Module 4 Exercises Derauf has prepared the following list of statements about decision ma (answer attached)

Module 4 Exercises Derauf has prepared the following list of statements about decision ma  (answer attached)

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Module 4 Exercises

Problem 1

Derauf has prepared the following list of statements about decision making and incremental analysis. Identify each statement as true or false. If false, indicate how to correct the statement.

1.       The first step in management’s decision-making process is, “Determine and evaluate possible 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 the 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.       Costs that are the same under all alternative courses of action sometimes affect the decision.

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

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

 

NOTE: Fill in the table below with your responses; write correction for false statements below the table:

 

 Problem 2

Innova Corporation makes a commercial-grade cooking griddle. The following information is available for Innova Corporation’s anticipated annual volume of 30,000 units.

 

Per Unit

Total

Direct materials

$17

 

Direct labor

$ 8

 

Variable manufacturing overhead

$11

 

Fixed manufacturing overhead

 

$360,000

Variable selling and administrative expenses

$ 4

 

Fixed selling and administrative expenses

 

$150,000

** The company uses a 40% markup percentage on total cost.

(a)    Compute the total cost per unit

(b)   Compute the target selling price

Module 5 Exercises

Problem 1

Frizell Company is preparing its manufacturing overhead budget for 2011. Relevant data consist of the following.

·         Units to be produced (by quarters): 10,000, 12,000, 14,000, and 16,000

·         Direct labor: Time is 1.5 hours per unit

·         Variable overhead costs per direct labor hour: Indirect materials $0.70; indirect labor $1.20; and maintenance $0.50

·         Fixed overhead costs per quarter: Supervisory salaries $35,000; depreciation $16,000; and maintenance $12,000

Prepare the manufacturing overhead budget for the year, showing quarterly data.

 

Problem 2

Jake Palermo has prepared the following list of statements about budgetary control. Identify each statement as true or false. If false, indicate how to correct the statement.

1.       Budget reports compare actual results with planned objectives.

2.       All budget reports are prepared on a weekly basis.

3.       Management uses budget reports to analyze differences between actual and planned results and determine their causes.

4.       As a result of analyzing budget reports, management may either take corrective action or modify future plans.

5.       Budgetary control works best when a company has an informal reporting system.

6.       The primary recipient of the scrap report is the production manager.

7.       A static budget is a projection of budget data at one level of activity.

8.       Top management’s reaction to unfavorable differences is not influenced by the materiality of the difference.

9.       A static budget is not appropriate in evaluating a manager’s effectiveness in controlling costs unless the actual activity level approximates the static budget activity level or the behavior of the costs is fixed.

 

NOTE: Fill in the table below with your responses; write correction for false statements below the table:

 

Module 6 Exercises

Problem 1

The following is a list of terms related to performance evaluation. Match each of the terms to their descriptions.

Terms

Association

Descriptions

1.       Balanced Scorecard

 

a.       The difference between total actual costs and total standard costs.

2.       Variance

 

b.      An efficient level of performance that is attainable under expected operating conditions.

3.       Learning and growth perspective

 

c.       An approach that incorporates financial and nonfinancial measures in and integrated system that links performance measurement and a company’s strategic goals.

4.       Nonfinancial measures

 

d.      A viewpoint employed in the balanced scorecard to evaluate how well a company develops and retains its employees.

5.       Customer perspective

 

e.      An evaluation tool that is not based on dollars.

6.       Internal standards

 

f.        A viewpoint employed in the balanced scorecard to evaluate the company from the perspective of those people who buy and use its products or services.

7.       Ideal standards

 

g.       An optimum level of performance under perfect operating conditions.

8.       Normal standards

 

h.      A viewpoint employed in the balanced scorecard to evaluate the efficiency and effectiveness of the company’s value chain.

 

NOTE: You will associate each term to its description by using the appropriate letter reference of the description in the center column.

 

Problem 2

Vorteck Inc. manufactures snowsuits. Vorteck is considering purchasing a new sewing machine at a cost of $2.5 million. Its existing machine was purchased five years ago at a price of $1.8 million six months ago; Vorteck spent $55,000 to keep it operational. The existing sewing machine can be sold today for $260,000. The new sewing machine would require a one-time, $85,000 training cost. Operating costs would decrease by the following amounts for years 1 to 7:

Year 1

$390,000

2

400,000

3

411,000

4

426,000

5

434,000

6

435,000

7

436,000

 

The new sewing machine would be depreciated according to the declining-balance method at a rate of 20%. The salvage value is expected to be $380,000. This new equipment would require maintenance costs of $95,000 at the end of the fifth year. The cost of capital is 9%.

Use the net present value method to determine whether Vorteck should purchase the new machine to replace the exiting machine, and state the reason for your conclusion.

Module 7 Exercises

Problem 1

An analysis of comparative balance sheets, the current year’s income statement, and the general ledger accounts of Conard Corp. uncovered the following items. Assume all items involve cash unless there is information to the contrary. Indicate how each item should be classified in the statement of cash flows using the four major classifications listed to the right.

ITEMS

Association

Classification

a.       Payment of interest on notes payable

 

1.       Operating Activity (indirect method)

b.      Exchange of land for patent

 

2.       Investing activity

c.       Sale of building at book value

 

3.       Financing activity

d.      Payment of dividends

 

4.       Significant noncash investing and financing activity

e.      Depreciation

 

 

f.        Receipt of dividends on investment in stock

 

 

g.       Receipt of interest on notes receivable

 

 

h.      Issuance of capital stock

 

 

i.         Amortization of patent

 

 

j.        Issuance of bonds for land

 

 

k.       Purchase of land

 

 

l.         Conversion of bonds into common stock

 

 

m.    Loss on sale of land

 

 

n.      Retirement of bonds

 

 

 

NOTE: You will associate each item to the appropriate number (representing classification) using the center column.

 

Problem 2

Scully Corporation’s comparative balance sheets are presented below.

SCULLY CORPORATION

Balance Sheets

December 31

 

2011

2010

 

 

 

Cash

$ 4,300

$ 3,700

Accounts receivable

21,200

23,400

Inventory

10,000

7,000

Land

20,000

26,000

Building

70,000

70,000

Accumulated depreciation

(15,000)

(10,000)

Total

$110,500.00

$120,100.00

 

 

 

 

 

 

Accounts payable

$ 12,370

$31,100

Common stock

75,000

69,000

Retained earnings

23,130

20,000

Total

$110,500.00

$120,100.00

 

Scully’s 2011 income statement included net sales of $100,000, cost of goods sold $60,000, and net income of $15,000.

Show computation (equation) for the following:

(a)     Current ratio

(b)   Acid-test ratio

(c)    Receivables turnover

(d)   Inventory turnover

(e)   Profit margin

(f)     Asset turnover

(g)    Return on assets

(h)   Return on common stockholders’ equity

(i)      Debt to total assets ratio

 

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