Answer 1 a plant manager may switch to manufacturing

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College Accounting, Chapters 1-27
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Chapter 26 / Exercise E 26-6A
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Answer: 1) A plant manager may switch to manufacturing products that absorb the highest amount of fixed manufacturing costs, regardless of the demand for the product.2) A plant manager may accept a particular order to increase production, even though another plant in the same company may be better suited to handle the order.3) To increase production, a manager may defer maintenance beyond the current period. Diff: 3 Terms: absorption costing Objective: 3 AACSB: Reflective thinking204)Briefly discuss two methods of reducing the undesirable incentives associated with the use of absorption costing to evaluate the performance of a plant manager. Answer: There are several ways to reduce the undesirable incentives associated with the use of absorption costingto evaluate the performance of a plant manager. Any two of the following would be sufficient to answer this question: 1) Use budgeted balance sheets to limit the ability of a manager to exceed those amounts without providing an explanation. 2) Incorporate a carrying charge for inventory in the internal accounting system. This will serve to reduce the amount of profit a manager reports in proportion to the amount of any inventory buildup. 3) Extend the period of the plant manager's evaluation to a 3 to 5 year period. This will reduce the manager's incentive to produce into the inventory to increase quarterly or short run profits. 4) Include non-financial as well as financial measures in the manager's performance evaluation. These might include ratios of units produced to units sold to make producing to inventory more visible to top management. Diff: 3 Terms: absorption costing Objective: 3 AACSB: 149
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College Accounting, Chapters 1-27
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Chapter 26 / Exercise E 26-6A
College Accounting, Chapters 1-27
Heintz/Parry
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Reflective thinking205)What is throughput costing? What advantages is it purported to have over variable and absorption costing? Answer: Throughput costing treats all costs except direct materials as costs of the period in which they are incurred. Throughput costing results in a lower amount of manufacturing cost put into inventory than either variable or absorption costing. Supporters of throughput costing claim that it provides less incentive to produce for inventory than absorption costing or even variable costing. Diff: 2 Terms: throughput costing, variable costing, absorption costing Objective: 4 AACSB: Reflective thinking 150
206)a.List the four different measures of capacity.b.Which measure of capacity is best for setting prices? Why?c.Which measure of capacity is best for evaluating the performance of the marketing manager for the current year? Why? Answer: a.Theoretical capacity, practical capacity, normal capacity utilization, and master-budget capacity utilization are the four measures of capacity.b.Practical capacity is best to use when setting prices because only the actual cost of capacity used for production is included in the cost of a unit.

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