Answers To The Essay Questions Should Be Concise For The Pro

Answers To The Essay Questions Should Be Concise For The Problems Yo

Answers To The Essay Questions Should Be Concise For The Problems Yo

Answers to the essay questions should be concise. For the problems you must show work. Submit answers using either Word or Excel. Make sure to label answers. The answer to a question must be either all Word or all Excel for that particular question.

Format the Excel portion of the exam so that it may be easily printed.

Sample Paper For Above instruction

Introduction

In this paper, we analyze the financial and managerial aspects of a fictional retail company, Pretty Lady, along with supporting calculations for Lee-Vie Company, Greg Smithson’s home building project, Eagle Airways’ investment project, Jasper Corporation’s division ROI, and Vaughn Corporation’s Gamma Division. These analyses demonstrate key management accounting concepts such as responsibility accounting, contribution margin analysis, investment appraisal, performance evaluation, and transfer pricing decisions.

1. Pretty Lady’s Financial Analysis

Pretty Lady operates three divisions—Miami, Naples, and Tampa—and reports various financial data. The first task involves calculating the company’s total sales revenue by summing the individual division sales. The second focuses on determining the variable operating expenses for Naples, which can typically be derived from the division’s income statement. The third involves calculating controllable fixed costs by Miami’s management, implying costs directly attributable to that division. The fourth requires isolating fixed costs traceable to Tampa but controllable elsewhere, essential for performance evaluation. The fifth considers the appropriateness of focusing on profit margin controllable by management versus the overall divisional profit margin during promotion decisions. The sixth involves proportionally allocating the common fixed expenses based on sales revenue, as per company policy. The seventh addresses whether such cost allocations are typically presented in segmented income statements, which often they are.

2. Lee-Vie Company’s Production Decision

The company has excess capacity and is evaluating which of three products to produce. The most attractive product is that which provides the highest contribution margin per unit of scarce resource, often on a per-machine-hour or per-labor-hour basis. With unlimited labor and machine capacity, the product with the highest profit contribution per unit should be prioritized. However, with limited labor, the focus shifts to the product yielding the highest contribution per labor hour. These calculations involve dividing each product’s contribution margin by relevant resource consumption rates. This analysis supports making optimal production decisions based on capacity constraints and contribution margins.

3. Greg Smithson’s Home Building Bid

Greg Smithson’s bid calculations involve adding a markup of 25% on total cost, with the total profit margin amounting to 25% of the bid. The scenario contrasts a low current bid ($455,000) against the original bid ($590,000), suggesting whether to accept or reject. The decision depends on variable and fixed overhead allocation, along with market conditions. If the bid price is below the total cost including fixed overhead allocations, acceptance is unprofitable. Conversely, if the offer exceeds variable costs, accepting may be rational. If demand exceeds capacity, the minimum acceptable price should cover variable costs and contribute to fixed costs and profit, ensuring profitability and strategic fit.

4. Eagle Airways Investment Project Evaluation

The project involves calculating net present value (NPV) based on cash flows, purchase price, and salvage value, discounted at the company’s minimum desired rate of return (12%). A critique of the accountant’s evaluation would include considering the cash flows rather than accounting profit, ignoring salvage value, and including necessary capital expenditure timings. By applying the NPV formula, the project’s acceptability depends on whether the discounted cash inflows minus initial costs are positive. The internal rate of return (IRR) comparison indicates whether IRR exceeds 12%, guiding investment decisions.

5. Jasper Corporation’s Division ROI and Residual Income

The ROI calculation involves dividing the division’s income by its invested capital. The expected ROI after pursuing an investment is compared to prior ROI to evaluate performance impact. The response to management’s attitude considers whether ROI improves after the investment, potentially increasing divisional motivation. Residual income analysis involves deducting a charge for the minimum required return—if the residual income increases with the investment, management would likely support it. These measures assist in understanding division performance and strategic decision-making.

6. Vaughn Corporation’s Gamma Division

This section evaluates whether Gamma should sell to an outside customer at $80 instead of selling internally to Omega at internal transfer pricing of variable cost. The profit maximization principle suggests that if the external selling price exceeds the variable cost per unit and the internal transfer price, then Gamma should sell externally to maximize operating income. The decision depends on whether discontinuing internal sales would still produce the highest possible contribution margin, given the total capacity constraints and potential missed internal transfer profits.

Conclusion

Overall, these scenarios illustrate fundamental principles of managerial and financial accounting—including responsibility allocation, contribution margin analysis, investment appraisal techniques, and transfer pricing strategies. Managers must carefully evaluate costs, capacity constraints, and strategic goals to make optimal decisions for organizational profitability and growth.

References

  • Brigham, E. F., & Ehrhardt, M. C. (2019). Financial Management: Theory & Practice. Cengage Learning.
  • Drury, C. (2018). Management and Cost Accounting. Springer.
  • Horngren, C. T., Datar, S. M., & Rajan, M. (2018). Cost Accounting: A Managerial Emphasis. Pearson.
  • Hilton, R. W., Maher, M. W., & Selto, F. H. (2020). Cost Management: Strategies for Business Decisions. McGraw-Hill Education.
  • Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2021). Fundamentals of Corporate Finance. McGraw-Hill Education.
  • Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2018). Managerial Accounting. McGraw-Hill Education.
  • Kaplan, R. S., & Atkinson, A. A. (2019). Advanced Management Accounting. Pearson.
  • Spiceland, J. D., Sepe, J. F., & Tomassini, L. (2019). Intermediate Accounting. McGraw-Hill Education.
  • Investopedia. (2022). Net Present Value (NPV). https://www.investopedia.com/terms/n/npv.asp
  • Corporate Finance Institute. (2023). Internal Rate of Return (IRR). https://corporatefinanceinstitute.com/resources/knowledge/valuation/internal-rate-of-return-irr/

Related Assignments