FUNDAMENTALS OF COST ACCOUNTING W/CONNE
6th Edition
ISBN: 9781264199617
Author: LANEN/ANDERSON
Publisher: MCG
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Chapter A, Problem 11CADQ
In Chapter 14, we discussed performance measurement in investment centers, where the managers have decision authority over asset usage (for example, adding new plants). The financial performance measures discussed in Chapter 14 (
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2.Which of the following are sunk costs for deciding whether to accept or reject a project?
i.Payments for maintenance of a factory that would need to be made if the project is accepted.ii.The salaries of employees that would need to be hired to execute the new project.iii.Payments that were made to an economist to generate economic forecasts that were used when deciding whether to accept or reject the project.iv.The additional tax expenses that are expected to result from the profits of the new project.
a.iii and iv, but not i or iib.ii and iii, but not i or ivc.iii onlyd.iv only
Which of the following statements is true?
The use of return on investment (ROI) as a performance measure may lead managers to reject a project that would be favorable for the company as a whole.
Land held for possible plant expansion would be included as an operating asset when computing return on investment (ROI).
Harry Haney, manager of the Eastern Division of MertockCo., made the following comment to the manager of theCentral Division:
It’s all well and good for you to say that I should dis-regard sunk costs when I consider whether to replace
the old, inefficient equipment with new, more efficientequipment. But my performance evaluation is based onnet operating profits divided by total assets. The newequipment will increase my total asset base and lowerthe ratio of profits to assets, hurting my performance.Thus, I will not sell the old equipment.Do you agree with Haney’s statement? Why or why not?
Chapter A Solutions
FUNDAMENTALS OF COST ACCOUNTING W/CONNE
Ch. A - What are the two most important factors an...Ch. A - Prob. 2RQCh. A - Prob. 3RQCh. A - Prob. 4RQCh. A - Prob. 5RQCh. A - Prob. 6CADQCh. A - What are the four types of cash flows related to a...Ch. A - Is depreciation included in the computation of net...Ch. A - The total tax deduction for depreciation is the...Ch. A - Prob. 10CADQ
Ch. A - In Chapter 14, we discussed performance...Ch. A - Present Value of Cash Flows Star City is...Ch. A - Prob. 13ECh. A - Present Value Analysis in Nonprofit Organizations...Ch. A - Prob. 15ECh. A - What is the net present value of the investment...Ch. A - Prob. 17PCh. A - Sensitivity Analysis in Capital Investment...Ch. A - Compute Net Present Value Dungan Corporation is...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- What is the major shortcoming of using operating income as a performance measure for investment centers?arrow_forwardThe following Box Scorecard was prepared for a value stream: Required: 1. How many nonfinancial measures are used to evaluate performance? Why are nonfinancial measures used? 2. Classify the operational measures as time-based, quality-based, or efficiency-based. Discuss the significance of each category for lean manufacturing. 3. What is the role of the Planned Future State column? 4. Discuss the capacity category and explain the meaning of each measure and its significance. 5. Discuss the relationship between the financial measures and the measures in the operational and capacity categories.arrow_forwardA Box Scorecard was prepared for a value stream: Required: 1. How many nonfinancial measures are used to evaluate performance? Why are nonfinancial measures used? 2. Classify the operational measures as time-based, quality-based, or efficiency-based. Discuss the significance of each category for lean manufacturing. 3. What is the role of the Planned Future State column? 4. Discuss the capacity category and explain the meaning of each measure and its significance. 5. Discuss the relationship between the financial measures and the measures in the operational and capacity categories.arrow_forward
- Which of the following would be an argument for using the gross cost of plant and equipment as part of operating assets in return on investment computations? Multiple Choice It discourages the replacement of old, worn-out equipment because of the dramatic, adverse effect on ROI. It is consistent with the balance sheet presentation of plant and equipment. It eliminates the age of equipment as a factor in ROI computations. It is consistent with the computation of net operating income, which includes depreciation as an operating expense.arrow_forwardEnvironmental accounting implies that development would be sustainable if The manufactured capital asset remains constant or rises over time. Natural resources and other forms of capital are substitutes. The overall capital assets (including manufactured capital, human capital and environmental capital) do not decrease over time. Natural resources are not affected by production process.arrow_forwardWhen a manager accepts a project because the net operating income from the investment exceeds the minimum acceptable profit based on required rate of return, the investment was evaluated based on _________ _________. (Enter only one word per blank.)arrow_forward
- MD will have to dispose of the old machine because the new machine would be installed in the same area. The old machine has no salvage value. Leidich has a performance evaluation and bonus plan based on ROI. The return includes any losses on disposal of equipment. Investment is computed based on the end-of-year balance of assets, net book value. Ignore taxes. Required: a. What is Measurement Division's ROI if it does not acquire the new machine? Note: Enter your answer as a percentage rounded to 1 decimal place (i.e., 32.1). b. What is Measurement Division's ROI this year if it does acquire the new machine? Note: Enter your answer as a percentage rounded to 1 decimal place (i.e., 32.1). c. If MD acquires the new machine and it operates according to specifications, what ROI is expected for next year? Note: Enter your answer as a percentage rounded to 1 decimal place (i.e., 32.1). Answer is complete but not entirely correct. 4 b. ROI CROI 55.2 % 5.2 % 1.3 %arrow_forwardAll equipment costs will continue to be depreciated on a straight-line basis. For simplicity, ignore income taxes and the time value of money. Q. Should TechGuide upgrade its production line or replace it? Show your calculations.arrow_forwardAs manager of department B in MarIeys Manufacturing, based on the costs you identified in the previous exercise for further research, how does this impact the financial performance of your department, and what might be some questions you want to ask or solutions you might propose to Marleys management?arrow_forward
- Which of the following statements is true with respect to the performance metrics useful for productivity improvement? A)Cost of quality can be a useful measure for improvements conducted in one department of a company (INCORRECT) B)When the number of the indirect labor increases in relation to the direct labor, the productivity increases C)When the lead time to work content in a process is nearly equal, the process is likely to have very little waste D)When the First Pass Yield is more, we have greater opportunity to detect defects in the process when it is executedarrow_forwardFaced with a long-run make-or-buy decision, the manager should do all of the following except: a. consider differences in the required capital investment and the timing of cash flows b. compare the cost of making the parts with the cost of buying them c. consider the quantity and quality of the parts as well as the technical know-how required d. use a cost study with only the differential costs and with no allocation of existing fixed overhead or profitarrow_forwardThe performance of the manager of Division A is measured by residual income. Which of the following would increase the manager's performance measure? a. Increase in average operating assets. b. Decrease in average operating assets. c. Increase in minimum required return. d. Decrease in net operating income.arrow_forward
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