Briefly describe how managers make use of management accounting information.
Generally, companies follow one of two broad strategies: offering a quality product at a low price, or offering a unique product or service priced higher than the competition. Assume you are opening a small food outlet across the street from your campus. How might that business be operated under each of the two broad strategies? Consider the following specific operational areas:
a. target customers
b. products offered
c. product pricing
d. location choice
e. advertising content
f. advertising media
In most organizations, customer satisfaction is one of the top priorities. As such,
attention to customers is necessary for success. Briefly describe the four types of
demands customers are currently placing on organizational performance.
You have been employed as an entry-level management accountant for a little under a year. You suspect that your immediate supervisor is involved in a significant fraud involving diverting of company assets to personal use. Briefly describe the steps you might take to resolve this dilemma.
Why is it possible that a raw material such as glue might be considered as an indirect material for one furniture manufacturer and as a direct material for another furniture manufacture?
Auto Tires has been in the tire business for four years. It rents a building but owns all of its equipment. All employees are paid a fixed salary except for the busy season (April – June), when temporary help is hired by the hour. Utilities and other operating charges remain fairly constant during each month except those in the busy season.
Selling prices per tire average $75 except during the busy season. Because a large number of customers buy tires prior to winter, discounts run above average during the busy season. A 15% discount is given when two tires are purchased at one time. During the busy months, selling prices per tire average $60.
The president of Auto Tires is somewhat displeased with the company's management accounting system because the cost behavior patterns displayed by the monthly breakeven charts are inconsistent; the busy months' charts are different from the other months of the year. The president is never sure if the company has a satisfactory margin of safety or if it is just above the breakeven point.
a. What is wrong with the accountant's computations?
b. How can the information be presented in a better format for the president?
Axle and Wheel Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The following per unit data apply for sales to regular customers:
Direct materials $33
Direct labor 15
Variable manufacturing support 24
Fixed manufacturing support 52
Total manufacturing costs 124
Markup (50%) 62
Targeted selling price $186
Axle and Wheel Manufacturing has excess capacity.
a. What is the full cost of the product per unit?
b. What is the contribution margin per unit?
c. Which costs are relevant for making the decision regarding this one-time-only special order? Why?
d. For Axle and Wheel Manufacturing, what is the minimum acceptable price of this one-time-only special order?
e. For this one-time-only special order, should Axle and Wheel Manufacturing consider a price of $100 per unit? Why or why not?
The management accountant for the Chocolate S’more Company has prepared the following income statement for the most current year:
Chocolate Other Candy Fudge Total
Sales $40,000 $25,000 $35,000 $100,000
Cost of goods sold 26,000 15,000 19,000 60,000
Contribution margin 14,000 10,000 16,000 40,000
Delivery and ordering costs 2,000 3,000 2,000 7,000
Rent (per sq. foot used) 3,000 3,000 2,000 8,000
Allocated corporate costs 5,000 5,000 5,000 15,000
Corporate profit $4,000 $(1,000) $7,000 $10,000
a. Do you recommend discontinuing the Other Candy product line? Why or why not?
b. If the Chocolate product line had been discontinued, corporate profits for the current year would have decreased by what amount?
Pat, a Pizzeria manager, replaced the convection oven just six months ago. Today, Turbo Ovens Manufacturing announced the availability of a new convection oven that cooks more quickly with lower operating expenses. Pat is considering the purchase of this faster, lower-operating cost convection oven to replace the existing one they recently purchased. Selected information about the two ovens is given below:
Existing New Turbo Oven
Original cost $60,000 $50,000
Accumulated depreciation $ 5,000 —
Current salvage value $40,000 —
Remaining life 5 years 5 years
Annual operating expenses $10,000 $ 7,500
Disposal value in 5 years $ 0 $ 0
a. What costs are sunk?
b. What costs are relevant?
c. What are the net cash flows over the next 5 years assuming the Pizzeria purchases the new convection oven?
d. What other items should Pat, as manager of the Pizzeria, consider when making this decision?
A restaurant is deciding whether it wants to update its image or not. It currently has a cozy appeal with an outdated décor that is still in good condition, menus and carpet that need to be replaced anyway, and loyal customers.
Identify for the restaurant management
a. those costs that are relevant to this decision,
b. those costs that are not differential,
c. and qualitative considerations.
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