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Study Resources (Accounting)

  51.In the month of December the Valhalla Company produced 28,000 units and sold 30,000 units.  Under absorption costing: A.Fixed manufacturing costs will be “released” from inventory and therefore net operating income will be lower than it would under variable costing B.Fixed selling & administrative costs will be “released” from inventory and therefore.
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3.Assume that you are a franchisee of a fast-food chain, “Pita Palace,” that serves made-to-order pitas. The menu, prices, and decor are dictated by the national office; further, you are required to purchase all of your supplies through a specified distributor. Your primary responsibility is to ensure adequate staffing and.
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11.ABC provides useful information for product planning by providing accurate estimates of profit margins. 12.LO3 – True An ABC system may be used to measure the profitability or profit potential of a market segment, but not an individual customer. 13.A curve that plots customer profitability, after ranking customers in order of their.
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Short Answer 1.What is the appropriate measure of value for long-term decisions? 2.What is the difference between a contribution margin and a profit margin? 3.What are the two approaches for estimating the controllable cost of capacity resources over the long term? 4.Describe the direct estimation method for estimating controllable capacity costs. List one advantage.
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Exercises 1.Refer to the data in the following table: Setting Initial Outlay Life (years) Discount Rate (compounded annually) Future Value (at the end of life) 1 $225,000 5 10% ? 2 ? 10 12% $400,000 3 $157,950 8 ? $450,000 4 $150,000 ? 12% $371,400 Required: Treating each row of the table independently, compute the missing information. Use the present value/future value tables at the end of the book. 2.Kim Barth decides to start a small restaurant near a busy shopping mall..
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MULTIPLE CHOICE 21.Which of the following is not a step in designing a product costing system? A.Determine how to form cost pools. B.Identify which cost pools to allocate. C.Identify the cost driver to use for allocating each cost pool. D.Determine the appropriate denominator volume of each cost driver to calculate allocation rates. E.All of the above.
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Exercises 1.The University Credit Union (UCU) has engaged your services to determine the cost of its various activities. The following data are available for a representative branch. Process Deposits Process Checks Balance Inquiries Other Activities Total Cost Tellers 30% 40% 10% 20% $150,000 Assistant Manager 10% 10% 5% 75% $75,000 Managers 2% 3% 5% 90% $90,000 The average branch processes 600,000 deposits and 1,250,000 check transactions each year. Required: Compute the cost per deposit and the cost to process a check. 2.The QwikFill.
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6.Suppose a firm produces two products, both of which are sold in competitive markets. Are there any incentives to be strategic when allocating costs between these two products? 7.Firms that allocate costs based on head count motivate their managers to reduce the number of employees. What kind of dysfunctional and profit.
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5.Even though the payback method ignores time value of money, many firms continue to use it when evaluating projects. Why might this practice be in the manager’s best interest? 6.List and discuss two advantages and two disadvantages of the accounting rate of return method. 7.Under the internal rate of return method, how.
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5.Suppose your firm is currently employing a traditional volume-based product costing system. Further, suppose that you begin to improve this system by incrementally modifying one cost pool at a time by refining its drivers and so on. Would such actions always increase the accuracy of reported product costs? Justify your.
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80.Which of the following capital budgeting analysis tools does not account for the time value of money? A.Net present value B.Internal rate of return C.Payback D.Modified payback 81.A project is considered acceptable if: A.The net present value of the project is positive B.The internal rate of return is greater than the hurdle rate C.The modified payback period.
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51.When implementing activity-based costing, by how much will profit before taxes differ compared to other cost allocation systems? A. The difference depends on which other system is used. B. ABC systems will report higher profit than other systems. C. ABC systems will report lower profit than other systems. D. No difference will.
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TRUE/FALSE 1.Money is not a productive asset because it is not a long-lived resource. 2.The opportunity of cash is the time value of money. 3.It is not difficult to match the supply and demand for capacity resources over a period of months or even years. 4.Cost allocations ignore the “lumpy” nature of capacity resources,.
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2.The Glass Vessel Company has established the following budget for producing one of its hand-blown vases: Materials (silica) 2 pounds @ 1.25 per pound Labor 1.5 hours @ $15.00 per hour In March of the most recent year, Glass Vessel produced 300 vases using 650 pounds of materials. Glass Vessel purchased the 650.
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TRUE/FALSE 1.Profit margin equals a product’s gross margin less the cost of capacity resources needed to support its production. 2.Profit margin is the appropriate measure for evaluating long-term profitability. 3.When allocating capacity costs to products, controllable and non-controllable cost pools need to be allocated to cost objects. 4.Activity-based costing (ABC) is an approach to.
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5.Murray Motors, Inc. is considering a proposal to purchase a new molding machine for $720,000.  In addition, shipping charges of $4,000, sales tax of $21,000, and installation charges of $5,000 will be incurred.  The machine will have a useful life of five years, with no salvage value.  Murray will use.
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Short Essays 1.Many firms dedicate separate production facilities to each of their product lines. What are some of the advantages and disadvantages of this approach from the perspective of allocating costs for decision making? 2.Suppose a firm currently makes three products using the same capacity resources and that one of the products.
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Short Answer 1.What is capital budgeting? 2.What does the notion “time value of money” mean? Why is it important for project evaluation? 3.“Capacity resources are lumpy in nature.” What does the term lumpy mean in this statement? Why is it relevant in the context of capital budgeting? 4.What is the difference between a capital.
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61.As to customer-level profit analysis, batch-level costs relate to: A.Customers’ order volume. B.Tailoring a product to customers’ desires. C.Customers’ frequency of ordering or order size. D.Warehousing of customers’ desires. E.All of the above are batch-level costs. 62.Which of the following is not a characteristic of low-profit customers? A.Small order size. B.Demand immediate deliveries. C.Predictable ordering patterns. D.Frequent sales force contact. E.All.
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  31.The following information is available for the Downtown Furniture Company which produces two types of tables. OakCherryTotal Sales volume (units)500300800 Revenue$80,000$78,000$158,000 Variable Costs Direct materials$5,000$7,000$12,000 Direct labor$17,000$22,000$39,000 Contribution Margin$58,000$49,000$107,000 Fixed Costs Manufacturing$25,500 Administrative$31,000 Profit Before Tax$50,500 A.$15,500 B.$18,600 C.$31,000 D.$11,625 32.The following information is available for the Downtown Furniture Company which produces two types of tables. OakCherryTotal Sales volume (units)500300800 Revenue$80,000$78,000$158,000 Variable Costs Direct materials$5,000 $8,000 $13,000 Direct labor$17,000$21,000$38,000 Contribution Margin$58,000$49,000$107,000 Fixed Costs Manufacturing$40,000 Administrative$33,000 Profit Before.
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7.Define the term internal rate of return or IRR. Describe how you would calculate the IRR for a project proposal. 8.List three assumptions underlying the NPV method. 9.List two key advantages of the payback method. 10.What is the difference between the payback and modified payback methods? 11.Define the accounting rate of return. 12.Why are taxes.
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11.The two main discounted cash flow techniques used in capital budgeting are net present value (NPR) and cost-volume-profit (CVP). 12.LO3 – False The two main discounted cash flow techniques used in capital budgeting are net present value (NPV) and internal rate of return (IRR).When analyzing capital investments using the NPV method,.
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Short Answer 1.What is the definition of unit profit margin? 2.What are the four key steps in designing a product costing system? 3.What is a business process? How are activities and business processes related? 4.What is the basis that ABC systems use to form cost pools? 5.What is the primary criterion that we should use.
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Short Essay 1.Some might argue that the costs of developing a product are sunk at the time the product goes into production. Thus, these costs are not controllable for any decisions. Should we allocate these costs to products to determine their profit margin? 2.Suppose we are choosing between two drivers to allocate.
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8.What is cross-subsidization? 9.List three ways in which a company can improve profitability using ABC data. 10.What are the two key customer-planning decisions that companies face? 11.What are the differences between product-level profit analysis and customer-level profit analysis? 12.List five characteristics of customers that are “high cost-to-serve” customers. List five characteristics of customers that.
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MULTIPLE CHOICE 21.Which of the following is not an example of a long-term decision? A.Changing product mix. B.Dropping products. C.Expanding operations. D.Purchasing inventory. E.All of the above are examples of long-term decisions. 22.The allocation rate is calculated by: A.Dividing the costs in the cost pool by the denominator volume. B.Dividing the costs in the cost pool by the overhead.
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Exercises 1.Garnet’s Gym is a fitness and aerobic center located in Atlanta, Georgia. The following table reports Garnet’s master budget and actual results for the most recent year:    Master Budget Actual Results Membership fee (per member) $500 $550 Number of members 5,000 4,000 Variable cost (per member) $200 $200 Fixed costs $1,200,000 $1,200,000   With regard to the discrepancies between the budgeted and actual membership fee.
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TRUE/FALSE 1.Changing a product mix is an example of a short-term decision. 2.Capacity costs are controllable over the long-term. 3.While profit margin is the appropriate measure of value for short-term decisions, contribution margin is the appropriate measure for long-term decisions. 4.Some firms refer to the overhead rate as the burden because they charge, or.
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60.Consider the following facts – do not consider the impact of income taxes: Initial cost of equipment    $45,000 Estimated life     5 years Salvage value     $5,000 Annual cash inflows     $15,000 Estimated cost of capital    8% The net present value of the equipment is: A.$14,895 B.$18,300 C.$63,300 D.$59,895 61.Consider the following facts – do not consider the impact of income taxes: Initial cost of.
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Problems 1.Betty’s Boutique sells hand-crafted jewelry.  Betty sells her jewelry for $40, a 300% markup.  Her annual sales range from $30,000 to $40,000, with sales for the current year expected to be $34,000.  Fixed costs generally are $17,000.   Required: a.Betty anticipates sales of $40,000 next year.  Calculate her expected profit for the current.
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3.Bonner Construction Company is currently working on two projects that have considerable overlap in the use of equipment and materials.  For example, Bonner is renting a crane with a minimum lease time of one day and will be able to use the crane on both projects during the one-day period. .
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100.The minimum expected rate of return of the management from any project is referred to as the: A.The internal rate of return. B.The hurdle rate. C.A number greater than 1. D.A number less than zero. E.None of the above. 101.Firms may not always allocate capital to their highest-ranking projects because: A.The value of a portfolio may exceed.
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  41.If a company produces more units than it sells in a period, net operating income under variable costing will: A.Be the same as it would be under absorption costing B.Be less than it would be under absorption costing C.Be equal to the net operating income using absorption costing plus selling and administrative costs D.Be.
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Exercises 1.Located in Madras, India, Shah Company manufactures and sells leather garments in India and in Europe. For the most recent year of operations, Shah sold 20,000 garments each in Europe and India. Each garment sold in India consumes 4 hours of labor, while each garment sold in Europe consumes 7.
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r Problems 1.It is important to understand the reasons for capital budgeting. Required: Enter the identifying letters in the blanks below to indicate the term that best matches each description. A Capital budgeting F Lumpy resource B Cost of capital G Present value C Discounting H Real option analysis D Discount rate I Salvage value E Initial outlay J Time value of money a._____ The rate of return employed to compute the present value of.
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MULTIPLE CHOICE 40.Despite the widespread use of allocations for decision-making, they suffer from which of the following drawbacks? A.They do not account for the time value of money. B.They do not account for the lumpy nature of capacity resources. C.They do not account for opportunity costs. D.A and B only. E.A, B, and C. 41.Money is a.
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  11.An example of allocations to justify costs and reimbursements is when government entities contract to compensate their suppliers on a fixed negotiated contract amount. 12.Suppliers often prefer cost-plus contracts when there is uncertainty about the final cost or project success, as it allows them to share the risk of cost overruns.
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Problems 1.It is important to understand the elements of an activity-based costing (ABC) system. Required: Enter the identifying letters in the blanks below to indicate the term that best matches each description. A Activity F Facility-level activities B Activity-based costing G Practical capacity C Activity-based management H Product-/customer-level activities D Batch-level activities I Product planning E Business process J Profit margin a._____ Activities that are required to sustain the business. b._____ Using information from ABC systems to.
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Short Essay 1.What are the tax implications of selling an asset when it still has some economic value? Consider, in particular, the issue when we use an accelerated depreciation schedule for calculating taxable income. 2.List and discuss two advantages of the net present value method relative to the internal rate of return.
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3.The initial cash outlay and cash flow projections are presented below for new equipment that Outdoor Sports, Inc. is evaluating.  Outdoor Sports is considering manufacturing a new line of laser rangefinders: Initial Cash Outlay $1,500,000 Annual Net cash inflows  Years 1 -5 $450,000 Salvage value $100,000 Outdoor Sports uses a cost of capital of 12 percent for.
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50.The controller of Simpson Enterprises estimates that the installation and training for a new computer system will cost around $125,000. In which element of the project cash flow elements will this cost be included? A.Initial outlay B.Estimated proceeds to be received from the sale at the end of a resource’s estimated.
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  61.Why do managers care about the costs allocated to their individual departments? A.Managers’ performance evaluations frequently depend on their unit’s performance more than overall firm performance. B.The cost allocated is an integral part of the department’s reported profit. C.Carefully chosen allocation methods can induce desired behavior. D.Carefully chosen allocation methods can dissuade undesired behavior. E.All.
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8.Under variable costing, how does sales volume affect the amount of fixed manufacturing overhead expensed in the income statement? 9.Under absorption costing, how does sales volume affect the amount of fixed manufacturing overhead expensed in the income statement? 10.When will income reported under variable costing be the same as income reported under.
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31.Pizzeria Gallery specializes in pizza making and delivery.  The company uses activity-based costing for all overhead costs using the following data: Overhead costs: Wages$48,000 Administrative$62,000 Total$110,000 Resources are consumed as follows: Activity Cost Pools Pizza MakingDeliveryOther Wages & Salaries65%20%15% Administrative20%30%50% Activity for the year is: Activity Cost PoolActivity Pizza Making19,000 orders Delivery17,000 deliveries The total overhead cost per delivery according to the activity-based costing.
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21.Regardless of the method used to evaluate long-lived resources, firms need to consider one very important factor:  present value. 22.Net cash flows typically equal accounting income. 23.Taxes affect both the amount and timing of cash flows. 24.Depreciation offers a tax shield that reduces the cash outflow associated with tax payments. 25.U.S. tax laws only.
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41.What is an activity-based costing system? A. An approach to determining product costs B. An approach that eliminates all non-value-adding costs C. An approach that allocates all costs that can be directly traced to products or services D. An approach that improves the efficiency of organizational processes 42.Which of the following lists best.
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