Question 1

SeaScape Resorts owns and operates two resorts in a coastal town.Both resorts are located on a barrier island that is connected to the mainland by a high bridge.One resort is located on the beach and is called the Crystal Coast Resort.The other resort is located on the inland waterway which passes between the town and the mainland;it is called the Harborview Resort.Some key information about the two resorts for the current year is shown below. 
The nontraceable operating costs of the resort amount to $3 million.By careful study,the management accountant at SeaScape has determined that,while the costs are not directly traceable,the total of $3 million could be fairly allocated to the four cost drivers as follows. 
What is the operating profit of the Crystal Coast Resort,using revenue as an allocation base?

Accepted Answer

The answer of SeaScape Resorts owns and operates two resorts...

Question 2

Chadd Fisher was recently appointed vice president of operations for Cary Corporation.He has a manufacturing background and previously served as operations manager of Cary's building products division.The business units of Cary Corporation include divisions that manufacture building products,process food,and provide financial services.In a recent conversation with Drew Williams,Cary's chief financial officer,Chadd suggested evaluating unit managers on the basis of the business unit data in Cary's annual financial report.This report presents revenues,earnings,identifiable assets,and depreciation for each business unit for a five-year period.He believes that evaluating business unit managers by criteria similar to that used to evaluate the company's top management is appropriate.Drew has reservations about using information from the annual financial report for this purpose and suggested that Chadd consider other criteria to use in the evaluation.
Required: 1.Explain why the business unit information prepared for public reporting purposes might not be appropriate for the evaluation of unit managers' performance.2.Describe the possible motivational impact on Cary Corporation's unit managers if Chadd's proposal for their evaluation is accepted.3.Identify and describe several types of financial information that would be more appropriate for Chadd Fisher to use when evaluating the performance of unit managers.

Accepted Answer

Feedback: 1.The business unit information prepared for public reporting purposes may not be appropriate for the evaluation of business unit management performance because: ? an allocation of common costs incurred for the benefit of more than one business unit must be included for public reporting purposes,? common costs are generally allocated on an arbitrary basis,? the business units identified for public reporting purposes may not coincide with actual managerial responsibilities,? this information does not distinguish between a business unit that is a poor investment and the performance of manager who has done well despite adverse circumstances.The balanced scorecard is now adopted by many firms to address the limitations of financial-based evaluations only.The balanced scorecard provides quantitative measures in other key areas for the organizations success,including: internal processes,customer satisfaction,and learning and growth of managers and staff.2.If their performance is evaluated on the basis of the information in the annual financial report,Cary Corporation's business unit managers may become frustrated and dissatisfied because they would be held responsible for an earnings figure that includes the arbitrary allocation of common costs and costs traceable to but not controllable by them.Performance evaluation on this basis could cause dissatisfaction,and the best managers may seek employment elsewhere.3.Cary Corporation should define strategic business units that coincide with managers' actual responsibilities rather than using the rules developed for public financial reporting.All reports should be prepared utilizing the contribution approach which would separate costs by behavior and assign costs to business units only if they could be controlled by the business unit.The report should disclose contribution margin,contribution controllable by business unit managers,and contribution by each business unit after the allocation of common costs.Also,the company should adopt the balanced scorecard as a means to comprehensively link the performance of managers with the critical measures necessary for success.

Question 3

Reasons for failure to implement the balanced scorecard effectively include all but which of the
Following:

Accepted Answer

Failure to include financial reporting requirements to the SEC is not a reason for failure to implement the balanced scorecard effectively, as the balanced scorecard is an internal management tool and not a requirement for external financial reporting. The other options are all potential reasons for failure to implement the balanced scorecard effectively.

Question 4

Harrison Hartwell and Zenith is a successful law firm employing 26 professionals.There is an internal controversy over allocation of the $104,000 purchase cost of a highly sophisticated electronic law library.Each professional employee of the firm has been assessed $4,000 as a charge against the profit distribution account of each of the 26 members affected.In addition,it is expected to cost about $2,600 per month to update information for the library system,resulting in a monthly $100 assessment against each professional in the firm.
Required: (a)As a new junior member of the professional legal group of 26,why might you not like the proposed electronic library cost allocation? (b)Propose an alternate allocation method for both the initial purchase cost and the updating charge that is more equitable (fair).(c)Could one argue for no allocation at all in this case? On what basis?

Accepted Answer

Feedback: (a)The junior members of the law firm would probably resist paying as much of the cost as more senior members,arguing that it isn't "fair." Equity (fairness)is difficult to define,but people seem to intuitively know when inequity exists.(b)The allocation of the purchase cost could be shared on the basis of each legal staff members' salary-the ability to "bear" the cost.The monthly charge could be assessed on the basis of usage,i.e. ,the number of hours each staff member uses the library resources.It is relatively easy to gather time use information in a computerized system.(Note: Other equitable ways of allocating the two costs are possible.Even the current system treats everyone "equally," which could be a measure of fairness. )(c)Yes,the initial purchase cost could simply be deducted from the law firm's revenue before bonuses beyond salaries are calculated.The same treatment could be used for the monthly updating charge.However,the firm could make use of allocation of this ongoing charge to limit,discourage,or encourage utilization of the new resource.

Question 5

Betty Jones and Penny White are associates at the same law firm in Atlanta.They traveled to New York City together recently to visit their respective clients.From the airport,they shared a cab ride to their hotel.The cab ride for Betty alone would have cost $18.00,but for two passengers the cost was $22.00.Had Betty not offered to share the cab ride,Penny (in deference to her client's frugality)would have taken the bus to Grand Central Station,which is six blocks from the hotel,at a cost of $10.00.
Required: How should the $22.00 cost of the cab ride be allocated to the two clients?

Accepted Answer

Feedback: This cost allocation case deals with cost reimbursement more than cost management,but the principles of management control still apply -- the objective is to achieve fairness and a desired motivation.In this case the desired motivation is for the associates of the law firm to provide excellent service to their client at fair prices.Thus,the idea to share a taxi achieves this objective.Also,the cost allocation should fairly allocate the cost to the different clients.One alternative would be to bill Jones's client for the $18 single rider charge,and bill White's client for the $4 second rider surcharge.However,there is no reason in fairness for Jones's client to pay more.Another option would be to charge the clients $11 each,which would be an intuitive,satisfying solution.A third option would be to charge White's client $10 for the cost of the bus ride that White did not take,and charge Jones's client the $12 remainder.The logic of this is that White's client should pay no more than the $10 bus fare that White had planned,but that the sharing of the taxi should allow Jones to reduce the cost to her client.The choice in this case will depend on Jones's and White's discussion of the desired fairness in this case.

Question 6

SeaScape Resorts owns and operates two resorts in a coastal town.Both resorts are located on a barrier island that is connected to the mainland by a high bridge.One resort is located on the beach and is called the Crystal Coast Resort.The other resort is located on the inland waterway which passes between the town and the mainland;it is called the Harborview Resort.Some key information about the two resorts for the current year is shown below. 
The nontraceable operating costs of the resort amount to $3 million.By careful study,the management accountant at SeaScape has determined that,while the costs are not directly traceable,the total of $3 million could be fairly allocated to the four cost drivers as follows. 
Using the information regarding the allocation of the $3 million to the four cost drivers,determine
The amount of cost to be allocated to the Harborview Resort.

Accepted Answer

The answer of SeaScape Resorts owns and operates two resorts...

Question 7

Risk plays a critical role in the decision making process.However,numerous studies have shown that most executives,managers and individuals are considered to be:

Accepted Answer

Most people tend to be risk averse, meaning that they are hesitant to take risks and often opt for the safer option. This is particularly true in business decision making, where individuals may prioritize avoiding losses over potential gains. Research has shown that individuals tend to become less risk averse when the potential rewards increase, or when they have prior experience or familiarity with the situation at hand.

Question 8

The sales life cycle has three phases: early,growth,and maturity.The appropriate performance
Measures for the growth phase include

Accepted Answer

The answer of The sales life cycle has three phases:...

Question 9

A value stream is:

Accepted Answer

The answer of A value stream is:
...

Question 10

McShane Inc.manufactures hair brushes that sell at wholesale for $6.00 per unit.Budgeted production in both 2009 and 2010 was 2,000 units and fixed overhead budgeted was $25,000 in each year.There was no beginning inventory in 2009.The following data summarized the 2009 and 2010 operations:

Accepted Answer

Required:Determine income under both full costing and variable costing and explain the difference.
Please see Feedback for answers.
 Feedback: Emerging Issue: Production Volume Variance 11ea6e70_bd64_709e_8f54_9575536d4c51_TB1699_00 The difference in operating income for 2010 ($34,750-$41,000 = -$6,250 = $12.50 x 500 11ea6e70_bd64_709f_8f54_4394ec121080_TB1699_00

Question 11

Divisional managers of SIU Incorporated have been expressing growing dissatisfaction with the current methods used to measure divisional performance.Divisional operations are evaluated every quarter by comparison with the static budget prepared during the prior year.Divisional managers claim that many factors are completely out of their control but are included in this comparison.This results in an unfair and misleading performance evaluation.The managers have been particularly critical of the process used to establish standards and budgets.The annual budget,stated by quarters,is prepared six months prior to the beginning of the operating year.Pressure by top management to reflect increased earnings has often caused divisional managers to overstate revenues and/or understate expenses.In addition,once the budget had been established,divisions were required to "live with the budget." Frequently,external factors such as the state of the economy,changes in consumer preferences,and actions of competitors have not been adequately recognized in the budget parameters that top management supplied to the divisions.The credibility of the performance review is curtailed when the budget can not be adjusted to incorporate these changes.Top management,recognizing the current problems,has agreed to establish a committee to review the situation and to make recommendations for a new performance evaluation system.The committee consists of each division manager,the Corporate Controller,and the Executive Vice President who serves as the chairman.At the first meeting one division manager outlined an Achievement of Objectives System (AOS).In this performance evaluation system,divisional managers would be evaluated according to three criteria: ? Doing better than last year - Various measures would be compared to the same measures of the prior year.? Planning realistically - Actual performance for the current year would be compared to realistic plans and/or goals.? Managing current assets - Various measures would be used to evaluate the divisional management's achievements and reactions to changing business and economic conditions.A division manager believed this system would overcome many of the inconsistencies of the current system because divisions could be evaluated from three different viewpoints.In addition,managers would have the opportunity to show how they would react and account for changes in uncontrollable external factorA second division manager was also in favor of the proposed AOS.However,he cautioned that the success of a new performance evaluation system would be limited unless it had the complete support of top management.Further,this support should be visible within all divisions.He believed that the committee should recommend some procedures which would enhance the motivational and competitive spirit of the divisions.
Required: (1)Explain whether or not the proposed AOS would be an improvement over the measure of divisional performance now used by SIU Incorporated.(2)Develop specific performance measures for each of the three criteria in the proposed AOS which could be used to evaluate divisional managers.(3)Discuss the motivational and behavioral aspects of the proposed performance system.Also,recommend specific programs which could be instituted to promote morale and give incentives to divisional management.

Accepted Answer

Feedback: (1)The proposed Achievement of Objectives System (AOS)would be an improvement over the current measure of divisional performance for the following reasons: ? There appears to be greater participation in the establishment of objectives by divisional managers.? The use of multiple criteria for performance measures should be a more equitable standard of evaluation.This performance measure tends to reduce over-emphasis on single measurement criteria and may also balance extremes in performance in one area versus another.? Realistic planning encourages accurate budget estimations and promotes intermediate and long-range planning objectives which enhances goal congruence.? Static budgets established six months before the start of the year would be replaced by flexible budgets would be subject to change as needed.? The emphasis on performance is based upon factors controllable by and upon efforts actually directed by divisional managers.? Divisional managers should have an increased sense of responsibility and control over activities within their divisions once they are not held responsible for uncontrollable factors.? Top management support along with timely and regular reviews of performance will promote division manger's feeling of self-worth.Programs which may be instituted to promote morale and give incentives to divisional managers in conjunction with the achievement of objectives system include the following: ? Intrinsic motivators can be provided by allowing the manager to assess his/her own achievements and his/her own worth.? Extrinsic motivators can be developed through a managers' competition against him/herself or with other divisions with recognition given to the successful participants in the form of awards or monetary incentives.(2)Specific performance measures for the criteria "doing better than last year" could include total sales,contribution margin,controllable costs,net income,net income as a function of sales,return on investment,market share,and productivity.Measurement of these items should be compared in absolute terms or by percentages to the prior year.Specific performance measures for the criteria "planning realistically" could include an analysis of variance between actual and budget and the use of a flexible budget to determine sales,net income,net income as a function of sales,and return on investment.Specific performance measures for the criteria "managing current assets" could include accounts receivable turnover,inventory turnover,return on current assets,and year to year comparisons of current assets in total and by account classification.(3)The motivational and behavioral aspects of the achievement of objectives system depend upon the level of acceptance of the system by top management and the divisional managers.Divisional managers could have a sense of participation in the role of goal setting and budget development which could encourage goal congruence.Multiple criteria enhance a sense of equity or fairness,and remove pressures to pursue measured goals,the achievement of which may conflict with corporate long-run objectives (i.e. ,promotes goal congruence).Increased morale can result in participation in budget setting and management level decisions as well as having positive feedback.

Question 12

Tough-Built Corporation produces specialized truck body components,specializing in hydraulic lifts for dump trucks.Founded 35 years ago by George Halloway,the firm now employs 150 workers and has annual sales of over $10 million.George operates the firm in a highly centralized way,and retains control over all changes in operations.He is a regular visitor to the production area,which helps him "keep his finger on the pulse of the firm." Although George Halloway is now 67 years old,he has no apparent management successor,and has always hand-picked his department heads and staff personnel.He has been generous to those who worked for him,paying substantial bonuses each year to the employees based on his personal evaluation of each worker.Just six weeks ago,a heart attack convinced George to consider retirement,and he decided to sell the firm to his employees.You are assigned the task of recommending a set of strategic performance measures for the firm,assuming that the new worker management wants to operate as a decentralized firm.Required: What major management problems do you foresee in the transition from sole owner to employee ownership?

Accepted Answer

Feedback: The management of Tough-Built is currently very centralized,and the new management is proposing a shift to the decentralized approach.Managers will have to learn to make more decisions for their units;they will need to develop and maintain good communication and coordination with other units;and their system for control and evaluation will have to change if it is to be effective.This change in style of management will have dramatic impact on all aspects of management control and evaluation.This impact will be further complicated by the change in ownership from proprietor to employees.However,the employee-ownership aspect could work to help motivate workers and managers to accept and implement the decentralization of management as proposed.

Question 13

The Daniels Tool & Die Corporation has been in existence for a little over three years;its sales have been increasing each year as it has built a reputation.The company manufactures dies to its customers' specifications;as a consequence,a job order cost system is employed.Factory overhead is applied to the jobs based on direct labor hours.Actual variable overhead is the same as applied variable overhead.Overapplied or underapplied overhead is treated as an adjustment to cost of goods sold.The company's income statements for the last two years are presented below.Daniels used the same predetermined overhead rate in applying overhead to production orders in both 2010 and 2011.The rate was based on the following estimates:

Accepted Answer

In 2009 and 2010,actual direct labor hours expended were 20,000 and 23,000,respectively.Raw materials put into production were $292,000 in 2009 and $370,000 in 2010.Actual fixed overhead was $37,400 for 2010 and $42,300 for 2009,and the planned direct labor rate was the direct labor rate achieved.For both years,all of the reported administrative costs were fixed,while the variable portion of the reported selling expenses result from a commission of five percent of sales revenue.Required:(1)For the year December 31,2010,prepare a revised income statement for Daniels Tool & Die Corporation utilizing the variable costing method.Be sure to include the contribution margin on your statement.(2)Prepare a numerical reconciliation of the difference in operating income between Daniels Tool & Die Corporation's costing and the revised 2010 income statement prepared on the basis of variable costing.(3)Describe both the advantages and disadvantages of using variable costing. 11ea6e70_bd64_97b1_8f54_bd7a072cae87_TB1699_00 
 11ea6e70_bd64_bec2_8f54_d9d1d0475fbe_TB1699_00 Please see Feedback for answers.
 Feedback: (1) 11ea6e70_bd64_e5d3_8f54_d1cba2a15f09_TB1699_00 Supporting Calculations Fixed overhead rate = $25,000/25,000hours = $1 per hour Calculation of variable finished goods inventory at 1/1/10. 11ea6e70_bd64_e5d4_8f54_d35e66bad45c_TB1699_00 Calculation of variable cost work-in-process inventory at 1/1/10 11ea6e70_bd64_e5d5_8f54_e3c71479c16a_TB1699_00 Calculation of variable manufacturing costs incurred during 2010 11ea6e70_bd64_e5d6_8f54_59e3e628ddbc_TB1699_00 Calculation of direct labor and variable overhead rates. 11ea6e70_bd64_e5d7_8f54_ad74e24655a2_TB1699_00 Calculation of variable cost work-in-process inventory at 12/31/10 11ea6e70_bd64_e5d8_8f54_f953fe1eaf57_TB1699_00 Calculation of variable cost finished goods inventory at 12/31/10. 11ea6e70_bd64_e5d9_8f54_c5811fabfe18_TB1699_00 Calculation of variable selling expenses. 11ea6e70_bd65_0cea_8f54_3fe2f46cd8c5_TB1699_00 Calculation of fixed selling expenses. 11ea6e70_bd65_0ceb_8f54_23edfc052af3_TB1699_00 (2)The difference in the operating income of $270 is caused by the different treatment of fixed manufacturing overhead.Under full costing,fixed overhead costs are assigned to inventory and are not expensed until the goods are sold.Under variable costing,these costs are treated as expenses in the period incurred.Since the direct labor hours in the work-in-process and finished goods inventories had a net increase of 270 hours,the full costing operating profit is higher because the fixed factory overhead associated with the increased labor hours in inventory is not expensed when full costing is used. 11ea6e70_bd65_0cec_8f54_236f169f13a3_TB1699_00 The increase in hours (270)times the fixed overhead rate ($1 per hour)equals the difference in
operating income ($270).(3)The advantages of using variable costing follow.
The fixed manufacturing costs are reported at incurred values,not at absorbed values,which increases the likelihood of better control over fixed costs.
 Profits are directly influenced by changes in sales volume and not by changes in inventory levels.
 Contribution margin by product line,territory,department,or division is emphasized and more readily ascertainable the disadvantages of using variable costing follow.
 Variable costing is not acceptable for tax reporting,for SEC reporting,nor for external financial reporting;therefore,companies need to keep two sets of records.
 Costs other than variable costs,i.e. ,fixed costs and total production costs,may be ignored when making decisions,especially long-term decisions.
 With the advancement of factory technology and the movement toward a fully automated factory,the fixed factory overhead may be a significant portion of the production costs.To ignore these significant costs in inventory valuation may not be acceptable.

Question 14

SeaScape Resorts owns and operates two resorts in a coastal town.Both resorts are located on a barrier island that is connected to the mainland by a high bridge.One resort is located on the beach and is called the Crystal Coast Resort.The other resort is located on the inland waterway which passes between the town and the mainland;it is called the Harborview Resort.Some key information about the two resorts for the current year is shown below. 
The nontraceable operating costs of the resort amount to $3 million.By careful study,the management accountant at SeaScape has determined that,while the costs are not directly traceable,the total of $3 million could be fairly allocated to the four cost drivers as follows. 
The Crystal Coast resort is likely to be favored in terms of a lower cost allocation under:

Accepted Answer

The answer of SeaScape Resorts owns and operates two resorts...

Question 15

SeaScape Resorts owns and operates two resorts in a coastal town.Both resorts are located on a barrier island that is connected to the mainland by a high bridge.One resort is located on the beach and is called the Crystal Coast Resort.The other resort is located on the inland waterway which passes between the town and the mainland;it is called the Harborview Resort.Some key information about the two resorts for the current year is shown below. 
The nontraceable operating costs of the resort amount to $3 million.By careful study,the management accountant at SeaScape has determined that,while the costs are not directly traceable,the total of $3 million could be fairly allocated to the four cost drivers as follows. 
Determine the amount of cost to be allocated to the Harborview Resort using revenue as an
Allocation base.

Accepted Answer

The answer of SeaScape Resorts owns and operates two resorts...

Question 16

Managers who are risk prone:

Accepted Answer

Managers who are risk prone are willing to take risks, but they still want the possibility of a high benefit. Therefore, option B is the best choice as it offers the possibility of a high benefit, even though there is a risk of low benefit. Option D offers a chance of no benefit, which is too risky even for a risk-prone manager. Options A and C do not differentiate between high and low benefits, which is not a suitable approach for a risk-prone manager.

Question 17

A value stream income statement is best associated with:

Accepted Answer

A value stream income statement is a key tool used in lean manufacturing to identify and track the flow of value through the production process. It is used to help identify areas of waste and inefficiency, with the ultimate goal of improving overall production efficiency and profitability.

Question 18

Tyler Company had the following manufacturing information for the current year.

Accepted Answer

Required:Determine operating income under both full costing and variable costing and explain the difference.
Please see Feedback for answers.
 Feedback: 11ea6e70_bd69_52ae_8f54_fb73863b3327_TB1699_00

Question 19

Red Apple Industries manufactures institutional-use furniture.Dept.A is responsible for welding the base of the desk to the chair assembly.The desks are then placed on an automatic conveyer to Dept.B,where the desktop is riveted to the chair.The desks continue on the conveyer to Dept.C for further assembly.Wanda,the manager of Dept.A,is responsible for moving 800 welded desks per hour to Dept.
B.Required: How should the managers' dispute be resolved? How could it have been avoided?
Please see Feedback for answers.
B.A faulty circuit in Dept.B causes a delay in processing in the department and prompts Rosie,the Dept.B manager,to ask Wanda to stop the conveyer.Wanda refuses,necessitating the removal of the welded desks from the conveyer until the riveting can resume.Rosie bills Wanda's department for the costs of this extra work.Wanda disputes the charge,citing her responsibility to convey 800 desks/hour to Dept.

Accepted Answer

Feedback: This is an instance where the strategic performance measurement system has failed by causing a manager to adhere strictly to the performance goals of her unit.In strategic performance measurement systems,the emphasis on individual motivation and reward is a key aspect of the advantage of these systems.However,the efforts of individual managers should not be allowed to conflict with those of other managers in a way which injures the firm as a whole.This is top management's responsibility -- to maintain in effect the discipline of the strategic performance measurement system.All managers must be clearly informed that at all times they must act responsibly for the welfare of the firm as a whole.If an action by a manager causes harm to the firm,that manager will be charged (or reprimanded)for the loss,even if the action caused an improvement in performance for the manager's unit.In this case Wanda acted irresponsibly,and should be charged with the extra costs as requested by Dan.In a broader sense,this incident shows the failure of top management to communicate responsible management behavior,and so the incident is a bad mark on management.An alternative approach then would be for the costs of the incident to be charged to top management (not charged to any SBU)and explained and discussed at an executive meeting,with Wanda given a stern warning not to repeat such actions.

Question 20

SeaScape Resorts owns and operates two resorts in a coastal town.Both resorts are located on a barrier island that is connected to the mainland by a high bridge.One resort is located on the beach and is called the Crystal Coast Resort.The other resort is located on the inland waterway which passes between the town and the mainland;it is called the Harborview Resort.Some key information about the two resorts for the current year is shown below. 
The nontraceable operating costs of the resort amount to $3 million.By careful study,the management accountant at SeaScape has determined that,while the costs are not directly traceable,the total of $3 million could be fairly allocated to the four cost drivers as follows. 
Using the information regarding the allocation of the $3 million to the four cost drivers,determine
The operating profit of the Crystal Coast Resort.

Accepted Answer

The answer of SeaScape Resorts owns and operates two resorts...

Quiz 18: Strategic Performance Measurement: Cost Centers, Profit Centers, and the Balanced Scorecard

Reasons for failure to implement the balanced scorecard effectively include all but which of the Following:

Risk plays a critical role in the decision making process.However,numerous studies have shown that most executives,managers and individuals are considered to be:

The sales life cycle has three phases: early,growth,and maturity.The appropriate performance Measures for the growth phase include

A value stream is:

McShane Inc.manufactures hair brushes that sell at wholesale for $6.00 per unit.Budgeted production in both 2009 and 2010 was 2,000 units and fixed overhead budgeted was $25,000 in each year.There was no beginning inventory in 2009.The following data summarized the 2009 and 2010 operations:

Managers who are risk prone:

A value stream income statement is best associated with:

Tyler Company had the following manufacturing information for the current year.