Managerial Accounting

 

 

 

 

 

 

 

 

 

 

 

 

 

Managerial vs Financial Accounting

Page 298: Brief Exercises 7-1, 7-2

Pages 300-301: Exercises 7-1, 7-4

Page 303: Exercise 7-9

Page 539: Brief Exercises 12-1, 12-4, 12-5, 12-6

Pages 541-542: Exercise 12-5

Page 394: Brief Exercises 9-3, 9-4

Pages 444-445: Brief Exercises 10-2, 10-3

Pages 586-587: Brief Exercises 13-1, 13-11

 

BE7-1 The steps in management’s decision-making process are listed in random order below.

Indicate the order in which these steps should be executed.

__ Making a decision                                              __Review results of the decision

__ Identify the problem and assign responsibility

__ Determine and evaluate possible courses of action

BE7-2 Bogart Company is considering two choices. Alternative A will have revenues of

$160,000 and cost of $100,000. Alternative B will have revenues of $180,000 and cost of

$125,000. Compare alternative A to Alternative B showing incremental revenues, costs, and net income.

E7-1 As a study aid, your classmate Pascal Adams has prepared the following list of statements about decision-making and incremental analysis.

    1. The first step in management’s decision-making process is, “Determine and evaluate courses of action.”

    2. The final step in management’s decision-making process is to actually make the decision.

     3. Accounting’s contribution to management’s decision-making process occurs primarily in evaluating possible courses of action and in reviewing results.

  4. In making business decisions, management ordinarily considers only financial information because it is objectively determined.

5. Decisions involve a choice among alternative courses of action.

6. The process used to identify the financial data that change under alternative courses of action is called incremental analysis.

   7. Cost that are the same under all alternative courses of action sometimes affect the decision.

     8. When using incremental analysis, some cost will always change under alternative courses of action, but revenues will not.

    9. Variable cost will change under alternative courses of action, but fixed cost will not.

Instructions: Identify each statement as true or false. If false, indicate how to correct the statement.

E7-4 Klean Fiber Company is the creator of Y-Go, a technology that weaves silver into its fabrics to kill bacteria and odor on clothing while managing heat. Y-Go has become very popular as an undergarment for sports activities. Operating in capacity, the company can produce 1,000,000 undergarments of Y-Go a year. The per unit and the total costs for an individual garment when the company operates at full capacity are as follows.

 

 

	Per Undergarment			Total
Direct materials		$2.00			$2,000,000
Direct labor		0.75			750,000
Variable manufacturing overhead		1.00			1,000,000
Fixed manufacturing overhead		1.50			1,500,000
Variable selling expenses		0.25			250,000
Totals		$5.50			$5,500,000

 

The U.S. Army has approached Klean Fiber and expressed an interest in purchasing 250,000 Y-Go undergarments for soldiers in extremely warm climates. The Army would pay the unit cost for direct materials, direct labor, and variable manufacturing overhead costs. In addition, the Army has agreed to pay an additional $1 per undergarment to cover all other costs and provide a profit. Presently, Klean Fiber is operating at 70% capacity and does not have any other potential buyers for Y-Go. If Klean Fiber accepts the Army's offer, it will not incur any variable selling expenses related to this order.

 

Instructions:

Using incremental analysis, determine whether Klean Fiber should accept the Army's offer.

 

 

 

 

E7-9 Anna Garden recently opened her own basketweaving studio. She sells finished baskets

in addition to the raw materials needed by customers to weave baskets of their own.

Anna has put together a variety of raw material kits, each including materials at various

stages of completion. Unfortunately, owing to space limitations, Anna is unable to carry

all varieties of kits originally assembled and must choose between two basic packages.

The basic introductory kit includes undyed, uncut reeds (with dye included) for weaving

one basket. This basic package costs Anna $16 and sells for $30. The second kit,

called Stage 2, includes cut reeds that have already been dyed. With this kit the customer

need only soak the reeds and weave the basket.Anna is able to produce the second kit

by using the basic materials included in the first kit and adding one hour of her own time,

which she values at $18 per hour. Because she is more efficient at cutting and dying reeds

than her average customer, Anna is able to make two kits of the dyed reeds, in one hour,

from one kit of undyed reeds. The Stage 2 kit sells for $36.

Instructions: Determine whether Rachel’s basketweaving shop should carry the basic introductory kit with undyed and uncut reeds or the Stage 2 kit with reeds already dyed and cut. Prepare an incremental analysis.

BE12-1 Rihanna Company is considering purchasing new equipment for $450,000. It is expected that the equipment will produce net annual cash flows of $60,000 over its 10-year useful life. Annual depreciation will be $45,000. Compute the cash payback period.

BE12-4 Caine bottling corporation is considering the purchase of a new bottling machine. The machine would cost $200,000 and has an estimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine will provide net annual cash flows of $34,000. Management also believes the new bottling machine will save the company money because it is expected to be more reliable than other machines, and thus will reduce downtime. how much would the reduction in downtime have to be worth in order for the project to be acceptable? Assume a discount rate of 9%. (Hint: calculate the net present value

BE12-5 McKnight Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $400,000, has an expected useful life of 10 years, a salvage value of zero, and is expected to increase net annual cash flows by $70,000. Project B will cost $310,000, has an expected useful life of 10 years, a salvage value of zero, and is expected to increase net annual cash flows by $55,000. A discount rate of 9% is appropriate for both projects. Compute the net present value and profitability index of each project. Which project should be accepted?

BE12-6 Quillen Company is performing a post-audit of a project completed one year ago. The initial estimates were the project would cost $250,000, would have a useful life of 9 years, zero salvage value, and would result in net annual cash flows of $46,000 per year. Now that the investment has been in operation for 1 year revised figures indicate that it actually costs $260,000, will have a useful life of 11 years, and will produce net annual cash flows of $39,000 per year. Evaluate the success of the project. Assume a discount rate of 10%.

E12-5 Bruno Corporation is involved in the business of injection molding of plastics. It is considering the purchase of a new computer-aided design and manufacturing machine for $430,000. The company believes that with this new machine it will improve productivity and increase quality, resulting in an increase in net annual cash flows of $101,000 for the next 6 years. Management requires a 10% rate of return on all new investments.

Instructions: Calculate the internal rate of return on this new machine. Should the investment be accepted?

BE9-3 Sales budget data for Paige Company are given in BE9-2. Management desires to

have an ending finished goods inventory equal to 25% of the next quarter’s expected unit

sales. Prepare a production budget by quarters for the first 6 months of 2017.

BE9-4 Perine company has 2,000 pounds of raw materials in its December 31, 2016, ending inventory. Required production for January and February 2017 are 4,000 and 5,000 units, respectively. Two pounds of raw materials are needed for each unit, and the estimated cost per pound is $6. Management desires an ending inventory equal to 25% of next month's materials requirements. Prepare the direct materials budget for January.

BE10-2 Data for croix Company are given in BE10-1. In the second quarter, budgeted sales were $380,000, and actual sales were $384,000. Prepare a static budget report for the second quarter

Info from BE10-1 quarter ended 3-31-17,Croix Company accumulates the sales data for its newest guitar, the edge: $315,000 budget; $305,000 actual.

BE10-3 In Rooney Company, direct labor is $20 per hour. The company expects to operate at 10,000 direct labor hours each month. In January 2017, direct labor totaling $206,000 is incurred in working 10,400 hours. (a)Prepare a static budget report(b) a flexible budget report. Evaluate the usefulness of each report.

BE13-1 Each of the items below must be considered in preparing a statement of cash flows for Baskerville Co. for the year ended December 31, 2017. For each item, state how it should be shown in the statement of cash flows for 2017.

a. Issued bonds for $200,000 cash.

b. Purchased equipment for $150,000 cash.

c. Sold land costing $20,000 for $20,000 cash.

d. Declared and paid a $50,000 cash dividend.

BE13-11 The management of Morrow Inc. is trying to decide whether it can increase its dividend. During the current year, it reported net income of $875,000. It had net cash provided

by operating activities of $734,000, paid cash dividends of $70,000, and had capital

expenditures of $280,000. Compute the company’s free cash flow, and discuss whether an

increase in the dividend appears warranted. What other factors should be considered?

 

 

 

References