Managerial Accounting 2nd Edition James Jiambalvo - Solutions

6. What are the main purposes of preparing a cash receipts and disbursements budget?
5. How does use of a spreadsheet program facilitate"what if" analysis in budgeting?
4. What is meant by a zero base budget?
3. What is the difference between the top-down and bottom-up approach to developing a budget?
2. Why are budgets useful in the control process?
1. Why are budgets useful in the planning process?
10. Which of the following is false?a. Including some nonmonetary measures of performance in a budget is not likely to be advantageousb. If a key aspect of a company's success is high quality, defect free products, it may be useful to budget the number of defects and the num- ber of customer
9. True or False? There is never a conflict between the planning and control use of budgets.
8. Which of the following is true about management by exception?a. Only large favorable variances are investigatedb. Management by exception is an economical approach to cost controlc. Management by exception can only be used with computersd. Large favorable variances should not be investigated
7. A budget is not adjusted for the actual level of production whereas a budget is adjusted for the actual level of production.
6. Differences between budgeted and actual amounts are referred to___________________.
5. Which of the following items do not require a cash outflow?a. Salariesb. Purchase of raw materialsc. Advertisingd. Depreciation
4. Which of the following is the correct formula to determine required purchases of direct materials?a. Quantity required for production + Desired. ending quantity - Beginning quantityb. Quantity required for production - Desired ending quantity + Beginning quantity Quantity required for production
3. Which of the following statements regarding a sales budget is false?a. Input from the sales force may be useful in predicting salesb. Very large companies may hire economists to help forecast salesc. The sales budget is prepared before the cash receipts and disbursements budgetd. The sales
2. Budgets are useful in the planning process because they enhance and
1. Which of the following statements regarding budgets is false?a. They are formal documents that quantify a company's plans.b. They enhance communication and coordination.c. They are useful in planning but not in control.d. They provide a basis for evaluating performance.
PROBLEM 9-2. Present Value and "What If Analysis National Cruise Line, Inc.is considering the acquisition of a new ship that will cost $180,325,005. In this regard, the president of the company asked the CFO to analyze cash flows associated with operating the ship under two alternative itineraries:
PROBLEM 9-1. Present Value Analysis Carter "Flip" Allison recently rejected an$8,000,000, five-year contract with the Vancouver Seals. The contract offer called for an immediate signing bonus of $3,000,000 and annual payments of $ 1 ,000,000.To "sweeten" the deal, the president of player personnel
EXERCISE 9-23. Quantifying "Soft" Benefits Pritchard Manufactured Products is considering investing in a flexible manufacturing system that will enable the company to respond rapidly to customer requests. Ben Jarvis, the controller of Pritchard, has estimated that the system will have a 10-year
EXERCISE 9-22. "Soft" Benefits Sherman's Jewelry has 45 stores in major malls around the country. The company is considering starting an online business, Shermans.com, which will require a substantial investment in technology.Required Identify a potential benefit of the online business that would
EXERCISE 9-21. IRR and Unequal Cash Flows A company is making an investment of $2,200,100 that will yield the following cash flows:Year 1 $200,000 Year 2 $400,000 Year 3 $600,000 Year 4 $800,000 Year 5 $1,000,000 Required What is the internal rate of return of the investment?
EXERCISE 9-20. IRR and Unequal Cash Flows Newport Department Store is considering development of an e-commerce business. The company estimates that development will require an initial outlay of $1,000,000. Other cash flows will be as follows:Year 1 ($500,000 Year 2 $200,000 Year 3 $630,000 Year 4
EXERCISE 9-19. Calculate the Accounting Rate of Return The Deaton Company is considering entering a new line of business. Starting the business will require an initial investment in equipment of $200,000. It is expected that the new business will increase net income by $30,000 per year for five
EXERCISE 9-18. Calculate the Payback Period The Lower Valley Wheat Cooperative is considering the construction of a new silo. It will cost $41,000 to construct the silo. Determine the payback period if the expected cash inflows are $5,000 per year.
EXERCISE 9-17. Net Present Value with Taxes Wilson Smoked Fish Corporation is contemplating the purchase of a new smoker. The smoker will cost $21,000 but will generate additional revenue of $15,500 per year for seven years. Additional costs, other than depreciation, will equal $8,000 per year. The
EXERCISE 9-16. Cash Flow Implications of Tax Losses WesternWear.com is expected to have operating losses of $100,000 in its first year of business and $50,000 in its second year. However, the company expects to have income before taxes of$120,000 in its third year and $ 200,000 in its fourth year.
EXERCISE 9-5. Using Present Value Tables What is the present value of $ 1 00 received at the end of five years if the required return is 10 percent (answer using Table 1 in Appendix B, Present Value of $1 Due in n Periods)?method of depreciation and has a tax rate of 40 percent. The company's
EXERCISE 9-4. Investment Decisions Provide an example of an investment decision at Charles Schwab (a company that provides traditional and online brokerage services), McDonalds, and Wal-Mart. For each example, indicate the cash inflows and outflows that the company would estimate in analyzing the
EXERCISE 9-3. Internet Assignment Go to Web site of Technology/Engineering Management, Inc. (http://www.temi.com/NewTechInvestments.htm) and read the note on justifying investments in new technology by Richard Mignogna, president of this consulting firm. What are the strategic benefits of
EXERCISE 9-2. Writing Assignment Pauline Hsu is the manager of the office products division of Lomar Enterprises. In this position, her annual bonus is based on an appraisal of return on investment (ROI) measured as Division Income -5- End-of-Year Division Assets (net of accumulated
EXERCISE 9-1. Group Assignment Explain why interest expense is not treated as a cash outflow in capital budgeting decisions made using net present value (NPV)analysis.
10. Why does the failure to consider "soft" benefits discourage investment?
9. How is the internal rate of return (IRR) determined if there are uneven cash flows?
8. Why may managers concentrate on the short run profitability of investments rather than their net present values?
7. What are the advantages of evaluating projects using the net present value and internal rate of re-. turn methods instead of the payback and accounting rate of return methods?
6. How are cash flows affected as a result of the tax consequences of depreciation?
5. What is the cost of equity financing?
4. How do the net present value and the internal rate of return methods differ in their approach to evaluating investment alternatives?
3. What are the two approaches for evaluating investments that take into account the time value of money?
2. Why is it important to take into account the time value of money when making capital budgeting decisions?
1. What is a capital expenditure decision?
12. An example of a "soft" benefit is:a. Improved brand recognitionb. Savings of material costc. Savings of labor costd. Increase in sales
11. A project has unequal cash flows, and a manager"guesses" that the internal rate of return will be 10 percent. If the net present value is positive at 10 percent, then:a. The internal rate of return is greater than 10 percentb. The internal rate of return is less than 10 percentc. The internal
10. A project requires a $2,000,000 investment and has an internal rate of return of 20 percent. The cost of capital is only 15 percent. A manager with a shortrun orientation may still reject this investment if:a. The net present value is positiveb. The rate of inflation is highc. The accounting
3. If you require a return of 8 percent, the present value of $ 1 00 received two years from now would be calculated as:b.c.$100(-08)2(1 + .08)2$100$100(1 + .08)2d. None of the above If the net present value of a project is zero, the project is earning a return equal to:a. Zerob. The rate of
2. Which of the following methods equates future dollars to current dollars?a. Net present value methodb. Internal rate of return methodc. Payback period methodd. Both a and b are correct
1. Which of the following is not a capital expenditure decision?a. Building a new factoryb. Purchasing a new piece of equipmentc. Purchasing a computer systemd. All of the above are capital expenditure decisions
PROBLEM 8-7. Activity-Based Pricing Consider the information in Problem 8-6.Lauden Conference Solutions has decided to adopt an activity-based pricing scheme.On future jobs, the company will charge a 30 percent markup on the sum of product costs plus installer salaries. In addition, the company
PROBLEM 8-6. Analyzing Customer Profitability Lauden Conference Solutions specializes in the design and installation of meeting and conference centers for large corporations. When bidding on jobs, the company estimates product cost and direct labor for installers and marks the total cost up by 30
PROBLEM 8-5. Target Costing Baker Plumbing Fixtures is developing a pre-plumbed, acrylic shower unit. The team developing the product includes representatives from marketing, engineering, and cost accounting. To date, the team has developed a set of features that it plans on incorporating in the
PROBLEM 8-4. Cost-Pius Pricing Wendel Stove Company is developing a "professional"model stove aimed at the home market. The company estimates that variable costs will be $2,000 per unit and fixed costs will be $10,000,000 per year.Requireda. Suppose the company wants to set its price equal to full
PROBLEM 8-3. Determining the Profit Maximizing Price RoverPlus, a pet product superstore, is considering pricing a new RoverPlus labeled dog food. The company will buy the premium dog food from a company in Indiana that packs the product with a RoverPlus label. Rover pays $6 for a 50-pound bag
PROBLEM 8-1. Determining the Profit Maximizing Price Spencer Electronics has just developed a low-end electronic calendar that it plans on selling via a cable channel marketing program. The cable program's fee for selling the item is 15 percent of revenue. For this fee, the program will sell the
EXERCISE 8-9. Activity-Based Pricing Refer to the information in Exercise 8. For the coming year, Delta Products has told Johnson Brands that it will be switched to an activity-based pricing system or it will be dropped as a customer. In addition to regular prices, Johnson will be required to
EXERCISE 8-8. Customer Profitability Analysis Using CRM (customer relationship management) software, Delta Products has determined the following costs:Order processing (per order) $ 5.00 Additional handling costs if order marked rush (per order) 8.50 Customer service calls (per call) 10.00
EXERCISE 8-7. Target costing A cross functional team at Mazzor Systems is developing a new product using the target costing methodology. Product features in comparison to competing products suggest a price of $2,000 per unit. The company requires a profit of 20 percent of selling price.Requireda.
EXERCISE 8-6. Cost-Pius Pricing World View is considering production of a lighted world globe that the company would price at a markup of 20 percent above full cost. Management estimates that the variable cost of the globe will be $50 per unit and fixed costs per year will be $100,000.Requireda.
EXERCISE 8-5. Analyzing a Special Order PowerDrive, Inc. produces a hard disk drive that sells for $140 per unit. The cost of producing 20,000 drives in the prior year was:Direct material Direct labor Variable overhead Fixed overhead Total cost At the start of the current year, the company received
EXERCISE 8-4. Profit maximizing price The editor of Spunk Magazine is considering three alternative prices for her new monthly periodical. Her estimate of price and quantity demanded are:Quantity Price Demanded$6.95 20,000$5.95 25,000$4.95 32,000 Monthly costs of producing and delivering the
EXERCISE 8-3. Internet Assignment Go to the Web and search for information on how customer relationship management (CRM) software is used to assess customer profitability. What is the relationship between the process used in profitability assessment and activity-based costing?
EXERCISE 8-2. Writing Assignment Brindle Corporation is considering an initiative to assess customer profitability. The company's CFO, John Bradley, stated his position as follows: "I strongly suspect that some of our customers are losers—in other words, they're not covering product costs and
EXERCISE 8-1. Group Assignment Consider a company that manufactures and sells personal computers (let's call the company Bell Computers). Recently the company lowered its prices dramatically. The company is very efficient and needs only five days of inventory, collects its receivables within 30
EXERCISE 8-3. Internet Assignment Go to the Web and search for information on how customer relationship management (CRM) software is used to assess customer profitability. What is the relationship between the process used in profitability assessment and activity-based costing?
EXERCISE 8-2. Writing Assignment Brindle Corporation is considering an initiative to assess customer profitability. The company's CFO, John Bradley, stated his position as follows: "I strongly suspect that some of our customers are losers—in other words, they're not covering product costs and
EXERCISE 8-1. Group Assignment Consider a company that manufactures and sells personal computers (let's call the company Bell Computers). Recently the company lowered its prices dramatically. The company is very efficient and needs only five days of inventory, collects its receivables within 30
5. Explain why less profitable customers may become more profitable if a supplier switches to activity- based pricing.
4. How is cost allocation used in customer profitabil- ity analysis?
3. To implement target costing for a new product, companies often set up a cross-functional team with members from engineering, marketing, and cost accounting. Why is a cross-functional team de- sirable when implementing the target costing ap- proach?
2. Why is cost-plus pricing inherently circular for a manufacturing firm?
1. According to economic theory, how would a manager determine the profit-maximizing price for a product or service?
5. With activity-based pricing:a. Customers face a menu of prices for various services.b. Customers are encouraged to consider the costs they impose on a supplier.c. Customers may be charged less if they request less product variety in their orders.d. All of the above are correct.
4. Customer profitability is measured as:a. Revenue - cost of goods sold.b. Revenue - indirect manufacturing costs.c. Revenue — cost of goods sold-indirect service costs.d. Revenue — cost of goods sold-indirect manufacturing costs.
3. Target costing:a. Requires specification of desired level of profit.b. Targets specific costs for reduction.c. Is used primarily with products that are already in production.d. Leads to profit maximization.
2. Cost-plus pricing:a. Leads to profit maximization.b. Is inherently circular for manufacturing firms.c. Is difficult to perform.d. None of the above are correct.
1. To determine the profit-maximizing price a manager must:a. Estimate the quantity demanded for various prices.b. Estimate variable costs.c. Both a and b are correct.d. None of the above are correct.
PROBLEM 7-16. (Appendix) Managing Constraints Reece Herbal Supplements purchases, in bulk, a variety of dietary supplements that the company bottles, packages, and ships to health food stores and drugstores around the country. The company has a good reputation, and its products are in high demand.
PROBLEM 7-15. (Appendix) Batch Size Decision and Constraints At Jordan Outdoor Furniture, the powder coating process is a bottleneck. Typically, it takes approximately two hours to switch between jobs. The time is spent cleaning nozzles, and paint tanks, and recalibrating equipment. Currently, the
PROBLEM 7-14. Joint Costs Northwest Minerals operates a mine. During July, the company obtained 400 tons of ore, which yielded 100 pounds of gold and 50,000 pounds of copper. The joint cost related to the operation was $400,000. Gold sells for$270 per ounce and copper sells for $0.68 per
PROBLEM 7-13. Joint Costs Robert Gordon is a commercial fisherman and he has just returned from a trip off the coast of Alaska. Robert has calculated the cost of his catch as follows:Wages of deckhands Robert's wage Food, medical supplies, etc.Depreciation of netting and other equipment
PROBLEM 7-12. Joint Costs and Additional Processing Good Earth Products produces orange juice and candied orange peels. A 1,000 pound batch of oranges, costing $400, is transformed using labor of $40 into 100 pounds of orange peels and 300 pints of juice.The company has determined that the sales
PROBLEM 7-11. Joint Costs and Decision Making Olympic Wood Products purchases alder logs for $80 per log. After stripping the bark, the log is spun on a veneer cutter, which peels thin layers of wood (referred to as veneer) that are sold to furniture manufacturers for $140 per, 3' X 30' sheet of
PROBLEM 7-10. Cost Allocation Death Spiral Carpets Unlimited produces and sells three lines of carpet (economy, standard, and deluxe). Jeff Choi, the chief financial officer of the company has prepared the following report on the profitability of the company in the past year. In the report, fixed
PROBLEM 7-9. Drop a Product Decision Winslovv Pumps manufactures three model pumps for industrial use. The standard selling price and cost of each pump follows:Model 101 Model 201 Model 301 Selling price $5,000 $10,000 $13,000 Unit cost:Material 1,050 4,500 6,000 Direct labor 500 2,000 4,000
PROBLEM 7-8. Drop a Product/Opportunity Cost Midwestern Sod Company produces two products: Fescue Grass and Bermuda Grass.Fescue Grass Bermuda Grass Selling price per square yard $1.90 $2.65 Less variable cost per square yard .40 1 .00(water, fertilizer, maintenance)The company has 100,000 square
PROBLEM 7-7. Dropping a Product Line AVD Electronics, a consumer electronics retailer, has three product lines: audio, video, and communications (cell phones and pagers). Common costs are allocated based on relative sales. A product line income statement follows:AVD Electronics Income Statement for
PROBLEM 7-6. Additional Processing Decision with a Production Constraint Mega Chemical Company produces ZylexA and a related product called ZylexB, along with other products. ZylexB, which sells for $13.50 per gallon, is made from a base of ZylexA plus additional ingredients. It takes 20 minutes to
PROBLEM 7-5. Additional Processing Decision and Qualitative Factors Carpets Unlimited produced 1,000 yards of its economy grade carpet. In the coloring process, there was a pigment defect and the resulting color appeared to be faded. The carpet normally sells for $10 per yard: $5 of variable cost
PROBLEM 7-4. Make-or-Buy Decision Curtis Corporation is beginning to manufacture Mighty Mint, a new mouthwash in a small spray container. The product will be sold to wholesalers and large drugstore chains in packages of 30 containers for $18 per package. Management allocates $200,000 of fixed
PROBLEM 7-3. Make-or-Buy Decision For most construction projects, Bradley Heating and Cooling buys sheet metal and forms the metal into heating/cooling ducts as needed. The company estimates the costs of making and installing ductwork for the Kerry Park shopping mall to be as follows:Materials
PROBLEM 7-2. Incremental Analysis of Outsourcing Decision Oakland College is considering outsourcing their grounds maintenance. In this regard, Oakland has received a bid from Highline Grounds Maintenance for $250,000 per year. Highline states that their bid will cover all services and planting
PROBLEM 7-1. Decision Making and Ethics Sandra Winston, VP of marketing for Frontier Home and Car Stereo, has developed a marketing plan for presentation to the company's president. The plan calls for television ads, something the company has never used. As part of her presentation, she will
EXERCISE 7-18. (Appendix) Calculating the Value of Loosening a Constraint At CF Rogers Corporation, the stamping department is a bottleneck, and the company is considering hiring an extra worker, whose salary will be $50,000 per year, to mitigate the problem.With the extra worker, the company will
EXERCISE 7-17. Allocating Joint Costs The Fresh Produce Company purchased a truckload of watermelons (weighing 6,000 pounds) for $600. Fresh Produce separated the melons into two grades: superior and economy. The superior grade melons had a total weight of 4,000 pounds and the economy grade melons
EXERCISE 7-16. Joint Cost Allocation with Relative Sales Values Baxter Products produces two joint products (A and B). Prior to the split-off point, the company incurs costs of $1,000. Product A weighs 20 pounds and product B weighs 40 pounds.Product A sells for $50 per pound and product B sells
EXERCISE 7-15. Joint Cost Allocation with Physical Quantity of Output Baxter Products produces two joint products (A and B). Prior to the split-off point, the company incurs costs of $1,000. Product A weighs 20 pounds and product B weighs 40 pounds. Product A sells for $50 per pound and product B
EXERCISE 7-14. Qualitative Factors in Decision Making For each of the following situations, indicate a qualitative factor that should be considered prior to making a decision:a. A company that produces and sells bottled water is considering outsourcing its bottling operation. The company will still
EXERCISE 7-13. Dropping a Product Line Computer Village sells computer equipment and home office furniture. Currently, the furniture product line takes up approximately 50 percent of the company's retail floor space.The president of Computer Village is trying to decide whether the company should
EXERCISE 7-12. Make or Buy Decision Eurospa Corp. produces whirlpool tubs.Currently, the company uses internally manufactured pumps to power water jets.Eurospa Corp. has found that 40 percent of the pumps have failed within their 12-month warranty period, causing huge warranty costs. Because of the
EXERCISE 7-11. Additional Processing Decision CellCom Inc. has decided to discontinue manufacturing its Elite model cellular phone. Currently, the company has a number of partially completed phones on hand. The company has spent $95 per unit to manufacture these phones. To complete each unit, costs
EXERCISE 7-10. Dropping a Product: Relevant Costs E-Teller Inc. manufactures ATM machines. Recently, the company has begun manufacturing and marketing a machine that can recognize customer fingerprints. Demand for this machine is very strong and the chief executive officer (CEO) of E-Teller is

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Managerial Accounting 2nd Edition James Jiambalvo - Solutions

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