Questions and Answers of Managerial Accounting Decision Making

The annual accounts of the Wholesale Textile Company Ltd have been summarized for 2011 and 2012 as follows: You are informed that:1. All sales were from stocks in the company’s warehouse.2. The
Chonky Ltd is a private company manufacturing and supplying spares to the motor trade. The following is a summary of the results of the business for the last four years together with year-end balance
It is 30 January 2013 and Worthy Ltd’s board of directors is meeting to discuss the 2012 accounts (summarized below together with those of 2011). Worthy Ltd is a manufacturing business and all its
BKZ Ltd is a new company about to launch its business-to-business service on the Internet. The launch will take place in April and it hopes to achieve monthly sales of £100,000 in only four months!
Vic Rogers is a sole trader running a vehicle parts business for the motor trade. All his sales are on credit terms. During 2011, he reduced his selling prices in order to increase the volume of
Bodgit Ltd makes 200 wooden kitchen chairs every month and sells them for £50 each. Fixed monthly overheads are £3,000 and the standard cost of one chair is as
The Concord Toy Company has two separate strategic business units. A draft plan, incorporating a target return on capital employed (ROCE) of 20% per annum, has been created by the managing director.
Burgabar Corporation owns and operates a range of fast food outlets throughout the East End of London. A summary of next year’s budget (before head office costs are taken into account) is given
The following comments were broadcast on a television news programme in the first week of February 1999: Rover’s future depends on the success of their latest model, codename R75. They intend to
Profoot currently makes and sells two types of protective shoe, model P1 and model P2. Annual total fixed costs are currently £300,000. For the next financial year, Profoot intends to keep model P1
The current annual budget for King & Co., makers of baseball caps, is summarized as
BBQ Ltd manufactures two types of barbecue – the Deluxe BBQ and the Standard BBQ. Both undergo similar production processes and use similar materials and types of labour. However, a shortage of
Burton Brothers manufactures machine tools for metal-based industries. One of its customers, Wey Ltd, has placed a £590,000 order for a machine, including £10,000 for delivery and installation. Wey
Eezikum is a duo of rap artists currently touring the UK. They still have 11 venues remaining when they are asked to fill in at short notice on a tour of the USA, starting in two days’ time. They
Carbotest Corporation manufactures equipment to test for the presence of carbon monoxide in confined spaces. It has just been offered a contract to build some specialized monitoring equipment to test
MOV plc produces custom-built sensors. Each sensor has a standard circuit board (SCB) in it. The current average contribution from a sensor is £400. MOV plc’s business is steadily expanding and in
Frynas & Co. are considering buying a mobile drilling rig to expand the range of services the company provides for the water, gas and oil industries. The rig would cost £620,000 and last for
Binley Blades specializes in the manufacture of rotor blades for helicopters. It has just spent £50,000 developing a new type of blade based on a mixture of carbon fibre and naturally occurring
Stobo plc is a well-known national chain of high-street chemists. Its traditional markets of pharmaceuticals and beauty products are becoming increasingly competitive due to the aggressive entry of
MN plc has a rolling programme of investment decisions. One of these investment decisions is to consider mutually exclusive investments A, B and C. The following information has been produced by the
CAF plc is a large multinational organization that manufactures a range of highly engineered products/components for the aircraft and vehicle industries. The directors are considering the future of
Lewington Ltd makes a variety of kitchen fittings and equipment. It uses a three-stage process involving cutting, assembly and finishing. The following figures are extracted from its budget for the
Graham and Sara are partners in a clothes manufacturing firm. Graham manages menswear and Sara controls ladies fashions. They have just received last year’s accounts which are summarized
Stellar Showers Co. Ltd manufactures domestic electric showers. It moulds its own plastic casings but buys in the other components from a variety of sources. In addition to 54 production operatives,
Hinj Ltd manufactures and sells four products: arms, brackets, clips and D-rings. This year, for the first time, it is operating an activity-based costing system in parallel with its long-standing
Numan Travel plc started trading 10 years ago with its cheap airfare brand Flygo. Since then, it has expanded to offer three different types of holiday: Best Beaches, Cosy Cottages and Great Golfing.
Wilcock & Co. is a firm of solicitors which currently operates an absorption costing system but is experimenting with an activity-based costing system. The current annual budget shows the
DFR operates a number of retail outlets selling a range of audio-visual products. These products range in size and value from small items such as portable radios that are easily displayed on shelves,
S & P Products plc purchases a range of good-quality gift and household products from around the world; it then sells these products through ‘mail order’ or retail outlets. The company
Clamco makes car clamps. The following information is from January’s budget, which is based on a production volume of 6,000
Rivilin is a uni-product firm with the following budgeted amounts:.............................................................................................. £Unit selling
The Valley Fireworks Corporation manufactures special firework display kits to sell to responsible organizations only. The following information is taken from its budget for 2002: Opening stock of
Brafire manufactures small, portable electric fires. It has operated an absorption costing system since it started many years ago. However, the new managing director (who is studying part time for an
P Ltd manufactures a specialist photocopier. Increased competition from a new manufacturer has meant that P Ltd has been operating below full capacity for the last two years. The budgeted information
Demarco makes miniature mobile generators and has a standard profit margin of 20% for all its products. Its annual budget includes marketing, administration and production overhead allowances of
WSM Enterprises introduced the Wizkid in 1991 to compete with Action Man. Although the peak demand for these products occurred several years ago, sales have stabilized and WSM sells 15,000 Wizkids a
Ride-on makes and sells a mini-tractor lawn mower called the Luxon. The company is just about to start its new financial year for which the budget (recently approved by its holding company) shows the
The table below shows the annual results for the four divisions of a group company. Tasks 1. Calculate the return on capital employed for each of the four divisions and rank them accordingly.2.
Gorgon Group plc is a manufacturer with a divisional structure. The Odeen division makes a single product which it sells outside the Gorgon Group as well as to the Trey division. Odeen’s product
MCP plc specializes in providing marketing, data collection, data processing and consulting services. The company is divided into divisions that provide services to each other and also to external
CTD Ltd has two divisions – FD and TM. FD is an iron foundry division which produces mouldings that have a limited external market and are also transferred to TM division. TM division uses the
M Ltd has two divisions, X and Y. Division X is a chip manufacturer and Division Y assembles mobile phones. Division X currently manufactures many different types of chip, one of which is used in the
Kellaway Ltd makes aluminium junction boxes for the electrical industry. It makes the boxes in three different sizes: small, medium and large. The following details are taken from next quarter’s
Pierce Pommery specializes in the manufacture of dry cider. The 1-litre bottles sell for £3.00 each, with 25% of sales on cash terms and 75% on one month’s credit. The budget shows the following
The sales budget for next year for a particular type of rope manufactured by Norman Ropes is as follows: The stock of finished rope at the start of each period is to be equal to 25% of the sales
ST plc produces three types of processed foods for a leading food retailer. The company has three processing departments (Preparation, Cooking and Packaging). After recognizing that the overheads
Welco Ltd manufactures one type of hydraulic jack. The labour force, who are all paid at the same rate, assemble and finish two bought-in components. Each jack uses two metal castings and one rubber
Stanley & Co. manufactures door frames from a bought-in wooden moulding. The budget for one door frame has costs of £20 for materials and £6 for labour. Each frame has a standard usage of 5
Bigcheque Ltd has created a new computer game called Ivanblast. It knows it will only have a five-week period from launch in order to market this successfully before pirating will reduce its sales to
JK plc operates a chain of fast-food restaurants. The company uses a standard marginal costing system to monitor the costs incurred in its outlets. The standard cost of one of its most popular meals
TBS produces two products in a single factory. The following details have been extracted from the standard marginal cost cards of the two products: TBS uses a standard marginal costing system linked
How are cash flows affected as a result of the tax consequences of depreciation?
What is the cost of equity financing?
What are the two approaches for evaluating investments that take into account the time value of money?
Below is an excerpt from Bell’s Management Discussion and Analysis from its 10K for the year ended 12/31/2020: Gross margin as a percentage of net revenue improved slightly to 19.1% during
Financial information for Bell and Gangway (two computer manufacturers) follows: Required a. Compare Bell and Gangway in terms of their percentage changes in sales and gross
Balmer is a West Coast company with more than 400 drug stores. Financial information for fiscal 2020 and 2019 follows: An excerpt from management discussion and analysis (MD&A) in the fiscal
Venture Auto Parts is a chain of 40 stores offering a full line of auto parts and supplies to consumers and independent auto repair shops. Danny’s Brake and Muffler has over 90 stores in the cities
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
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
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
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
Bayberry Office Plus has the following selected financial information for sales, gross profit, net income, current assets, current liabilities, total assets, total liabilities, and stockholders’
Refer to the data in Exercise 14.15. Calculate the following financial ratios for 2021 and 2020 and compare results: Requirea. Current ratio. b. Acid-test ratio (quick
Refer to the data in Exercise 14.15. Calculate the following financial ratios for 2021 and 2020 and compare results: Requirea. Asset turnover. b. Accounts
Comparative financial statements for the Rahul Corporation for the year ended December 31 are given below. A total of 500,000 shares of common stock were outstanding. The market value of the
Comparative income statements for Cramer Carpets, a carpet retailer, are given below: The president is concerned that net income is down in 2021 even though sales have increased during the year.
Choice Foods is a large food and drug retailer with more than 1,700 stores in the United States and Canada. The following financial information relates to fiscal 2021 and
For a company recommended by your instructor, go to the company’s corporate website and obtain its annual report. (Most likely you will have to click through to investor relations.) Briefly
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.
Go to the website of Yahoo! Finance (http://finance.yahoo.com). Enter the ticker symbols for Home Depot (HD) and Lowe’s (LOW). For each firm, click on Statistics and note the ratio for profit
A company is applying for a line of credit at a bank. The company’s current ratio is 2, but Inventory is 75 percent of current assets. Discuss why the bank might have concerns about extending a
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?
Suppose net income is much higher than cash flow from operations. Why is this potentially indicative of earnings manipulation?
List three types of decisions managers can make by analyzing financial statements.
Wellcomp Computers is a leader in the laptop market with a 45 percent market share and a reputation for efficient operations. Typically the company has only 10 days’ sales in inventory and five
Sellmer’s Pasta has the following financial statements: At the end of 2020, Sellmer purchased additional equipment for $24,625. Sellmer paid dividends of $5,000 during the
Following is an income statement for the Clayton Corporation for the year ended December 31, 2020, and a schedule listing the company’s current assets and current liabilities at the end of 2019 and
The following financial statements were furnished by the Patton Company: In 2020, Patton purchased equipment for $25,000 and sold some equipment for its book value (i.e., no gain or loss
The following are line items included in the 2021 statement of cash flows prepared by Goodly’s Clothing Company: Depreciation expense....................................................$
Below is an income statement for Newell Products for the year ended December 31, 2020, and a schedule listing the company’s current assets and current liabilities at the end of 2019 and
Below is an income statement for Boulder Hill for the year ended December 31, 2021 and the company’s balance sheets as of December 31, 2020, and 2021. The prepaid expenses and accrued
The Octel Corporation has the following financial statements: Dividends of $28,200 were paid during the year. No equipment was purchased or retired during the year. Required Using the
The following information relates to the Martinez Company for fiscal 2020: Beginning retained earnings......................$5,100,000 Ending retained
The Motta Storage Company had the following balances in its Equipment and Accumulated Depreciation on Equipment accounts at the beginning and end of 2021: During 2021, Motta engaged in the
The income statement for Weinberg Chemical Supply is as follows: Other information is as follows:1. Accounts receivable decreased by $13,000 during the year. 2. Accounts payable increased
Given the following information, what amount of cash was paid to suppliers of inventory in 2021, assuming all accounts payable are related to inventory purchases? Ending Balance 2020 2021 $
Given the following information, what amount of cash was collected from customers in 2021? Assume all sales are on account. Ending Balance 2020 2021 Accounts receivable $ 600,000 $ 480,000
he Molton Company experienced the following during 2021: 1. Issued preferred stock for $125,000. 2. Repurchased $70,000 of its own common stock. 3. Borrowed $150,000 from a bank
During 2020, the Damon Company had the following transactions: 1. Purchased $200,000 of 10-year bonds issued by the Gallant Company. 2. Purchased common stock in the Morceau Company, as a
Consider the following transactions: Required For each transaction, place a check mark under the statement directly affected by it. Income Statement of Transactions Statement Cash Flows
Go to the website for Alaska Air Group’s investor relations and find the company’s financial statements for 2018. It is included in its 10-K filing with the SEC. As noted in the Consolidated
Why is a business that has substantial positive cash flows from operating activities with relatively small cash flows related to investing and financing activities referred to as a cash cow?
What is the starting point for determining a company’s net cash flow from its operating activities under the indirect method? Why is this figure used?
What parts of the statement of cash flows are the same regardless if one is using the direct or the indirect method?
What is the basis of accounting that underlies the income statement, and what is the basis of accounting that underlies the statement of cash flows?
a. Calculate EVA for 2020 and 2019, using a cost of capital of 12 percent. No adjustments for accounting distortions are needed. Explain why sales and income have increased substantially in 2020 and
a. To prepare for an upcoming board meeting, Tanya has asked you to evaluate financial performance for 2020 and 2021, taking into account both the level of investment and the cost of capital.
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
Consider the following data related to the financial performance of Royal Company: Between 2018 and 2021, income increased by 63 percent, showing a significant increase in income each year. In

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