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Accounting 5th Edition Charles T. Horngren, Walter T. Harrison, Linda S. Bamber, Betsy Willis, Becky Jones - Solutions
Discuss the roles of expected future data and historical data in decision analysis. On which data are special deci- sions based?
Name two key guidelines for making short-term special decisions.
Identify two income statement formats. Which is more useful for deciding whether to accept a special sales order? Why?
Identify two long-term factors managers should consider in deciding whether to accept a special sales order.
What is the similarity between a special sales order deci- sion and a decision to drop a product? The difference?
Which cost is more likely to change in a short-term decision situation, a fixed or a variable cost? Can both costs change?
Outline how to decide which product to emphasize when there is a constraining factor. Give four examples of constraining factors.
What is an opportunity cost? How does it differ from an ordinary accounting cost?
Name three capital budgeting decision methods. State the strengths and the weaknesses of each method. Which method is best? Why?
Which capital budgeting method is (a) based on operat- ing income, (b) based on cash flows without regard for their timing or profitability, (c) based on the time value of money.
How is the payback period computed for assets that gen- erate equal annual cash inflows? How does the estimated useful life of the asset affect the payback computation?
How is the accounting rate of return computed when the annual amounts of operating income vary?
Explain why a positive net present value indicates an attractive investment project and a negative net present value indicates an unattractive project.
Which capital budgeting strategy is better? (a) Pick the best capital budgeting method and use it exclusively. (b) Use multiple capital budgeting methods. Explain your answer.
DE26-1 You are trying to decide whether to trade in your inkjet printer for a more recent model. Your usage pattern will remain unchanged, but the old and new printers use different ink cartridges. Are the following items relevant or irrelevant to your decision?a. The price of the new printerb. The
DE26-2 Consider the ACDelco special sales order example on pages 1065-1067. Suppose thata. ACDelco's variable manufacturing cost is $1.45 per oil filter (instead of $1.20).b. ACDelco would have to buy a special stamping machine that costs $9,000 to mark the customer's logo on the special-order oil
DE26-3 Maui Jane sunglasses sell for about $120 per pair. Suppose that the company incurs the following average costs per pair: Direct materials Direct labor. Variable manufacturing overhead Variable marketing expenses. Fixed manufacturing overhead. Total costs. 540 12 8 4 20* S84 $2.000.000 total
DE26-4 Consider the Maui Jane company in Daily Exercise 26-3. In addition to the special order's effect on profits, what other (longer-term qualitative) factors should Maui Jane's man- agers consider in deciding whether to accept Lenscrafters' special order?
DE26-5 Refer to Daily Exercises 26-3 and 26-4. Maui Jane's marketing manager, Janet Sky. argues that Maui Jane should not accept Lenscrafters' special sales order because Lenscrafters $76 offer price is less than Maui Jane's $84 cost to make the sunglasses. Sky asks you, one of Maui Jane's staff
DE26-6 Sam's Video in Philadelphia operates three departments: Video, Music, and Accessories. Sam's Video allocates fixed expenses (building depreciation and utilities) based on the square feet occupied by each department. Departmental operating income data for the third quarter of 20X3 are as
DE26-7 Betsy Lanier is the wife of Sam Lanier, the owner of Sam's Video in Daily Exercise 26-6. Betsy is concerned. "Look at the Accessories Department's results. That department is costing us $5,000 a quarter. We would have had $10,000 more in our retirement fund if you had gotten rid of the
DE26-8 Consider Sam's Video from Daily Exercise 26-6. Assume that the fixed expenses assigned to each department include only Salaries of the department's manager Cost of advertising directly related to that department Sam's Video will not incur these fixed expenses if the department is dropped.
DE26-9 Runmaster, Inc.. produces two types of exercise treadmills: Regular and Deluxe. The exercise craze is such that Runmaster could use all its available machine hours pro- ducing either model. The two models are processed through the same production departments. Which model should Runmaster
DE26-10 US. Surgical Corporation in Norwalk, Connecticut. manufactures and markets surgical equipment. Lilian Gonzalez manages the company's fleet of 550 automobiles. Gonzalez has been charged with "reengineering" the fleet management function. She has an important decision to make. Should she
DE26-11 Refer to US. Surgical Corporation in Daily Exercise 26-10. What qualitative fac- tors should Gonzalez consider before making a final decision?
DE26-12 Etron Contract Manufacturing has been purchasing digital filters for $3 each. Etron believes it can make these filters using its excess capacity. No extra equipment or other fixed costs would be required, Etron estimates that it will need 50.000 filters and that the cost per filter would
DE26-13 Refer to Etron Contract Manufacturing in Daily Exercise 26-12. Suppose that Making the filters will require Etron to hire a new part-time supervisor at a cost of $8.000. If Etron buys the filters, it could rent its idle facilities to another company. Alon Products. for $20.000. Should Etron
DE26-14 Auto Components, Inc., has an inventory of 1,000 obsolete remote entry keys that are carried in inventory at a manufacturing cost of $160.000. Production supervisor Tony Ray must decide whether to Process the inventory further at a cost of $40,000, with the expectation of selling it for
DE26-15 Auto Components. Inc., from Daily Exercise 26-14 is approached by a customer who wants to buy the 1.000 obsolete keys. The customer is willing to pay more than $16,000 for the 1.000 keys. 1. What is Auto Components' opportunity cost of not processing the inventory further? 2. How can Ray
DE26-16 The concept of opportunity cost applies to all business decisions for which there are alternative courses of action. For example, in Exhibit 26-3, page 1066, the opportunity cost of rejecting the special sales order is the $11.000 of operating income that ACDelco would forgo il it rejects
DE26-17 Sound Insurance Company of America, a property/casualty insurer based in Branchville. New Jersey, is deciding whether to purchase new accounting software. Assistant vice president Tom Selling calculated that the payback period for the $30.000 software pack- age would be 8 years. What are
DE26-18 Daily Exercises 26-18 through 26-23 consider how Deer Valley Resort (from the chapter opening story) could use capital budgeting methods to decide whether the $13 mil- lion Snow Park Lodge expansion would be a good investment. Assume that Deer Valley's managers developed the following
DE26-19 Refer to the Deer Valley Snow Park Lodge expansion project in Daily Exercise 26-18. Compute the payback period for the expansion project.
DE26-20 Refer to the Deer Valley Snow Park Lodge expansion project in Daily Exercise 26-18. What is the accounting rate of return?
DE26-21 Link Back to Chapter 15 (Present-Value Concepts). Refer to Daily Exercise 26-18. What is the project's net present value?
DE26-22 Refer to Daily Exercise 26-18. Assume the expansion has zero residual value. What is the project's internal rate of return?
DE26-23 Use your results from Daily Exercises 26-18 through 26-22 to write a memo to Deer Valley director of finance Jim Madsen. The purpose of your memo is to recommend whether Deer Valley should undertake the expansion. You should cover the strengths and weaknesses of each capital budgeting
E26-1 Suppose the Baseball Hall of Fame in Cooperstown, New York, has approached Sports-Cardz, Inc., with a special order. The Hall of Fame wishes to purchase 100,000 baseball card packs for a special promotional campaign and offers $0.95 per pack, a total of $95,000. Sports-Cardz total production
E26-2 Top managers of New Rock Records are alarmed about their operating losses. They are considering dropping the cassette-tape product line. Company accountants have prepared the following analysis to help make this decision: Total Compact Discs Cassette Tapes Sales revenue. $480,000 $290,000
E26-3 Refer to Exercise 26-2. Assume that New Rock Records can avoid $65,000 of fixed expenses by dropping the cassette-tape product line. Prepare an incremental analysis to show whether New Rock should stop selling cassette tapes.
E26-4 Modern Styles sells both designer and moderately priced fashion accessories. Top management is deciding which product line to emphasize. Accountants have provided the following data: Average sale price.... Average variable expenses Average contribution margin. Average fixed expenses
E26-5 Millenia Systems manufactures an electronic control that it uses in its final product. The electronic control has the following manufacturing costs per unit: Direct materials. Direct labor...... Variable overhead. Fixed overhead. $ 7.00 1.00 1.50 5.50 $15.00 Manufacturing product cost.
E26-6 Refer to Exercise 26-5, Millenia needs 90.000 electronic controls. By outsourcing them, Millenia can use its idle facilities to manufacture another product that will contribute $150,000 to operating income. Identify the incremental costs that Millenia will incur to acquire 90.000 electronic
E26-7 Norris Creations has damaged some custom cabinets, which cost the company $10,000 to manufacture. Owner Fay Norris is considering two options for disposing of this inventory. One plan is to sell the cabinets as damaged inventory for $1,400. The alternative is to spend an additional $450 to
E26-8 Adkins Co. is considering acquiring a manufacturing plant. The purchase price is $1.457,100. The owners believe the plant will generate net cash inflows of $485.700 annu- ally. It will have to be replaced in seven years. Use the payback method to determine whether Adkins should purchase this
E26-9 Sikes Hardware is adding a new product line that will require an investment of $1.454.000. Managers estimate that this investment will generate net cash inflows of $310.000 the first year, $280,000 the second year, and $240,000 each year thereafter. Compute the payback period of the
E26-10 Barker Mills is shopping for new equipment. Managers are considering two invest- ments. Equipment manufactured by Li. Inc., costs $400,000 and will last for five years, with no residual value. The Li equipment is expected to generate annual operating income of $48,000. Equipment manufactured
E26-11 Link Back to Chapter 15 (Present-Value Concepts). Use the net present value method to determine whether Pine Products should invest in the following projects: Project A: Costs $295,000 and offers eight annual net cash inflows of $65,000. Pine Products requires an annual return of 14% on
E26-12 Refer to Exercise 26-11. Compute the internal rate of return of each project, and use this information to identify the better investment.
E26-13 Each morning, Ken Gaver stocks the drink case at Ken's Beach Hut in Sanibel Island. Florida. Ken's has 100 linear feet of refrigerated display space for cold drinks. Each linear foot can hold either six 12-ounce cans or four 20-ounce plastic or glass bottles. Ken's sells three types of cold
P26-1A Price United Co.'s contribution margin income statement for the most recent month reports the following: Sales in units. Sales revenue. Variable expenses: Manufacturing.... Marketing and administrative. Total variable expenses.. Contribution margin. Fixed expenses: Manufacturing.....
P26-2A The following operating income data of Sea Cuisine highlights the losses of the fresh seafood product line: Product Line Fresh Frozen Total Seafood Seafood Sales revenue Cost of goods sold: $857,500 $227,500 $630,000 Variable $164,000 $ 64,000 $100,000 Fixed 131,000 41,000 90,000 Total cost
P26-3A Green's Outdoors of Harrisburg, Virginia, specializes in outdoor furniture and barbe- cues. Owner Linda Green is expanding the store. She is deciding which product line to emphasize. To make this decision, she assembles the following data: Sale price.. Variable expenses. Contribution margin
P26-4A Afloat. Inc., manufactures swim fins. Cost data for producing 2,000 pairs of fins each year are as follows: Direct materials. Direct labor Variable overhead Fixed overhead Total manufacturing costs. $21,000 15,000 5,600 38,400 $80,000 Suppose SwimTime will sell Afloat the fins for $35 per
P26-5A Long Petroleum Company produces a variety of petroleum products. Assume that Long has spent $300,000 to refine 60.000 gallons of petroleum distillate. Suppose Long can sell the distillate for $5.50 a gallon. Alternatively, it can process the distillate further and pro- duce cleaner for tape
P26-6A Waters Investments. Inc., operates a resort near Door County in the Great Lakes region of Wisconsin. The company is considering an expansion. The architectural plan calls for a construction cost of $5.200,000. Top managers of Waters believe the expansion will gen- erate annual net cash
P26-7A Crystal's Candle Shop is considering two possible expansion plans. Plan A is to open 8 candle shops at a cost of $3,220,000. Expected annual net cash inflows are $690.000, with residual value of $350,000 at the end of seven years. Under plan B. Crystal's would open 12 candle shops at a cost
P26-1B Play Day Corporation manufactures toys in Tampa, Florida. Play Day's contribution- margin income statement for the most recent month contains the following data: Sales in units. Sales revenue Variable expenses: Manufacturing Marketing and administrative. Total variable expenses Contribution
P26-2B Members of the board of directors of Energy Saver Electric, Inc., have received the following operating income data for the year just ended, shown at the top of the next page. Members of the board are surprised that the industrial-systems product line is losing money. They commission a study
P26-3B Oral-E Corp.. located in Detroit, Michigan, produces two lines of electric tooth- brushes: deluxe and standard models. Because Oral-E can sell all the toothbrushes it can pro- duce, the owners are expanding the plant, and they are deciding which product line to emphasize. To make this
P26-4B Smooth Sailing manufactures sailboats. Assume that Smooth Sailing's cost of mak- ing 1.200 seat covers is Direct materials Direct labor Variable overhead. Fixed overhead.. Total manufacturing costs for 1,200 seat covers $ 7.260 1.440 960 2.400 $12.060 Suppose Sof-Seatz will sell seat covers
P26-5B Cisco Chemical Corporation has spent $320,000 to refine 84.000 gallons of acetone. which can be sold for $3.32 a gallon. Alternatively, Cisco can process the acetone further and produce 77,000 gallons of lacquer thinner that can be sold for $4.80 a gallon. The additional processing will cost
P26-6B Rising Sun Developers, west of Roswell, New Mexico, is considering purchasing a water park for $1,850,000. Top managers of Rising Sun believe the new facility will generate annual net cash inflows of $420,000 for eight years. Architects and engineers estimate that the facility will remain
P26-7B TechNo operates a chain of electronics stores. The company is considering two pos- sible expansion plans. Plan A would open eight smaller stores at a cost of $6,450,000. Expected annual net cash inflows are $860,000, with zero residual value at the end of 20 years. Under plan B. TechNo would
Case 1. BKFin.com provides banks access to sophisticated financial information and analysis systems over the Web. The company combines these tools with benchmarking data access. including e-mail and wireless communications, so that banks can instantly evaluate individual loan applications and
Case 2. Suppose that Intel is considering a new computer-controlled machine for etching trenches in the surfaces of silicon wafers. The company processes these wafers into semicon- ductor chips. The etching machine costs $900,000, and an additional $250,000 would be required for installation. Thus
Link Back to the EPS Calculation in Chapter 14 and the IMA Ethical Guidelines in Chapter 19. In 1996 Target was the third-largest retailer in the United States, with over 750 stores in 38 states. So it was big news when the company decided to stop selling cigarettes in its stores. Cigarettes often
John Menard is the founder and sole owner of Menard, Inc. Analysts have estimated that his chain of home improvement stores scattered around nine midwestern states generate about $3 billion in annual sales. But how can Menard compete with giant Home Depot? Suppose Menard is trying to decide whether
Papa John's International Inc. has surpassed Little Caesars to become the number 3 pizza chain, behind Pizza Hut and Domino's, with more than 2,300 restaurants scattered across the United States and five other countries. Most restaurants offer delivery or take-out only. 1. Go to
How do managers use cost-volume-profit analysis in planning?
Deline the three types of cast behavior patterns.
Draw graphs of the three types of costs.
What are three questions cost-volume-profit analysis can answer?
How does a contribution margin income statement differ from a conventional income statement? Which is more useful for predicting how a change in sales will affect income? Why?
Why is the relevant range important in cost-volume- profit analysis?
What is the breakeven point? What is its significance to a business?
How does an increase in lixed expenses affect the breakeven point?
How does an increase in variable expenses affect the breakeven point?
How does an increase in sale price affect the breakeven point?
Briefly outline two ways to compute the sales in dollars needed to earn a target operating income.
What advantages does a CVP graph have over the income statement equation approach and the contribution mar- gin approach?
How does the margin of safety serve as a measure of risk?
Briefly describe how to perform CVP analysis when a company sells more than one product.
How is fixed manufacturing overhead cost expensed under absorption costing? Under variable costing?
How does a decrease in fixed expenses aflect breakeven sales? Give the reason for each answer.
How does a decrease in variable expenses affect breakeven sales? Give the reason for each answer.
How does a decrease in sale price affect breakeven sales? Give the reason for each answer.
DE22-1 Vandersteen builds innovative loudspeakers for music and home theater. Identify the following costs as variable or fixed:a. Depreciation on routers used to cut wood enclosuresb. Wood for speaker enclosuresc. Patents on crossover relaysd. Crossover relayse. Grill clothf. Glue g. Quality
DE22-2 Fill in the blanks using one of the following: Stays the same Decreases Increasesa. As the number of units increases, the variable cost per unitb. As the number of units decreases, the variable cost per unitc. As the number of units increases, the fixed cost per unitd. As the number of units
DE22-3 Suppose World-Link offers an international calling plan that charges $3.00 per month plus $0.45 per minute for calls to China. 1. Under this plan, what is your monthly international long-distance cost if you call China fora. 20 minutes?b. 40 minutes?c. 80 minutes? 2. Draw a graph
DE22-4 Suppose you were recently hired as an accounting intern at Optical Cable Corporation. Your boss, Bob Knechel, hands you the following information from November's operations and asks you to compute gross profit and contribution margin. Sales revenue $120,000 Sales commissions 2,500 Variable
DE22-5 Your boss at Optical Cable (Daily Exercise 22-4) is puzzled by the difference between gross profit and contribution margin. Write a short memo explaining the primary difference between gross profit and contribution margin, using the following format: Date: To: From: Subject:
DE22-6 Consider the Kast-A-Ways Swimwear income statements in Exhibit 22-5. page 891. How much of the total cost of goods sold consists of fixed manufacturing costs?
DE22-7 Blue Sky, Inc.. produces climbing rope. The company incurs $100,000 of fixed expenses per month. It sells the rope for $23 per yard, and it incurs variable expenses at the rate of $9 per yard. Prepare a contribution margin income statement, assuming that Blue Sky sells 15,000 yards of rope
DE22-8 CEO John Hand thinks Blue Sky could increase its sales to 25,000 yards of rope in August if the company paid its sales force a commission of $1 per yard. What would be Blue Sky's operating income if it adopted the sales commission plan? Should Blue Sky adopt the sales commission plan? Why or
DE22-9 Consider the Grand Canyon Railway example from the chapter opening story. Suppose the railway decides to oller only one class of service. Coach class, at an all-inclusive round-trip ticket price of $55 per passenger. Assume variable expenses of $15 per passenger. Il Grand Canyon has $250,000
DE22-10 Refer to the information given in Daily Exercise 22-9. 1. Compute Grand Canyon Railway's contribution margin ratio. Carry your computation to five decimal places. 2. Use the contribution margin ratio CVP formula to determine the sales revenue Grand Canyon needs to break even.
DE22-11 Refer to the information given in Daily Exercise 22-9. 1. Suppose Grand Canyon Railway cuts its round-trip ticket price from $55 to $50 in order to increase the number of passengers. Compute the new breakeven point in units (passenger round-trips) and in sales dollars. 2. Return to the
DE22-12 Consider the original Grand Canyon Railway information in Daily Exercise 22-9. Suppose Grand Canyon embarks on a cost reduction drive, and slashes fixed expenses from $250,000 per month to $200,000 per month. 1. Compute the new breakeven point in units (passenger round-trips) and in sales
DE22-13 Il Grand Canyon Railway has a target operating income of $30,000 per month, how many round-trip tickets must the company sell? Use the original data given in Daily Exercise 22-9.
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