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managerial accounting decision making

Managerial Accounting 7th Edition James Jiambalvo - Solutions

Consider the following information for Executive Electronics: Required a. Evaluate the company’s performance for 2020 and 2021 in terms of residual income (RI), which is equivalent to EVA since there are no adjustments for accounting distortions. b. While income has increased in
Consider the following information for McKinley and Son: Required a. Calculate ROI for 2020 and 2021. Round ROI to four decimal places. b. While income has increased in fiscal 2021, is it clear that the company’s performance has improved? 12/31/2020 12/31/2021 Total assets
LEO Corporation has five divisions, each of which is managed by a divisional president who reports to the chief executive officer of LEO. LEO is decentralized, and divisional presidents are granted authority to make investments under $3,000,000 without prior approval by the
The following income statements and other information are available for the Schneider Company: Required Calculate EVA for 2020. Assume that for purposes of calculating EVA, the company capitalizes research and development expenditures and amortizes them over three years, including the
Consider two companies: Quantum Products and Aquafin Products. Senior managers at Quantum Products are evaluated in terms of increases in profit. In fiscal 2020, Quantum Products had a net operating profit after taxes of $4,600,000 and invested capital of $26,000,000. In fiscal 2021, the company
Lakeside Hospital is a division of Superior Healthcare that is organized as an investment center. In the past year, the hospital reported an after-tax income of $3,500,000. Total interest expense was $1,650,000, and the hospital’s tax rate was 20 percent. Hospital assets totaled $35,000,000, and
For fiscal year 2021, Katherine’s Department Store had net income of $6,000,000. Interest expense was $2,250,000, and the company’s tax rate on income was 20 percent. Total assets were $80,000,000, and noninterest-bearing current liabilities were $6,700,000. The company’s cost of capital
For fiscal year 2020, LaundryMate Products had income as follows: Sales................................................................$55,000,000 Less: Cost of goods sold...........................................38,400,000 Selling and administrative
Davenport Mills is a division of Iowa Woolen Products. For the most recent year, Davenport had net income of $20,000,000. Included in income was interest expense of $1,400,000. The operation’s tax rate is 20 percent. Total assets of Davenport Mills are $235,000,000, current liabilities are
Explain the advantages of using market price as a transfer price.
Bechtel Technical Clothing produces parkas used by arctic explorers, mountain climbers, and people living in Minnesota. The company uses a standard costing system, and standards call for 2.5 yards of material at $55 per yard for each parka. The standard cost for labor is 3.5 hours at $35 per
The Dudley Travel Agency has found that, on average, its travel agents take two hours to serve each client and that those travel agents are paid a standard rate of $30 per hour. The following table contains the labor data for the Dudley Travel Agency for 2020: Required a. Calculate
The Antikron Company produces rubber seals used in the aerospace industry. Standards call for three pounds of material at $2.50 per pound for each seal. The standard cost for labor is 1.5 hours at $15 per hour. Standard overhead is $10 per unit. For the year 2021, expected production is 130,000
Bowser Products operates a small plant in New Mexico that produces dog food in batches of 1,500 pounds. The product sells for $6 per pound. Standard costs for 2021 are: Standard direct labor cost = $15 per hour Standard direct labor hours per batch = 10 hours Standard price of
The Hayes Chemical Company produces a chemical used in dry cleaning. Its accounting system uses standard costs. The standards per .5-gallon can of chemical call for 1.20 gallons of material and 1.50 hours of labor. (1.20 gallons of material are needed to produce a .5-gallon can of product due to
Refer to the summary of variances in Exercise 11.16. At Bell Computers, the ending balance in Finished Goods Inventory is $117,000; the ending balance in Work in Process Inventory is $54,000, and the balance in Cost of Goods Sold is $437,500. Required Prepare a journal entry to close the
The variance summary for Bell Computers is as follows Required Prepare a journal entry to close the variance accounts at Bell Computers. Assume that the total variance is not material and is closed to cost of goods sold. Bell Computers Variance Summary for the Year Ended December 31, 2021
The Linneas Company uses a standard costing system. During 2021, the company incurred actual overhead of $575,000. The standard rate for applying overhead is $4.25 per unit, and 130,000 units were produced in 2021. One-third of the total overhead variance is attributed to the volume variance, and
At the start of 2021, Textile Express Company determined its standard labor cost to be 2.25 hours per unit at $12.00 per hour. The budget for variable overhead was $9 per unit, and budgeted fixed overhead was $15,000 for the year. Expected annual production was 6,000 units. During 2021, the actual
WRX uses a standard costing system. For production of a fuel cell, standards call for four model RN-3 valves per cell costing $2,300 each. During 2021, the company purchased 250 valves for $587,500. The company used 248 valves in the production of 60 fuel cells (eight valves were ruined through
What does responsibility accounting imply with respect to holding managers responsible for standard cost variances?
What factors should be considered when investigating variances?
“You get what you measure!” If so, what problem might be created by managers attempting to achieve favorable material price variances?
a. Using a spreadsheet, prepare the six monthly budget schedules that Cheryl suggested (i.e., monthly budgets with and without the Consolidated business assuming other sales increases of 5, 10, and 15 percent). As a general rule, Cheryl likes to have ending inventory equal to 12 percent of next
Debra Green is the division manager of the Consumer Banking Division of Pennywise Bank. Each year Debra submits an annual budget to Barney Stringer, the bank’s chief financial officer. Debra’s bonus, salary increases, and promotion opportunities are based on how her performance compares with
The Watch and Timepiece Division of Geraldo Jewelers had significant problems in 2021. Sales and production were down by almost 35 percent as compared with the budget. Manufacturing was plagued by quality problems and had frequent customer complaints. Timothy Atlee, the division’s manager,
Javier Andreas is in the process of developing a spreadsheet to budget annual sales and purchases of inventory for his company, The Backyard Place, a retail store that sells lighting, furniture, and other amenities for the backyard. In 2020, sales were as follows: Inventory at the end of 2020
The accountant at Supreme Audio resigned while he was in the midst of preparing the budget for 2021. His work papers indicated the following: Assumptions: Sales will increase by 25 percent over 2020. Cost of sales equals 75 percent of sales. For 2021, ending inventory should equal 35
In the fourth quarter of 2020, Euro Cycling, a bike shop, had the following net income: Sales..............................................................$550,000 Less cost of sales...........................................250,000 Gross
In the fourth quarter of 2020, Casey Wholesalers had the following net income: Sales.....................................................$650,000 Less cost of sales..................................300,000 Gross margin........................................350,000 Selling and
Fenzel Slide Oil produces a lubricant, SlickTone, which is used on trombone slides. Information about the budget for the year 2021 is as follows: 1. The company expects to sell 7,000 bottles of SlickTone in the first quarter, 6,000 in the second quarter, 10,000 in the third quarter, and 8,000
Super Clean produces and sells stain remover. Information about the budget for the year 2021 is as follows: 1. The company expects to sell 57,000 bottles of stain remover in the first quarter, 65,000 in the second quarter, 105,000 in the third quarter, and 42,000 in the fourth quarter. 2. A bottle
Pinnacle Engineering, an acclaimed chemical engineering team of engineers, chemists, and other scientists, had the following income in 2020: The following changes are expected in 2021: 1. The company is expecting a 12 percent increase in revenues because of increasing demand in the
Modern Healthcare, a group practice clinic with 10 physicians, had the following income in 2020: The following changes are expected in 2021: 1. The clinic is expecting a two percent decline in revenues because of increasing pressure from insurance companies. 2. Physicians are
The World Restaurant is situated in a local shopping center and serves food of many different cultures. It also caters private functions for companies. The results of operations for the fourth quarter of 2020 are as
The Schrödinger Science Store operates a retail store in a local shopping mall. The results of operations for the fourth quarter of 2020 are as follows: Sales.....................................................................................$350,000 Less cost of
Techlabs operates a computer training center. The following data relate to the preparation of a master budget for January 2021. 1. At the end of 2020, the company’s general ledger indicated the following balances: 2. Tuition revenue in December 2020 was $80,000, and tuition revenue
The results of operations for the Garret Bug Spray Manufacturing Company for the fourth quarter of 2020 were as follows (in thousands): Garret uses the variable costing method. Thus, only variable costs are included in the cost of goods sold. Fixed costs are charged to expense in the period
The results of operations for the Preston Manufacturing Company for the fourth quarter of 2020 were as follows: Preston Manufacturing uses the variable costing method. Thus, only variable production costs are included in inventory and cost of goods sold. Fixed production costs are charged to
Riemers Jewelry operates 45 stores in major shopping malls around the country, and Walter Chan is the manager of a store in Dallas. The company is in the third quarter of 2020 and is beginning preparation of its fiscal 2021 budget. Typically, the company begins its profit-planning process by asking
At the start of 2021, the New Orleans Fine Food Company budgeted before-tax income as follows: Actual before tax income for 2021 was: Required Florence Roden, the owner of the company, is pleased that sales were much higher than planned, but she also is concerned that expenses were
The Warrenburg Antique Mall expects to make purchases in the first quarter of 2021 as follows: January.....................$95,000 February..................120,000 March........................85,000 Purchases in December 2020 are expected to be $92,000. The company expects
The Warrenburg Antique Mall budgeted credit sales in the first quarter of 2021 to be as follows: January..................$160,000 February..................170,000 March......................182,000 Credit sales in December 2020 are expected to be $200,000. The company expects
Oregon Adventures provides tours of scenic locations in Oregon. The company expects tours taken to increase dramatically compared with the prior year. For the past year, 2020, the number of tours given were as follows: First quarter.......................6,000 Second
How would performance be evaluated if there were no budgets?
The number of defects in a manufacturing process is an example of a nonmonetary measure of employee performance. Describe a financial measure that captures the effect of defects.
What are the main purposes of preparing a cash budget?
What is meant by a zero-based budget?
What is the difference between the top-down and the bottom-up approach to developing a budget?
Why are budgets useful in the control process?
Why are budgets useful in the planning process?
Assuming a three-year time horizon and a tax rate of 20%, what is the NPV of outsourcing to CloudTech using a discount rate of 10%? Are there any potential “soft benefits to outsourcing that are not captured in the NPV analysis? Assume that the $300,000 to upgrade servers is at the start of
The Boston Culinary Institute is evaluating a classroom remodeling project. The cost of the remodel will be $350,000 and will be depreciated over six years using the straight-line method. The remodeled room will accommodate five extra students per year. Each student pays annual tuition of $22,000.
National Cruise Line is considering the acquisition of a new ship that will cost $600,000,000. In this regard, the president of the company asked the CFO to analyze cash flows associated with operating the ship under two alternative itineraries: Itinerary 1, Caribbean Winter/Alaska Summer and
Memory Florist is considering replacing an old refrigeration unit with a larger unit to store flowers. Because the new refrigeration unit has a larger capacity, Memory estimates that it can sell an additional $9,000 of flowers a year. (The cost of the flowers is $5,000). In addition, the new unit
Great Northern Fishing Company is contemplating the purchase of a new smoker. The smoker will cost $60,000 but will generate additional revenue of $34,000 per year for six years. Additional costs, other than depreciation, will equal $12,000 per year. The smoker has an expected life of six years, at
WesternGear.com is expected to have operating losses of $350,000 in its first year of business and $270,000 in its second year. However, the company expects to have income before taxes of $400,000 in its third year and $650,000 in its fourth year. The company’s required rate of return is 14
Strauss Corporation is making a $90,000 investment in equipment with a five-year life. The company uses the straight-line method of depreciation and has a tax rate of 20 percent. The company’s required rate of return is 15 percent. Required What is the present value of the tax savings
Sally Omar is the manager of the office products division of Wallace Enterprises. In this position, her annual bonus is based on an appraisal of return on investment (ROI) measured as Division income ÷ End-of-year division assets (net of accumulated depreciation). Sally does not receive a bonus
Explain why interest expense is not treated as a cash outflow in capital budgeting decisions made using net present value (NPV) analysis.
What is a capital expenditure decision?
a. Does Smith’s approach to calculating customer profitability have a bias that tends to make customers like Houston appear unprofitable? b. What would have been the impact on income before taxes to Turner in 2021, if there had been no sales to Houston Memorial? Note that answering this
a. On October 28, Fairview Construction asked Preston to deliver 6,000 cubic yards of concrete. The job will require driving 8,400 miles and 300 truck hours. What will the price be if Preston follows its normal pricing policy? b. A sharp increase in interest rates has reduced housing starts
Baker Plumbing Fixtures is developing a preplumbed 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 to incorporate in the unit, including a seat, two shower
Adagio Music Publishing is a boutique company that publishes and prints sheet music for composers and also records and sells CDs of their compositions. Adagio is considering purchasing a line of CDs from a well-regarded composer, Jacques Elles, from another company, to be sold under the Adagio
Spencer Electronics has just developed a low-end headset that it plans to sell via a cable channel marketing program. The cable program’s fee for selling the item is 20 percent of revenue. For this fee, the program will sell the headset over six 10-minute segments in September. pencer’s
The chief engineer at Future Tech has proposed production of a portable electronic storage device to be sold at a 30 percent markup above its full cost. Management estimates that the fixed costs per year will be $210,000, and the variable cost of the storage device will be $15 per
World View is considering production of a lighted world globe that the company would price at a markup of 25 percent above full cost. Management estimates that the variable cost of the globe will be $80 per unit and fixed costs per year will be $240,000. Requireda. Assuming sales of 1,200
What is the lowest per unit price on a special order that a company could accept and still not show a loss from the special order?
What is a “special order”? How does whether a company is operating at capacity or not matter in deciding whether to accept the special order?
Northwest Minerals operates a mine. During July, the company obtained 500 tons of ore, which yielded 250 pounds of gold and 62,500 pounds of copper. The joint cost related to the operation was $500,000. Gold sells for $1,300 per ounce, and copper sells for $2.50 per pound. Required a.
At the end of 2020, Cyril Fedako, CFO for Central Products, received a report comparing budgeted and actual production costs for the company’s plant in Forest Lake, Minnesota: His first thought was that costs must be out of control since actual costs exceed the budget by $585,000. However,
Matthew Gabon, the sales manager of Office Furniture Solutions, prepared the following budget for 2020: Sales Department
Select one or two concepts from this chapter and describe how you might use those concepts in your future career. Briefly describe the career or job you will be performing. Then specifically describe the type of situation for which the concept could be applied. Also include a discussion of how use
At LA Porsche, customers receive an online survey asking them to rate their satisfaction after every car service. How is this measure likely to affect the financial welfare of Hulmut Schmidt, manager of the service department? List three actions that Hulmut can take to ensure the ratings indicate
Zachary made plans to visit a friend in New York during the Memorial Day weekend. However, before the trip, his employer asked him if he would work overtime for 16 hours at $35 per hour during the weekend. What will be the opportunity cost if Zachary decides to visit his friend in New York?
At Designs by Deirdre, the budgeted income statement for the past year indicated sales of $600,000 and cost of sales of $400,000. Actual sales and cost of sales were $700,000 and $425,000, respectively. Should Deirdre Nelson, owner of the company, be concerned that cost of sales is $25,000 greater
Which of the following statements related to performance reports is false? a. Performance reports may provide a comparison of actual performance with planned performance. b. Performance reports may provide a comparison of actual performance with performance in a prior period. c. If
If an action is legal, is it necessarily ethical? Explain.
What is meant by the statement “You get what you measure!”?
Consider the manager of the groceries department at a Walmart store location. For this manager, list a cost that is controllable and a cost that is noncontrollable?
In a performance report, current-period performance is compared with some benchmark. What might be a useful benchmark?
Smith Fans manufactures three model fans for industrial use. The standard selling price and cost of each fan follow: Essentially, all overhead costs are fixed. Some of the fixed overhead costs are direct costs to particular models, and others are common fixed costs. Smith allocates
Oakland College is considering outsourcing grounds maintenance. In this regard, Oakland has received a bid from Highline Grounds Maintenance for $300,000 per year. Highline states that its bid will cover all services and planting materials required to “keep Oakland’s grounds in a condition
Joan Paxton, VP of marketing for BG Electronics 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 indicate the impact of the TV ads on company profit as
Sharpton, the engraving department is a bottleneck, and the company is considering hiring an extra worker, whose salary will be $65,000 per year, to mitigate the problem. With the extra worker, the company will be able to produce and sell 7,000 more units per year. The selling price per unit
The American Produce Company purchased a truckload of cantaloupes (weighing 4,000 pounds) for $900. American Produce separated the cantaloupes into two grades: superior and economy. The superior-grade cantaloupes had a total weight of 3,200 pounds, and the economy-grade cantaloupes totaled 800
Bailey Products produces two joint products (A and B). Prior to the split-off point, the company incurs costs of $6,000. Product A weighs 30 pounds, and Product B weighs 120 pounds. Product A sells for $240 per pound, and Product B sells for $20 per pound. Required a. Based on relative
Furniture Village sells home, and office furniture. Currently the home product line takes up approximately 50 percent of the company’s retail floor space. The president of Furniture Village is trying to decide whether the company should continue offering office furniture or concentrate on home
Imperial produces whirlpool tubs. Currently the company uses internally manufactured pumps to power water jets. Imperial has found that 40 percent of the pumps have failed within their 12-month warranty period, causing huge warranty costs. Because of the company’s inability to manufacture
E-Teller 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 of E-Teller is considering dropping production of the company’s original
Finn’s Seafood Restaurant has been approached by New England Investments, which wants to hold an employee recognition dinner next month. Lillian Sumner, a manager of the restaurant, agreed to a charge of $120 per person, for food, wine, and dessert, for 175 people. She estimates that the cost of
Rustic Interiors, an interior design company, has experienced a drop in business due to an increase in interest rates and a corresponding slowdown in remodeling projects. To stimulate business, the company is considering exhibiting at the Middleton Home and Garden Expo. The exhibit will cost the
Why is the bottleneck department referred to as a drum in the Theory of Constraints?
What are differential costs and revenues?
Each month, senior managers at Vermont Wireless Technologies review cost reports for the company’s various departments. The report for the human resource (HR) group for April is as follows: Jason Fox, the new vice president of operations, expressed his dissatisfaction with the report at a
The Summit Surfboard produces two surfboards. One is a recreational model made from polyurethane foam covered with fiberglass cloth and epoxy resin. The other is a high performance competition board that uses carbon fiber instead of fiberglass. The carbon fiber boards are custom-made and require
Tilden Financial Services has two divisions, Financial Planning and Business Consulting. The firm’s accountants are in the process of selecting an allocation base to allocate centrally provided personnel costs to the divisions. Two allocation bases have been proposed: salary and headcount (number
Snowcap Electronics is a manufacturer of data storage devices. Snowcap consists of two service departments (maintenance and computing) and two production departments (assembly and testing). Maintenance costs are allocated on the basis of square footage occupied, and computing costs are allocated on
Major Supplies supplies parts for laundry and kitchen appliances. Customer orders are placed over the Internet and are generally filled in one or two days using express mail services. Angela Farnsworth, a consultant with ABM Services, has been asked to conduct an ABM study of inventory

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