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managerial accounting decision making
Managerial Accounting Information For Decisions 4th Edition Thomas L. Albright , Robert W. Ingram, John S. Hill - Solutions
Making sound strategic capital investment decisions requires managers to avoid several pitfalls.a. Managers should carefully consider salvage values and use appropriate discount rates.b. Managers should consider in their decisions the opportunity cost of not making a capital investment.
Managers often are reluctant to terminate a failing project.a. Reasons for this reluctance can be divided into project, psychological, social, and structural determinants.b. Managers can reduce this reluctance by being aware of the problem and taking steps to prevent it.
Managers at Precision Products are considering a change in the method used to apply paint to the company's products. The new method represents the newest technology. Instead of traditional "wet" painting, it uses electromagnetics to make powdered paint adhere to product surfaces. Precision's major
A local manufacturing company is planning to purchase a new computer software system that will affect the entire company. The new system will allow the receptionist to log all incoming calls and messages on the company's electronic mail system so that users will have immediate notice of incoming
Tim and Tom are brothers who split a large inheritance. Tim used all of his money to buy a company that manufactures a single product used in high-tech industries. Tom used his money to lease two small retail stores in a nearby mall, one that sells candles and another that sells yogurt. He also
Caltron Enterprises operates a multimillion-dollar plant and is considering an expansion of its facilities to support a new product line. Should the cost of the company's existing plant and equipment affect the expansion decision? Explain your answer.
Classify each of the following capital investment decisions as either operational or strategic Briefly justify your answers.1. A bank decides to build a new branch in the same town where it has 15 other branches. The new branch will cost \(\$ 200,000\) and will have an estimated service life of 25
Assume that a friend has asked to borrow \(\$ 100\) from you. You agree, as long as your friend pays you \(6 \%\) annual interest to provide for the time value of money. Your friend wants to know what is meant by "time value of money." How would you explain this concept?
Erin Brady won a \(\$ 500\) prize in a raffle. The winning ticket states, "Prizes are payable in six months from contest date, or may be discounted at \(10 \%\) for immediate payment." Erin has asked you what is meant by the term "discounted." What will you tell her?
Douglas Wright has calculated the net present value of a proposed project investment and has obtained a negative amount. Assuming that Douglas calculated the net present value properly, what does the negative amount indicate about this investment?
Julie Russo attended a company meeting to discuss a potential investment in new machinery. The company uses the payback method to analyze potential investments. After reviewing the figures, Julie commented, "These figures are not reliable. They have not been discounted." Do you agree with Julie?
Bill Rubble, president of Melinco Company, reviewed a proposal for a project investment that was submitted by the vice president of production. Bill attached a note to the proposal that said, "Please recalculate this proposal-adjust the rate of return by \(2 \%\) to compensate for the higher risk
Samuel Sanchez is a project manager for Johnson Industries. Samuel wants to analyze a potential investment. He seeks a method that considers the project's profitability but is not affected by the time value of money. What method would you suggest Samuel utilize?
Capital budgeting models such as NPV, internal rate of return, payback, and accounting rate of return make managing easier, because future projects can be approved immediately if target values are obtained. Do you agree or disagree? Why?
Paul Bruce, controller of Chief Industries, performs investment analysis for all of the company's capital projects. Paul has complained that investment analysis is difficult because there are so many estimates that must be made. What are some of the variables that typically must be estimated in a
Assume that the internal rate of return on a particular capital investment project has been calculated and is exactly equal to the target rate a company has established for such projects. If tax rates are expected to increase in the future, would the investment become more or less desirable from an
Woodcrest, Inc., a textile manufacturer, is considering purchasing a new type of technology that is advertised to improve the efficiency and lower the cost of its cloth dyeing process. What factors should be considered in making the decision to acquire this equipment?
Auto Parts, Inc., uses traditional manufacturing assembly lines to manufacture starters and alternators. Much of Auto Parts' equipment is wearing out, and company management is considering what type of production facilities to invest in. Several factors have been changing in the industry. Over the
Tanguchi Equipment Company manufactures cabs and chassis for fire trucks, ambulances, and other emergency vehicles. Parts manufactured by Tanguchi require precision and quality. The company employs a highly trained workforce that produces most parts by hand and has maintained a moderate level of
Newhart Company is planning a major capital investment program to automate its production processes, which are currently labor-intensive. What impact on its cost structure should the company expect from its factory automation program?
Everyday Plastics Corporation wants to invest in new machinery that will allow the company to be more responsive to changes in customer demand. The company has an excellent credit rating and can borrow funds at the prevailing prime interest rate. To be on the "safe" side, however, the company has
In an effort to convince the president of Utah Instruments to expand the company's product lines, Lynnette Peters, vice president of marketing, inflated potential future sales figures on a proposed product. Lynnette believed that without the inflated marketing estimates, the new product would not
Chambers Industries manufactures copper tubing used in many mechanical applications. The company believes that it must invest in a new facility if it is to remain competitive with foreign manufacturers. A preliminary analysis of the proposed investment indicates that property, plant, and equipment
Westco, Inc., is considering a capital investment project. Explain how each of the following objs. situations would affect the capital investment decision Westco is considering. Explain whether each situation would make the project more or less likely to be accepted. Consider each situation
Allen Hardaway is president of Fly High Shoes. Allen recently approved the purchase of several acres of land near the company factory to build a retail shoe outlet. Allen's plan to sell shoes directly to the public at the factory store was met with immediate disapproval by several of Fly High's
JetPak, Inc., delivers overnight business letters internationally and very recently began building a new capital investment in an airport distribution center in Cincinnati. The project has been touted as the most significant investment decision in JetPak's history. Indianapolis had been considered
Home First Bank must invest in a new computer system to handle banking transactions. Management has considered buying from one of two vendors. National Computers, Inc., offers higher-priced equipment that has a higher residual value and a lower-priced contract service. American Computers, Inc.,
Central European Telephone Service (CETS) wants to expand its cellular operations in a deObj. 5 veloping country. The country currently has a penetration rate of cable telephone service to only one in forty households. CETS would prefer to spend its funds available for capital investment on
Write a short definition of each of the terms listed in the Terms and Concepts Defined in this Chapter section.
Five types of decisions follow. Classify each decision as strategic or operational. Justify your answer.a. A steel company's managers implement a policy of charging extra handling fees for orders of less than a full truckload. The policy is intended to encourage customers to buy in larger
Five types of decisions follow. Classify each decision as strategic or operational. Justify your answer.a. The head nurse for Riverview City Hospital revised the nursing schedule for July 5-11 because of changes in the hospital's patient load.b. A company that previously sold its products using a
Managerial decisions may be classified as either operational or strategic. Five business decisions follow. Classify each decision as operational or strategic and justify your answer.a. A manufacturing firm decides to pursue a low-cost strategy by reducing the number of products offered and
The Northport YMCA operates an indoor pool that permits year-round swimming. The YMCA offers a variety of member services such as youth and adult swimming lessons, lap swimming, and unstructured open recreational swimming. The aquatics director wishes to implement TQM at the facility and has
As discussed in Exhibit 2 of the chapter, six elements comprise the TQM philosophy. Match the correct description to each of the following TQM elements: TQM Element 1. Who are our customers? 2. What are the needs of our customers? 3. How can our products or services satisfy their needs? 4. Which
The elements of TQM follow. Explain the logic supporting the ordering of the TQM elements.- Who are our customers?- What are the needs of our customers?- How can our products or services satisfy their needs?- Which processes are crucial to meeting their needs?- How do we ensure our processes are
Three nonfinancial performance measures and definitions follow. Match the appropriate definition to each nonfinancial performance measure. Why is gaining an understanding of these measures important?\section*{Nonfinancial performance measures}1. Cycle time 2. Production rate 3.
The manufacturing process at SteelCo. Office Products consists of cutting, assembly, and finshing. Each product requires five minutes for cutting, seven minutes for assembly, and four minutes for finishing. Determine the production rate using the information provided. Explain how production rate
City Surgical Center specializes in outpatient surgery. Typically, each patient requires 12 minutes for admitting and completing insurance documentation, 19 minutes of surgical preparation, 25 minutes of surgery, and two hours of recovery time. During recovery, nurses continually monitor a
Following are characteristics of product-oriented plant designs. Explain why each characteristic is associated with product-oriented plant layouts.a. Minimal transportation (materials handling) costb. Small batch sizesc. Short cycle timesd. Few arbitrary allocationse. Minimal setup costs
Point Co. produces artificial stone materials used by landscapers. Investment in fixed assets totals \(\$ 1,400,000\). Sales and expense information is as follows:Management at Point Co. believes variable costs could be reduced from \(60 \%\) of sales to \(53 \%\) of sales by using a
Arizona Jewelry Company makes individual pieces of sterling and turquoise jewelry in a multistep process as follows:a. Identify the bottleneck process at Arizona Jewelry Company and explain your reasoning.b. If the silver preparation process breaks down for one hour and requires unscheduled
A manufacturing process consists of four steps as follows:a. Identify the bottleneck process. Explain your answer.b. Calculate the throughput that would result from an eight-hour manufacturing period. Materials Movement 12 minutes Cutting 28 minutes Assembly Packaging 120 minutes 5 minutes
Mary Wells sat in her office after a long walk through the manufacturing plant. She has been under a great deal of pressure from corporate to reduce the backlog of late orders. She knew the key to improving throughput was constraint management; however, the company has not managed the constraint
The theory of constraints often is used to improve process performance by wisely managing bottlenecks or constraints. The proper ordering of the five steps recommended to improve process performance has been scrambled in the following list. Arrange the five steps of process improvement in the
Deb Samson is the owner of a company that produces glass products, such as shower doors, table tops, and specialty windows for recreational vehicles. The process involves cutting glass into the proper shape, smoothing the edges, heat treating, and packaging. The cutting process is automated and
Use the information presented in E11-17.Using the theory of constraints, Deb Samson invested in technology to improve the processing speed of the bottleneck from 10 minutes per unit to 7 minutes.a. Identify the bottleneck after the investment in technology.b. Calculate the throughput after
A large regional financial consulting firm currently is making a number of important strategic and operational decisions as a result of rapid growth during the past three years. Examples of recent decisions follow. For each decision, determine whether it is considered operating or strategic.
A national automobile insurance company uses a multistep process to evaluate automobile damage and to settle damage claims for their policyholders. When a policyholder notifies the company that an accident has occurred, a claims adjuster is assigned to the case. He or she evaluates the damage and
Jiffy Lunch is a service organization that prepares and delivers meals to elderly people. As a service project, a university sorority provides most of the delivery services. Each of the 20 volunteer drivers typically delivers five meals. The kitchen facility is small but can potentially produce 120
To illustrate the concepts in this chapter, all the self-study problems use the production process of Autobrake. Autobrake produces aftermarket (replacement) brake cylinders used by automobile repair companies. Autobrake purchases steel bar stock from wholesale distributors and manufactures and
Refer to the information presented in Self-Study Problem 1.\section*{Required}A. Calculate the following for the manufacturing process at Autobrake:1. Production rate 2. Total processing time 3. Throughput B. Why would you expect cycle time to be different from the total processing time calculated
Autobrake wishes to identify bottlenecks in the production process.\section*{Required}A. How would you identify potential bottlenecks by observing a manufacturing process?B. If the bottleneck in Autobrake's process is idle for one hour, what is the effect on plant throughput?C. How would an hour of
Managers use accounting information to help them make strategic and operational decisions.a. Strategic decisions are major, high-level decisions that affect the overall direction of an organization.b. Operational decisions focus on the day-to-day operations of the company.
Total quality management includes the following activities:a. Identify customers.b. Identify customer needs.c. Identify product (good or service) features.d. Identify process (production or delivery) features.e. Establish controls and conduct operations.f. Assess performance against goals from both
Just-in-time (JIT) has the following key elements:a. High-quality input and output are required.b. Inventory levels are reduced.c. Production rates become faster.d. Suppliers become partners, rather than adversaries.e. Machine changeover (setup) times must be short.f. Production batch sizes are
Manufacturing plants typically are organized as process-oriented or product-oriented facilities.a. Process-oriented facilities typically group equipment by function; all welders, painters, or grinders are located together in one part of the facility.b. Product-oriented facilities arrange equipment
The theory of constraints has the following key steps:a. Identify the process constraint (the bottleneck).b. Decide how to make the most efficient use of the constraint.c. Subordinate all other decisions to those identified as making efficient use of the constraint.d. Improve the processing
The concepts of total quality management, just-in-time, and the theory of constraints can be applied to service organizations.a. All organizations use processes to deliver their goods or services to customers.b. TQM principles apply to service organizations as well as to manufacturing companies.c.
NCCB produces pool tables and billiard supplies. The company is considering changes in the billiard ball production process that would reduce operating costs but would not affect any physical aspects of the product. It also is considering an expansion of operations whereby it would begin
Madrid Manufacturing Company produces roller skates designed for use in indoor skating rinks. Over the past five years, Madrid has seen sales decline significantly. The company has not added any new products or changed manufacturing processes in the past 20 years. Some changes have been made in
Quick Drain Plumbing has six full-time plumbers who perform residential and commercial plumbing services. Based on a review of service records over the last several months, it was noted that, on average, plumbers must return to the shop to obtain parts or equipment on one out of every three service
Many manufacturing companies experience inventory losses. These losses often result from excess inventory that must be handled, stored, and accounted for, during which time it risks being damaged, being lost, or becoming obsolete. Explain a key cause of excess inventory in an organization.
Dexter Pharmaceuticals manufactures a variety of over-the-counter pain relievers. Each employee in the production area of Dexter has been trained on a single piece of equipment, which they operate during eight-hour shifts. How would implementation of a JIT philosophy at Dexter affect the workforce?
Mitchell Gabriel is the plant manager for Carry-All Company. Carry-All produces a soft shell book bag/attaché that is popular with students and young business professionals. During production, the bag passes through a number of steps, such as cutting, sewing, assembly, and finishing. Mitchell
Leeza Vicaro is a divisional manager for Liddon Industries. Leeza is responsible for the production at three of Liddon's plants. Production at Plant 1 provides components to Plant 2, which in turn provides components to Plant 3. In the second and third plants, component parts from the previous
Tom Mast is a lathe operator for a company that manufactures precision metal products. The the is the first step in the manufacturing process. Jobs begin at the lathe based on customer orders that call for specific numbers of pieces to be shipped. When an order is started, Tom generates the number
Brayton Manufacturing has been utilizing JIT concepts in its single manufacturing plant for the past year. One of the key elements in Brayton's production process is the ability of any worker to completely stop the entire production line if he or she detects quality problems. Why is it essential
Alverez Manufacturing produces five different types of battery-operated hand tools. There are four production departments at Alverez, each of which performs similar functions on the various products. A great amount of time is spent in each department changing tools and setting up machinery to work
Traditionally, companies have designed their plant floors so that similar machines are grouped together. Such a process-oriented layout results in all drill presses in one place, all lathes in one place, and so forth. How does the traditional plant layout add cost to the manufacturing environment?
Step 4 in Goldratt's theory of constraints (TOC) involves improving performance on a constraint. Identify two examples of how managers may improve performance on a constrained resource. Explain.
Why is a commitment to continuous improvement necessary for the successful implementation of a total quality production process? Is the commitment to continuous improvement isolated to the manufacturing process? Explain your answer.
As discussed in this chapter, managers are hired as agents to make decisions in the best interests of the owners. Often, employment contracts are put into place to help align the goals of managers and owners. For example, Nike, Inc. has implemented a variety of conditions within its executive
Timberline Corporation is a multi-divisional manufacturing company. Each of the two division managers has responsibility for sales, costs, and profitability. Division 1 has three manufacturing plants, while Division 2 has four plants that produce a variety of products as requested by the divisional
Darius Taylor, manager of the Industrial Products Division, was preparing for his annual performance evaluation. Though Darius has been successful in generating sales growth and controlling manufacturing costs, he has not achieved his income target for the year. Financial information for his
As discussed in this chapter, the use of ROI by managers can create incentives for managers to make short-term decisions that have negative effects on long-term performance. However, ROI, if used properly, can also encourage managers to utilize assets effectively to produce higher returns for
Carter Consumer Products has three operating divisions, which are appropriately treated as investment centers. Each of the investment centers is run by a divisional manager. The managers are evaluated on the basis of ROI performance. Those managers with the best ROI figures are most likely to be
The following is Tennis Today's financial statement for the year ending December 31, 2006, in total and by division:\section*{Required}A. If the stockholders own shares of the company in total, and not in the individual divisions, how can the divisional managers' performance be evaluated in terms
An internationally known electric guitar manufacturer produces its legendary instruments from a variety of purchased components. Suppliers are held accountable for strict quality standards. To ensure proper sound quality, meeting engineering tolerances is crucial. In addition, the guitar company
Carol Rolfson is a divisional manager for Klinger Products. Carol operates a division that manufactures clocks and timepieces that are distributed through retail stores. Over the past year, Carol's division recorded the highest net income in the division's history. Internal records indicate that
The Promotion and Advertising Department at Jefferson Corporation coordinates point of purchase promotions for its distributors. Employees of this department are graphic arts or marketing majors who develop campaign materials and conduct market research. The department does not collect any revenue
Salvo Corporation produces cast metal parts used in the plumbing industry. The company is organized into two divisions, mining and casting. Managers of the two divisions are evaluated based on divisional ROI.The Mining Division sells ore to the Casting Division as well as to external customers.
At its Video Division, Crew Enterprises manufactures computer monitors. These can be sold internally to the EDD Division of Crew or externally to independent customers. Sales and costs of the most popular monitor are as follows:The Video Division of Crew plans to sell a maximum of 96,000 of these
The USA Company's Box Division produces cardboard boxes used for packaging microwavable fast foods. The Consumer Products Division produces a variety of fast-food entrees that are packaged in boxes. In the past the Consumer Products Division has purchased its boxes from the Box Division for \(\$
Decentralized service organizations face many of the same problems as those faced by manufacturing companies. Service organization managers are responsible for profitable, efficient operations that result in sufficient returns for investors. The financial perspective of the balanced scorecard asks
Waldo and Company, LLP, is a partnership that provides public accounting services. Waldo has three offices located in New Orleans, Baton Rouge, and Lafayette. Each of the offices employs approximately 30 professional accountants who are hired by and work solely for the office to which they are
As part of an effort to increase sales and profit margin, Music Makers' management is adopting a transfer pricing plan. The copying and packaging departments have been placed under divisional managers. As an incentive to cut costs, each division is expected to earn a gross margin of \(10 \%\) on
Golden Grain Foods produces consumer food products including cereals, dessert mixes, microwave popcorn, snack foods, and mixes that enhance and simplify meal preparation. During the previous year, reported sales grew at a rate of \(8 \%\) to reach \(\$ 6\) billion. Earnings after taxes grew at a
Cameo Products has two divisions: Office Products and Furniture. Divisional managers are encouraged to maximize ROI at their respective divisions. Managers are free to decide whether goods will be transferred internally and to determine the prices at which transfers will occur.The Furniture
Write a short definition of each of the terms listed in the Terms and Concepts Defined in this Chapter section.
Listed below are a number of actions that could be taken by managers within the context of Obj. 1 an owner/agent relationship. For each decision, determine whether an agent's actions are consistent with the best interests of owners who hired them. For each situation in which managers appear to act
The organizational structure of a decentralized organization often contains four levels, as folObj. 2 lows:Organizational level Cost center Revenue center Profit center Investment center Match the correct definition below with the appropriate organizational level.Definition- A level within an
Following are a variety of performance measures used to evaluate responsibility centers in decentralized organizations. For each performance measure, identify the organizational level for which the measure would be appropriate. Explain your reasoning.- Manufacturing costs- ROI- Quality-
The following are independent situations.1. LonnMark, Inc., operates a satellite plant that produces components for many of the company's products. The plant is operated by a plant manager, who coordinates scheduling and material acquisition with the company's home office. The plant manager also is
In 1903, the du Pont cousins acquired the assets of E.I. Du Pont de Nemours and Company obj. 3 in exchange for bonds. In the language of today, the cousins conducted a leveraged buyout of the company. Explain why a measurement such as ROI was needed to help ensure financial survival of the new
LaKeesha Roberts is a successful division manager for Textron Industries. Her division's ROI Obj. 4 currently is \(22 \%\). Roberts is evaluating a plant expansion opportunity that is expected to produce an annual income of \(\$ 500,000\) and require an investment of \(\$ 3,000,000\). The
The following information for the past two years relates to a division of Wheel Company: Obj. 4a. Compute the return on investment for both years.b. Compute the margin and turnover ratio for each year.c. Explain why the return on investment increased from 2006 to 2007 despite a lower margin in 2007
Calculate the missing information for each of the four companies. Treat each company independently. Sales revenue Company 1 $10.000 Company 2 Company 3 Company 4 $20,000 $148,000 Expenses 7.000 ? 126.000 Net income 3.000 7.000 ? Average assets 20.000 25.000 65,000 $120,000 Margin ? 40% ? 7%
One attribute of the balanced scorecard approach lies in performance measure diversity. For each scorecard category, identify appropriate performance measures from the following list: Scorecard category Financial Internal business processes Learning and growth Customer satisfaction Performance
ROI is computed by multiplying a margin times turnover as follows:The ROI measure is intended to motivate managers to make their divisions lean, efficient, and profitable. However, the exclusive use of ROI may motivate short-sighted decision making.a. Provide two examples of how the margin
Following are a variety of performance measures that could be used with the balanced score card approach. Classify each measure as financial, internal business processes, customer satisfaction, or learning and growth. Justify your answer. Customer loyalty Net income Cycle time Sales growth Employee
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