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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

Tide Company has two divisions, Division A and Division B. Division A currently sells comOponents to Division B for \(\$ 10\) per unit. The cost of Division A to produce a component follows:Division A typically sells 40,000 components to Division B and 40,000 components to external customers. The
Java-Time Coffee Company is organized into two divisions. Division A roasts, blends, and Obj. 6 packages gourmet coffees for sale to specialty shops and coffee bars. Division B designs and produces packaging materials for Division \(\mathrm{A}\) as well as for external customers. The cost of
SportCo, Inc., is a multi-divisional company that produces and sells athletic equipment. vision 1 produces components for a variety of products, while Division 2 assembles the components and packages the finished product. Both divisions are free to buy and sell internally or externally. For a
For each transfer pricing method identified, match the appropriate strength and weakness.Obj. 7 Transfer pricing methoda. Cost-basedb. Market-basedc. Negotiated Strength or weakness 1. Easy to apply 2. Takes management time to help settle disputes 3. Requires time and effort because external bids
Tandem Manufacturing transfers a product between two plants. The product has variable costs Obj. 7 of \(\$ 65\) per unit and fixed overhead costs of \(\$ 25\) per unit. This product can be purchased from an outside source with acceptable levels of quality and quantity at \(\$ 83\) per unit.
The Frame Division of Reliable Computers manufactures storage housings for personal and Obj. 7 midsize computers, which it sells externally to computer manufacturers. The division is operating at full capacity. One of the most popular housings has variable costs of \(\$ 34\) and is sold to outside
Transfer pricing terminology includes the concepts of floor and ceiling, representing the seller's obj. 7 minimum acceptable price and buyer's maximum acceptable price, respectively. The following data are presented from transfer pricing negotiations among managers at Douglas Company:a. What is the
Decentralized service organizations may be classified into a variety of responsibility centers including cost centers, profit centers, and investment centers. Following are a variety of responsibility centers from a national public accounting firm.1. Managers and partners within the firm have the
Soldwell Bankers operates a national chain of realty offices. While some activities are con-ducted centrally, others are conducted on a decentralized basis. The following activities were conducted by Soldwell during December. Identify the activities that would be performed most efficiently on a
John Randazzo is the owner of a successful machine shop that produces automotive brake components for national auto parts chains. These auto stores sell "after-market" parts to replace those made by original equipment manufacturers such as General Motors, Ford, and Toyota. A great deal of volume
Rachel Yablonka assumed the responsibilities as executive manager of the Chair Division, Office Furniture and Fixtures, Inc. (OFF), on January 1, 2005, taking the place of her recently promoted predecessor. Rachel's own performance evaluation is directly tied to the division's annual net operating
The Dobson Specialty Valve Division of American Industrial Group, Inc. (AIG) develops and manufactures complex valves and fittings for commercial uses. AIG has long operated other divisions engaged in making products such as furniture, metal doors, and windows. Dobson has just been acquired by AIG
A retail organization may prepare a merchandise purchases bud- get similar to the production budget illustrated in Exhibit 7. As- sume a retail company that sells outdoor equipment expects to sell backpacks as shown in the following table. The company wants to keep a backpack inventory equal to 50
Assume the managers for the retail company introduced in Self- Study Problem I want to predict administrative expenses for the company during the months of January, February, and March. They believe fixed ad- ministrative expenses will be $20,000 per month. In addition, variable selling expenses
Assume a company's management has forecast sales of $30,000, $37,000, $40,000, and $62,000, for June, July, August, and Sep- tember, respectively. They estimate that 80 percent of their sales are collected the month of sale and 20 percent are collected in the month following the sale. The company
The transaction system records actual events. The budget system records expected events.a. Pro forma, or predicted, financial statements are prepared by combining information from various budgets.b. The transaction system produces financial statements based on actual performance, while the budget
A master budget has the following components:a. The sales budget shows the quantity and price of goods expected to be sold during the coming period.b. The production budget shows the type and quantity of products expected to be produced.c. The direct materials budget reflects the amount of raw
The cash budget summarizes expected cash collections and payments during an accounting period.a. A schedule of cash collections identifies the timing and amount of expected cash receipts.b. A schedule of cash payments identifies the timing and amount of cash outflows.
The budgeting culture influences the success of a company's budgeting efforts.a. Budget revisions may become necessary if assumptions made during the budgeting process later are found to be incorrect.b. Studies have shown that the process of observing and measuring behavior can influence
Budgeting in service companies differs in some respects from budgeting in manufacturing companies.a. Workers in service companies often perform more than one type of service at the same time, making budgeting the cost of individual services more difficult.b. Service companies often operate many
Why do managers compare expected results and actual results at the end of a fiscal period, after their actions can no longer influence results for that period?
Why is communication among marketing and production managers necessary when developing a master budget?
Why is the production budget necessary for estimating labor costs?
Why is it important to the budgeting process to have an accurate sales forecast?
Paul Reynolds recently was hired as a salesman for The Rocky Company, which sells gardening tools and potting soil through retail outlets. Paul has been asked to attend a meeting next week to discuss the preparation of the master budget for the coming year. Paul has asked you to explain what is
Markle Company is a merchandising firm that operates 26 stores. Marvle Industries is a manufacturer that operates a single plant. Both firms prepare detailed master budgets each year. How will the master budgets of the two firms differ?
Vantage Incorporated is preparing a master budget for the coming quarter of operations. As part of the budget process, inventory policies are being reviewed at a senior management planning meeting. Which budgets will policies concerning the level of inventories affect? Why?
Susan Broyer is a marketing manager for Glow Industries, which produces lamps and lighting fixtures. Susan's department is preparing a sales budget for the company's lighting fixtures. She has issued a memo to her staff that says in part: "I expect an annual increase in sales next year of \(12 \%\)
Frank Sheffield is the vice president of finance for Hercules Company. Recently, Hercules completed preparation of its master budget for the coming year. Frank has scheduled a meeting with the company's banker. What portions of the master budget, if any, do you believe Frank should review with the
If management prepares a pro forma income statement that suggests the company will be proftable, why is a cash budget necessary?
Why is an understanding of an organization's cost structure necessary for successfully prepar Objing a master budget?
Why is employee participation important when developing a budget?
Leroy Smith is the production manager of Alum Company. In addition to his salary, Leroy receives bonus compensation based solely on his ability to meet the budgeted production of units. Comment on Leroy's bonus arrangement. What weaknesses might exist in this arrangement?
Discuss the implications associated with a budgetary approach in which budgetary data are imposed on managers from above. Contrast such an approach with one in which budgetary data are self-imposed in a participative manner.
Rona Abraham is the purchasing manager for Flextech Incorporated, a manufacturer of furniture and bedding. Rona knows that as part of her bonus compensation, she must meet the material purchasing budget that was established at the beginning of the year. In an effort to meet this budget, Rona has
Lester Arbuckle is owner of Sheetco, a manufacturer of snow shovels. Lester and his managers Obj. 4 do no budgeting or planning for Sheetco. Sheetco management does not anticipate problems that arise, and as a result the company has slow production, missed shipment deadlines, and lost sales.
Service firms do not manufacture products; therefore, budgeting is not important to service Obj. 5 firms. Do you agree? Explain your answer. online.
Match the following budgets with their definitions.Obj. 2a. sales budgetb. production budgetc. direct materials budgetd. direct labor budgete. manufacturing overhead budgetf. selling and administrative budget g. cash budget h. pro forma budgeted income statement i. pro forma budgeted balance sheet
Hoop Action manufactures basketballs, which it sells for \(\$ 50\) each. Cash collections from sales O : are expected to be \(80 \%\) in the quarter of the sale and \(20 \%\) in the following quarter. The uncollected portion of sales at January 1 was \(\$ 40,000\). The sales forecast for the next
Spooks Company makes a popular Halloween mask. Peak sales are in October of each year. Obj. 2 The company's partial sales budget, in units, for 2004 is as follows:The company has an inventory policy in which the end-of-month inventory must equal \(10 \%\) of the following month's sales. The
Razor Sharp produces a hedge trimmer used for lawn care. The company's sales budget for Obj. 2 April through July is as follows:The company has an inventory policy in which the end-of-month inventory must equal \(5 \%\) of the following month's sales. The inventory as of March 31 was 15,000
Young Company produces a dietary product called Veggy Bars. Each six-ounce Veggy Bar Obj. 2 contains five ounces of mixed vegetables, which Young purchases for \(\$ .05\) an ounce. Budgeted sales of vegetable bars for the first four months of 2004 is as follows:Young has an inventory policy that
Refer to the data in E8-6. Each Veggy Bar requires . 02 direct labor hour. The average labor Obj. 2 rate is \(\$ 10\) per hour.Prepare a direct labor budget for the first quarter of 2004 , showing the number of hours needed and the total labor cost required by month and for the quarter in total.
Chugalot Company produces soda mugs. Each 32-ounce mug contains 1.1 pounds of glass, Obj. 2 which Chugalot purchases for \(\$ 1.05\) a pound. Budgeted production of mugs for the first four months of 2004 is as follows:Chugalot has an inventory policy that ending inventory of mugs should be \(10
Refer to the data in E8-8. Each mug requires .05 direct labor hour. The average labor rate is obj. 2 \$20 per hour.Prepare a direct labor budget for the first quarter of 2004 , showing the number of hours needed and the total labor cost required by month and for the quarter in total.
Office Supply 4U manufactures staplers. The activity base used to allocate overhead is direct Obj. 2 labor hours. The variable overhead rate is estimated at \(\$ 1.50\) per direct labor hour for 2004 . The fixed overhead is budgeted at \(\$ 20,000\) per quarter, of which \(\$ 5,000\) represents
A + Company manufactures study guides for students. A + sells its study guides through doorObj. 2 to-door sales. Its salespeople receive a \(\$ 20\) commission per book sold. Fixed annual selling and administrative expenses for 2004 are estimated as follows:Prepare a selling and administrative
Tough Terrain Company manufactures professional quality lawn mowers. Tough Terrain inobj. 2 curs variable selling expenses of \(\$ 15\) per lawn mower. Other annual selling and administrative expenses for 2004 are estimated as follows:Prepare a selling and administrative budget for 2004, showing
On April 30, Sterling Enterprises had an inventory of 38,000 units of finished goods, and it Objs. 2, 3 had accounts receivable totaling \(\$ 85,000\). Sales, in units, have been budgeted as follows for the next four months:Sterling has a policy that \(40 \%\) of the following month's sales should
Elm Company makes a product that has peak sales in September of each year. Excerpts from Obj. 3 the annual sales budget are as follows:The company is in the process of preparing a cash budget for the third quarter (July, August, and September) and must determine the cash collections by month.
Beany-Toys Company makes small toys that it sells to retailers. Following are excerpts from Obj. 3 the annual sales budget:The company is in the process of preparing a cash budget for the third quarter (October, November, and December) and must determine the cash collections by month. Collections
Cross Blade manufactures pocket knifes. The activity base used to allocate overhead is machine Obj. 3 hours. The variable overhead rate is estimated at \(\$ 4\) per machine hour for 2004. The fixed overhead is budgeted at \(\$ 80,000\) per quarter. The budgeted machine hours are as follows:Prepare
Say Cheese Company manufactures picture frames that sell for \(\$ 25\) per frame. Say Cheese does not maintain an inventory; all items produced are sold during the period. Thus, all production costs appear on the income statement. The company has fixed manufacturing overhead of \(\$ 30,000\) per
Technology Team manufactures laptops that sell for \(\$ 2,200\) each. Assume Technology Team does not maintain an inventory; all items produced are sold during the period. Thus, all production costs appear on the income statement. The company has fixed manufacturing overhead of \(\$ 4,000,000\) per
Kim Incorporated is preparing its master budget for 2004. Shown at the top of the next page are expected cash inflows and outflows resulting from the sales, purchases, and administrative budgets. In addition to these cash flows, assume the company expects to pay \(\$ 10,000\) in income taxes each
Noise Hollow launched a new stereo in January. The budget for the stereo is as follows:Actual units of materials required per finished good were 12 units in January and 11 units in February. Actual cost of materials was \(\$ 6\) per unit in January and \(\$ 5.50\) per unit in
Bob Haskins is the purchasing manager for Regal Products. Each year Regal Products develops a master budget. Bob is responsible for preparing a purchasing budget, which he bases on budgeted levels of production. Bob carefully plans purchasing costs and raw material inventory levels to meet
Sue is the purchasing manager for Paper Goods Incorporated. Sue's budget for January and February was as follows:At the end of February, Sue's boss asked her, "Why are you ordering so many materials? The inventory stockroom is overflowing with materials." Puzzled, Sue checked her order amounts and
Ceco Grass Care is a small lawn maintenance service that provides a variety of landscape services. A large part of Ceco's sales are generated through lawn maintenance. Jeff Roberts manages Ceco. Jeff has reviewed the job order log for the next 12 weeks (three months ending July 26, 2005), and the
A new high-tech product was launched in July. This is the first product of its type in the marketplace. The budget for this product is as follows:Mary, the vice president of finance, spoke harshly to John, the product manager, for not meeting the budgeted amounts. She threatened to discontinue the
On August 31, Blake \& Sons had an inventory of 50 units of finished goods, and it had accounts receivable totaling \(\$ 75,000\). Sales, in units, have been budgeted as follows for the next four months:Blake has a policy that \(20 \%\) of the following month's sales should be maintained in
An effective budget converts the goals and objectives of management into specific performance targets. The master budget serves as a blueprint that reflects management's plans for the budgeted period. Moreover, the master budget serves as a basis for control in that performance can be evaluated by
Crunch Numbers is a manufacturer of calculators. In the budget-setting process, budget A was put together by lower and middle management. Budget \(B\) was put together by senior management.\section*{Required}A. Calculate the cost per unit for the variable costs.B. Why do you think budget A has high
Music Makers expects to sell 500,000 CDs per month, including 350,000 data CDs and 150,000 music CDs. The selling price per unit is \(\$ 2.30\) for data CDs and \(\$ 3.10\) for music CDs. The desired level of ending inventory of raw materials is 5,000 units for blank CDs, containers, and cellophane
1. Which of the following represents the correct order in which the budget documents for a manufacturing company would be prepared?a. Sales budget, cash budget, direct materials budget, direct labor budgetb. Production budget, sales budget, direct materials budget, direct labor budgetc. Sales
Columbo Company manufactures a single model trench coat sold throughout the United States. Projected sales in units for the first five months of 2005 are as follows:The following information relates to Columbo's production and inventory policies and balances:1. Finished goods inventory is
Juanita Testor owns and operates a hair salon under the name Clips n' Curls. There are currently seven hair stylists, including Juanita. In addition to hair styling, Clips n' Curls sells nail care, facials, skin and hair care products, fashion jewelry, and tanning bed time.A full-time receptionist
Greasy Grimes is a chain of automotive repair shops owned by en- trepreneur Terrel Grimes. Grimes established the company during the 1960s to compete with local garages and the service departments of new car dealer- ships. In addition to performing basic oil change and lubrication services, Greasy
Terrel Grimes wishes to implement a quality cost program at each Greasy Grimes service center. His goal is to reduce total quality costs by 30% over the next five years, but he does not fully understand how quality costs are classified.Required Provide examples of each type of quality cost
Corporate managers at Greasy Grimes began collecting data from each service center to analyze material price and quantity variances. Some managers are concerned that too much is being paid for materials and too many materials are being used in conducting repairs. Managers collected quantity data
Companies may perform variance analysis of direct materials, direct labor, and overhead.a. A variance is defined as the difference between total actual costs and total standard costs allowed for actual production.b. Variances may be divided into a price (rate) component and a quantity (efficiency)
Quality costs:a. Quality costs are classified as internal failure, external failure, appraisal, and prevention.b. External failure costs are the most expensive type of quality costs, though their amount can never be known with certainty. External failure costs include customer ill will as well as
Taguchi quality loss function:a. The Taguchi quality loss function is important because it associates costs with the engineering concept of variability.b. Customer dissatisfaction (and costs) occurs when product characteristics deviate from a target value, even if the characteristics are within
Statistical process control:a. Statistical process control charts separate special cause variation from random variation in manufacturing or administrative processes.b. Statistical process control charts have a center line (representing a process average) and upper and lower control limits.
Service organizations:a. Service organizations generally can establish standards for measuring the efficiency and effectiveness of their delivery process.b. Many processes in service organizations can be evaluated with statistical process control charts.c. Quality costs are not limited to companies
Managers are held accountable for variances that occur in the areas under their control. Variances may arise in a manufacturing environment and in administrative functions as well. In general, what is meant by the term variance?
Doall Company is establishing production standards for the coming year. Matt Mellon, the production manager, argues that the standards need to be relaxed. "Last year's standards were based on ideal performance and did not reflect the practical realities of what could be achieved," he said. In
Keene, Inc., separates material variances into price and quantity components for purposes of management control and analysis. Why are variances generally separated into price and quantity components? What effect, if any, can the price variance have on the quantity variance?
The cost records of Prichter Company reveal that as the unfavorable material price variance increased, the unfavorable material usage variance decreased. What might this suggest?
Cadet Industries utilizes a standard cost system. When Cadet purchases raw materials, the materials are recorded at standard cost. Is this treatment by Cadet proper in a standard cost accounting system? Why or why not? What is the appropriate time to recognize material price and usage variances?
In a manufacturing environment, who would most likely be responsible for the materials price variance? The labor efficiency variance?
In addition to material and labor variances, a company that utilizes standard cost accounting can compute fixed overhead variances. What are the two components of fixed overhead variance? What do the fixed overhead variances measure?
Tim Winker Manufactured Housing, Inc., produces prefabricated modular housing. The company manufactures four styles of homes and uses a standard cost accounting system. The company uses a single account for capturing material variances and another account for recording labor variances. During a
Electro Industries wants to analyze the costs associated with quality conformance in its manufacture of electronic capacitors and transistors, which are sold primarily to manufacturers of cellular telephones. What four broad categories of conformance costs should Electro use? What are the
Rayco Products manufactures audio speakers that are used in many applications. At the beginning of the current year, Rayco developed detailed operating budgets for all aspects of the company. Rayco now is considering purchasing new test equipment for the inspection department to use in checking the
A machine operator cuts metal rods into six-inch lengths, measures output periodically, and records the measurements on a statistical process control chart. Over an eight-hour shift, the operator notes that the measurements vary greatly but are always within the acceptable limits of plus or minus
Nathan Stuart is employed in the accounting department of a local manufacturer. During a recent management staff meeting, Nathan suggested that statistical control charts be established at key production steps to help increase quality and minimize defects. What is a statistical control chart? How
Multiflow Products manufactures a single product, for which the following standards have been developed:During October, the company purchased 15,200 feet of direct materials at a cost of \(\$ 47,880\), all of which was used in the production of 3,000 units.A total of 5,400 hours was spent on
World Wide Products has developed the following standards for one of its products:The following activity was recorded for the production of 12,000 units during the month of August:a. Compute the materials price variance.b. Compute the materials usage variance.c. Compute the labor rate variance.d.
A nationally known blue jeans manufacturer purchases denim material and cuts it into a vaobjs. 1,2 riety of components and sizes. Following the machine-intensive cutting operation, the parts are flown to another location for assembly. The following data summarize the assembly operations:Calculate
Tawanda's Bakery uses variances to help control production-related costs. The following data summarize the production activity for June:During the month, Tawanda produced 20 batches.Calculate each of the following and determine whether the variance is favorable or unfavorable:a. materials price
Metalworks, Inc., produces castings for various applications in the plumbing industry. Beo cause the industry is mature, standardized products with known materials and labor requirements are the primary revenue generators for the company. The following information has been assembled for the month
Sunclear Glass Company is a producer of architectural glass products sold through national objs. 1,2 retail outlets. Glass production begins with sand and other chemicals that are placed into a gas-fired melting chamber. The river of molten glass flows from the melting chamber through equipment
Refer to the process description in E9-7. The following information was pulled from the company's records:- A container of glass was broken as the result of a forklift accident at the end of the production line.- Customers returned \(25 \%\) of a shipment to the company because the glass contained
Companies that implement quality cost systems typically use four cost categories. Classify the following costs as internal failure, external failure, prevention, or appraisal:- Scrap- Warranty claims- First-part inspection of a new production run- Quality control education- Unexpected machine
Cable-Op, Inc., is a manufacturer of fiber-optic cable used in the communications industry. Management is considering implementing a cost of quality program to monitor progress in achieving targets. The following information has been accumulated for a four-year period:Prepare a bar graph for each
Edwards Deming, a pioneer in the area of statistical quality control, stated, "The cost of poor quality is unknown and unknowable." The quality categories-internal failure, external failure, prevention, and appraisal-are used to categorize costs from the general ledger for use by management.a.
The following quality cost graph identifies the levels of four quality cost categories over a threeObj. 3 year period. External and internal failure costs have increased each year, while investments in prevention and appraisal activities have remained constant. Assume management wishes to reduce
Sony Corporation conducted a survey to determine customer satisfaction levels with their television sets. Interestingly, after matching the survey satisfaction data with production records, Sony discovered the customers who purchased televisions manufactured in Plant 1 were more satisfied than
In Exhibits 9 and 10 in this chapter, Pat Allan related the concept of variation to letter grades Obj. 4 that could be assigned for plant performance.a. Explain how the lessons Sony learned in E9-13 relate to the Taguchi loss function.b. If you were assigning letter grades ( A, B, C, D, and F) to

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