Questions and Answers of Managerial Accounting Decision Making

Poseidon Electronics operates 10 stores in Washington, Oregon, and California, selling consumer electronics including home theater systems. The following financial information is available for 2021
Atomic Electronics is considering instituting a plan whereby managers will be evaluated and rewarded based on a measure of economic value added (EVA). Before adopting the plan, management wants you
Consider the following information for HandyCraft Stores for 2020 and 2021: Required a. Compute ROI for both years. b. Break ROI down into profit margin and investment
The chief operating officer of the Wisconsin Corporation is considering the effect of depreciation on the company’s ROI. In the most recent year, net operating profit after taxes was $35,000,000
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
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
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
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
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
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
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
For fiscal year 2020, LaundryMate Products had income as follows: Sales................................................................$55,000,000 Less: Cost of goods
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
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
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
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
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
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
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
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
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
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
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.
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
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
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
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
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
In the fourth quarter of 2020, Euro Cycling, a bike shop, had the following net income: Sales..............................................................$550,000 Less cost of
In the fourth quarter of 2020, Casey Wholesalers had the following net income: Sales.....................................................$650,000 Less cost of
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
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
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.
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
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
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
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 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
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
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
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,
The Warrenburg Antique Mall expects to make purchases in the first quarter of 2021 as
The Warrenburg Antique Mall budgeted credit sales in the first quarter of 2021 to be as
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
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
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
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
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
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,
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
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
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
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
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
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
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
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
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
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
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
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
Matthew Gabon, the sales manager of Office Furniture Solutions, prepared the following budget for 2020:
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
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
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
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,
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
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
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
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.
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 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
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
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
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
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
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
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
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

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