://searchsap.techtarget.com), which has a search feature that you can use to locate information on SAP features. Type in "What is a standard cost
EXERCISE 11-2. Writing Assignment Write a paragraph explaining how, if workers improve a production process, they may actually generate an unfavorable labor efficiency variance.
EXERCISE 11-1. Group Assignment 1 Five Star Tools is a small family-owned firm that manufactures diamond-coated cutting tools (chisels and saws) used by jewelers.Production involves three major processes. First, steel "blanks" (tools without the diamond coating) are cut to size. Second, the blanks
11. (Appendix) What are the alternative methods for closing variance accounts?
10. What does responsibility accounting imply with respect to holding managers responsible for standard cost variances?
9. What is management by exception?
8. What factors should be considered when investigating variances?
7. "Overhead volume variances do not signal that overhead costs are in or out of control." Do you agree? Explain.
6. Should managers investigate only unfavorable variances?
5. How might a favorable material price variance or a favorable labor rate variance be related to an unfavorable material quantity variance? Act
4. "You get what you measure!" If so, what problem might be created by managers attempting to achieve favorable material price variances?
3. What is the difference between an ideal standard and an attainable standard?
2. How are standard costs developed for direct materials, direct labor, and manufacturing overhead?
1. What role do standard costs play in controlling the operations of a business?
10. (Appendix) At the end of the accounting period, a journal entry is made to close variance accounts to or ,, and .
9. True or False? A favorable variance may be due to a poor management decision.
8. True or False? Standard cost variances provide definitive evidence that costs are "out of control"and managers are not performing effectively.
7. What does an unfavorable overhead volume variance mean?a. Overhead costs are out of control.b. Overhead costs are in control.c. Production was greater than anticipated.d. Production was less than anticipated.
6. What does a favorable labor efficiency variance mean?a. Labor rates were higher than called for by standards.b. Inexperienced labor was used, causing the rate to be lower than standard.c. More labor was used than called for by standards.d. Less labor was used than called for by standards.
5. True or False? The labor rate variance is equal to the difference between the actual wage rate and the standard wage rate times the standard number of labor hours worked.
4. Which of the following statements correctly describes an unfavorable material price variance?a. Too much material was purchased.b. A higher price was paid for material purchased compared with the standard price.c. More material was used than called for by the standard.d. Less material was used
3. The total material variance can be divided into a material variance and a material variance.
2. Which of the following is not a way to develop a standard cost?a. By using a fixed rate that is higher every period.b. By performing time and motion studies.c. By analyzing past data.d. By using what is specified in engineering plans
1. What is the primary benefit of a standard costing system?a. It records costs at what should have been incurred.b. It allows for a comparison of differences between actual and standard costs.c. It is easy to implement.d. It is inexpensive and easy to use.
PROBLEM 10-13. Budgeting and Nonmonetary Measures Xtreme Board Company manufactures skateboards. The president of the company, Greg Conklin, believes that "you get what you measure!" Accordingly, he would like to include a number of nonmonetary measures, related to factors that affect the success
PROBLEM 10-12. Conflict in Planning and Control Jack Norton is the president of Wynn Electronics, a wholly owned subsidiary of Mammoth Industries. His annual salary is $400,000. In addition, he receives a $100,000 bonus if Wynn's profit exceeds 80 percent of budget. He also receives 1 percent of
PROBLEM 10-11. Performance Report The Athletic Equipment Division of Physique Inc. had significant problems in 2007. Sales and production were down by almost 30 percent as compared with the budget. Manufacturing was plagued by quality problems and had frequent customer complaints.John Martin, the
PROBLEM 10-10. Performance report The Customer Support Department at Silvan.com budgeted for the following costs in June assuming 40 customer consultants responding to 10,000 customer calls.Salaries of customer consultants $120,000 Salaries of supervisors 18,000 Office space charge 5,000
PROBLEM 10-9. Budgeting Process Debra Green is the divisional manager of the Consumer Banking Division of Pennywise Bank. Each year Debra submits an annual budget to Barney Stringer, the chief financial officer of the bank. Debra's bonus, salary increases, and promotion opportunities are based on
PROBLEM 10-8. "What If" Analysis Using a Spreadsheet Cynthia Morton is in the process of developing a spreadsheet to budget annual sales and purchases of in ventory for her company, Morton Fine Carpets, a retail store that sells handmade car. pets from the Middle East. In 2006, sales were as
PROBLEM 10-7. Budget Relationships The accountant at Supreme Audio re signed while he was in the midst of preparing the budget for 2007. His work papers in- dicated the following: Budgeted Sales and Inventory Purchases for 2007 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total Sales in 2006 $200,000
PROBLEM 10-6. Cash Budget In the fourth quarter of 2006, Casey Wholesalers had the following net income: Sales $500,000 Less cost of sales 250,000 Gross margin 250,000 Selling and administration 200,000 Income before taxes 50,000 Income taxes 17,500 Net income Purchases in the fourth quarter
PROBLEM 10-5. Combined Production and Purchases Budgets BugAway, Inc. produces and sells bug repellent. Information about the budget for the year 2007 is as follows: 1. The company expects to sell 40.000 boules of BugAway in the first quarter, 50.000 in the second quarter, 93,000 in the third
PROBLEM 10-4. Budgeted Income Statement Modern Healthcare, a group practice clinic with 10 physicians, had the following income in 2006:Revenue $2,400,000 Less operating expenses:Salaries Physicians 1,000,000 Nurses 140,000 Nursing aid 62,375 Receptionist 45,200 Accounting services 34,450 Training
PROBLEM 10-3. Master Budget The Botanical Soap Company operates a retail store in a local shopping mall. The results of operations for the fourth quarter of 2006 are as follows:Sales $200,000 Less cost of sales 100,000 Gross margin 100,000 Less selling, general, and administrative expenses 40,000
PROBLEM 10-2. Master Budget Techlabs operates a computer training center. The following data relate to the preparation of a master budget for January of 2007. 1. At the end of 2006, the company's general ledger indicated the following balances Debits Credits Accounts payable Cash Accounts
PROBLEM 10-1. Master Budget (Note: This problem is similar to the chapter review problem—only the numbers have been changed. Students who get "stuck" should consult the solution to the review problem.)The results of operations for the Preston Manufacturing Company for the fourth quarter of 2005
EXERCISE 10-17. Conflict in Planning and Control Riemers Jewelry operates 45 stores in major shopping malls around the country, and Walter Chan is the manager of a store in Dallas. The company is in the third quarter of 2006 and is beginning preparation of its fiscal 2007 budget. Typically, the
EXERCISE 10-16. Performance Report budgeted before tax income as follows:Sales Less:Material cost Labor cost Owner's salary Rent Depreciation Utilities At the start of 2007, La Patisserie Bakerv$500,000 5100,000 200,000 60,000 50,000 40,000 20,000 470,000 Income before taxes $ 30,000 ncome for 2004
EXERCISE 10-15. Performance Report Prepare a performance report for Bookbinder Company using the budget information from Exercise 14 and the following performance information. During the period, Bookbinder produced 12,000 units and incurred the following costs:Variable Costs Fixed Costs per Month
EXERCISE 10-14. Flexible Budget Bookbinder Company's expected manufacturing costs are as follows:Variable Costs Direct material Direct labor Variable overhead Fixed Costs per Month$5.30/unit Supervisory salaries $14,000 2.50/unit Factory depreciation 8,500 1.20/unit Other factory costs 1,100
EXERCISE 10-13. Cash Disbursements for Purchases Mississippi Retailers expects to make inventory purchases in the next quarter as follows:April $55,000 May 65,000 June 88,000 Prior experience has shown that 20 percent of a month's purchases are paid in the month of purchase and 80 percent in the
EXERCISE 10-12. Budgeted Sales and Cash Receipts Mississippi Retailers expects Credit sales in the next quarter as follows:April $ 75,000 May 85,000 June 108,000 Prior experience has shown that 50 percent of a month's sales are collected in the month of sale, 30 percent in the month following sale,
EXERCISE 10-1 1. Cash Disbursements for Purchases R. Johnson Old Time Guitar Emporium expects to make instrument purchases in the first quarter of 2007 as follows:January $42,000 February 56,000 March 63,000 Purchases in December of 2006 are expected to be $70,000. The company expects that 10
EXERCISE 10-10. Budgeted Sales and Cash Receipts R. Johnson Old Time Guitar Emporium budgeted Credit sales in the first quarter of 2007 to be as follows:January $60,000 February 80,000 March 90,000 Credit sales in December of 2006 are expected to be $100,000. The company expects to collect 80
EXERCISE 10-9. Manufacturing Overhead Budget Prepare quarterly manufacturing overhead budgets for Ajax Chemical Company for 2006 using the production information from Exercise 8. Ajax has overhead costs as follows:Variable Costs Fixed Costs per Quarter Indirect material $2.25 per unit Supervisory
EXERCISE 10-8. Direct Labor Budget Prepare quarterly direct labor budgets for Ajax Chemical Company for 2006 using the production information in Exercise 8. It takes 2.5 hours of direct labor to produce each finished unit of product. Direct labor costs are $20 per hour. Each employee can work 450
EXERCISE 10-7. Direct Materials Purchases Budget Ajax Chemical company has estimated that production for the next five quarters will be:Production Information 46,000 units 42,000 units 50,000 units Quarter 1 , 2006 Quarter 2, 2006 Quarter 3, 2006 Quarter 4, 2006 Quarter 1 , 2007 39,000 units 48,000
EXERCISE 10-6. Production Budget SunnyM produces a sports drink that is sold in southern California. The company expects sales to be 15,600 bottles in January, 16,500 bottles in February, 16,000 bottles in March, and 18,500 bottles in April. There are 1,600 bottles on hand at the start of January.
EXERCISE 10-5. Sales Budget Locksafe Company manufactures burglar-resistant commercial door locks. Recently, the company began selling locks on the Web, and the company expects sales to increase dramatically compared with the prior year. For the past year, 2006, unit sales were as follows:First
EXERCISE 10-4. Order of Budgets Determine the order in which the following budgets are generally prepared.a. Material purchases budgetb. Sales budgetc. Budgeted income statementd. Production budget
EXERCISE 10-3. Internet Assignment Go to the Web site of Hyperion, a leading provider of budgeting software ((http://hyperion.com/)). Locate information on the key features of the product, Hyperion Planning. List five features that make this product(or a similar software application from another
EXERCISE 10-2. Writing Assignment Write a paragraph explaining why a budgetbased compensation scheme may lead managers to create budget slack.
EXERCISE 10-1. Group Assignment Explain why a budget-based compensation scheme may encourage a manager to shift income from the current period to a future period if expected performance is quite high (e.g., greater than 120 percent of budgeted performance). How could the income shifting be
10. Why is there an inherent conflict between the planning and control uses of budgets?
9. How would performance be evaluated if there were no budgets?
8. The number of defects in a manufacturing process is an example of a nonmonetary measure of employee performance. Describe a financial measure that captures the effect of defects.
7. Explain the difference between a static and a flexible budget.

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Managerial Accounting 2nd Edition James Jiambalvo - Solutions

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