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business
managerial accounting 8th
Managerial Accounting For Managers 6th Edition Eric Noreen, Peter Brewer, Ray Garrison - Solutions
What is a static planning budget?
“The principal purpose of the cash budget is to see how much cash the company will have in the bank at the end of the year.” Do you agree? Explain.
How can budgeting assist a company in planning its workforce staffing levels?
What is a self-imposed budget? What are the major advantages of self-imposed budgets?What caution must be exercised in their use?
Why is it a good idea to create a “Budgeting Assumptions” tab when creating a master budget in Microsoft Excel?
“As a practical matter, planning and control mean exactly the same thing.” Do you agree?Explain.
Why is the sales forecast the starting point in budgeting?
What is a master budget? Briefly describe its contents.
What is a perpetual budget?
Discuss some of the major reasons why companies prepare budgets.
What is a budget? What is budgetary control?
What is the major criticism of the payback and simple rate of return methods of making capital budgeting decisions?
What is meant by the term payback period? How is the payback period determined? How can the payback method be useful?
How is the profitability index computed, and what does it measure?
. Is the return on this investment proposal exactly 14%, more than 14%, or less than 14%? Explain.
Refer to Exhibit
As the discount rate increases, the present value of a given future cash flow also increases.Do you agree? Explain.
Explain how the cost of capital serves as a screening tool when using (a) the net present value method and (b) the internal rate of return method.
What is meant by an investment project’s internal rate of return? How is the internal rate of return computed?
If a company has to pay interest of 14% on long-term debt, then its cost of capital is 14%.Do you agree? Explain.
Identify two simplifying assumptions associated with discounted cash flow methods of making capital budgeting decisions.
What is net present value? Can it ever be negative? Explain.
Why are discounted cash flow methods of making capital budgeting decisions superior to other methods?
Why isn’t accounting net income used in the net present value and internal rate of return methods of making capital budgeting decisions?
What is meant by the term discounting?
What is meant by the term time value of money?
What is the difference between capital budgeting screening decisions and capital budgeting preference decisions?
Airlines sometimes offer reduced rates during certain times of the week to members of a businessperson’s family if they accompany him or her on trips. How does the concept of relevant costs enter into the decision by the airline to offer reduced rates of this type?
What guideline should be used in determining whether a joint product should be sold at the split-off point or processed further?
From a decision-making point of view, should joint costs be allocated among joint products?
Define the following terms: joint products, joint costs, and split-off point.
How will relating product contribution margins to the amount of the constrained resource they consume help a company maximize its profits?
Give at least four examples of possible constraints.
How does opportunity cost enter into a sourcing decision?
What is the danger in allocating common fixed costs among products or other segments of an organization?
“If a product is generating a loss, then it should be discontinued.” Do you agree? Explain.
Prentice Company is considering dropping one of its product lines. What costs of the product line would be relevant to this decision? What costs would be irrelevant?
“All future costs are relevant in decision making.” Do you agree? Why?
“Variable costs and differential costs mean the same thing.” Do you agree? Explain.
“Sunk costs are easy to spot—they’re the fixed costs associated with a decision.” Do you agree? Explain.
Are variable costs always relevant costs? Explain.
Define the following terms: incremental cost, opportunity cost, and sunk cost.
What is a relevant cost?
Why is the form of activity-based costing described in this chapter unacceptable for external financial reports?
How can the activity rates (i.e., cost per activity) for the various activities be used to target process improvements?
When activity-based costing is used, why do manufacturing overhead costs often shift from high-volume products to low-volume products?
Why is the first stage of the allocation process in activity-based costing often based on interviews?
What are the two stages of allocation in activity-based costing?
What types of costs should not be assigned to products in an activity-based costing system?
What are unit-level, batch-level, product-level, customer-level, and organizationsustaining activities?
Why are top management support and cross-functional involvement crucial when attempting to implement an activity-based costing system?
Why is direct labor a poor base for allocating overhead in many companies?
In what fundamental ways does activity-based costing differ from traditional costing methods such as job-order costing as described in Chapter 3?
Should a company allocate its common fixed costs to business segments when computing the break-even point for those segments? Why?
How is it possible for a fixed cost that is traceable to a segment to become a common fixed cost if the segment is divided into further segments?
Why aren’t common fixed costs allocated to segments under the contribution approach?
Explain how the contribution margin differs from the segment margin.
Distinguish between a traceable fixed cost and a common fixed cost. Give several examples of each.
What costs are assigned to a segment under the contribution approach?
What is a segment of an organization? Give several examples of segments.
How does Lean Production reduce or eliminate the difference in reported net operating income between absorption and variable costing?
Under absorption costing, how is it possible to increase net operating income without increasing sales?
If fixed manufacturing overhead costs are released from inventory under absorption costing, what does this tell you about the level of production in relation to the level of unit sales?
If the units produced exceed the units sold, which method would you expect to show the higher net operating income, variable costing or absorption costing? Why?
If the units produced equals the units sold, which method would you expect to show the higher net operating income, variable costing or absorption costing? Why?
What are the arguments in favor of treating fixed manufacturing overhead costs as period costs?
What are the arguments in favor of treating fixed manufacturing overhead costs as product costs?
Explain how fixed manufacturing overhead costs are shifted from one period to another under absorption costing.
Are selling and administrative expenses treated as product costs or as period costs under variable costing?
What is the difference between absorption costing and variable costing?
What is a plantwide overhead rate? Why are multiple overhead rates, rather than a plantwide overhead rate, used in some companies?
What is underapplied overhead? Overapplied overhead?
Would you expect the amount of applied overhead for a period to equal the actual overhead costs of the period? Why or why not?
If a company fully allocates all of its overhead costs to jobs, does this guarantee that a profit will be earned for the period?
What factors should be considered in selecting an allocation base to be used in computing a predetermined overhead rate?
Why do companies use predetermined overhead rates rather than actual manufacturing overhead costs to apply overhead to jobs?
Explain why some production costs must be assigned to products through an allocation process.
What is the purpose of the job cost sheet in a job-order costing system?
Explain the four-step process used to compute a predetermined overhead rate.
How is the unit product cost of a job calculated?
What is normal costing?
What is absorption costing?
What is job-order costing?
Explain how a shift in the sales mix could result in both a higher break-even point and a lower net operating income.
What is meant by the term sales mix? What assumption is usually made concerning sales mix in CVP analysis?
What is the meaning of margin of safety?
In response to a request from your immediate supervisor, you prepared a CVP graph portraying the cost and revenue characteristics of your company’s product and operations.Explain how the lines on the graph and the break-even point would change if (a) the selling price per unit decreased, (b)
What is the meaning of break-even point?
What is the meaning of operating leverage?
In all respects, Company A and Company B are identical except that Company A’s costs are mostly variable, whereas Company B’s costs are mostly fixed. When sales increase, which company will tend to realize the greatest increase in profits? Explain.
Often the most direct route to a business decision is an incremental analysis. What is meant by an incremental analysis?
What is the meaning of contribution margin ratio? How is this ratio useful in planning business operations?
Only variable costs can be differential costs. Do you agree? Explain.
Define the following terms: (a) differential cost, (b) sunk cost, and (c) opportunity cost.
What is the contribution margin?
What is the difference between a traditional format income statement and a contribution format income statement?
Does the concept of the relevant range apply to fixed costs? Explain.
Distinguish between discretionary fixed costs and committed fixed costs.
Managers often assume a strictly linear relationship between cost and the level of activity.Under what conditions would this be a valid or invalid assumption?
What is meant by an activity base when dealing with variable costs? Give several examples of activity bases.
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