MANAGERIAL ACCOUNTING

2ND SEMESTER 2015-2016

RESEARCH AND ANALYSIS
Research 1
Cost Behavior in Real Companies
With a group of students, visit a local copy and graphics shop or a pizza restaurant. As you
observe the operation, consider the costs associated with running the business. As a group,
identify as many costs as you can and classify them according to the following table
headings:
Cost Direct materials
Variable or Fixed

Direct labor

Overhead

Selling expense

Research/Case 2
CVP for a Product
Select one product that you could make yourself. Assume that you have decided to start a
small business producing and selling this product. You will be applying the concepts of costvolume-profit analysis to this potential venture.
required:
1. Describe your product. What market you are targeting this product for? What
price will you sell your product for? Make projections of your sales in units over
each of the upcoming five years.
2. Make a detailed list of all the materials needed to make your product. Include
quantities needed of each material. Also include the cost of the material on a perunit basis.
3. Make a list of the equipment you will need to make your product. Estimate the
cost of each piece of equipment that you will need.
4. Make a list of all other expenses that you would be needed to create your
product. examples of other expenses would be rent, utilities, and insurance.
estimate the cost of each of these expenses per year.
5. Now classify all of the expenses you have listed as being either fixed or variable.
For mixed expenses, separate the expense into the fixed component and the
variable component.
6. Calculate how many units of your product you will need to sell to break even in
each of the five years you have projected.
7. Calculate the margin of safety in units of each of the five years in your projection.
8. Now decide how much you would like to make in before-tax operating income in
each of the upcoming five years. Calculate how many units you would need to
sell in each of the upcoming years to meet these target profit levels.
9. How realistic is your potential venture? Do you think you would be able to break
even in each of the projected five years? How risky is your venture (use of
margin of safety to help answer this question). Do you think you target profits are
achievable?

Research/Case 3
Identifying Cost Behavior and Predicting Difference in Variable and Absorption Costing
Go to www.YouTube.com and search for How Its Made, a television show produced by the
Discovery Channel that shows how thousands of products and services are created. Find a
Product that interests you and answer the following questions:
a. What product did you choose and how is it made?
b. Identify two variable costs of making this product. What makes it a variable cost?
c. Identify two fixed costs of making this product. What makes it fixed cost?
d. Identify one mixed cost of making this product. What makes it mixed cost?
e. Describe how a company would determine the cost of making this product under full
absorption costing. What costs would be included in cost of goods sold and finished
goods inventory? What costs would be treated as operating expenses?
f. Describe how a company that makes this product would compute gross margin and
contribution margin.
g. Will gross margin and contribution margin always be the same? why or why not?
h. Describe when and why profit will be different under variable costing versus full
absorption costing. Be specific about what would cause the difference in profit and
what costs would contribute to the difference.

Research/Case 4
Interviewing, Writing a Real-World Budget Process Report
Budgets can be used almost any type of organization including large corporations, small
businesses, government organizations, universities, churches, and student clubs.
Required:
Choose any local organization and interview two people who are involved in its budget
process. Try to choose one person who actually worked on preparing the budget (e.g. an
accountant or the treasurer) and another person who is affected by the budget (e.g. a
person in charge of spending the budget, or an employee who is evaluated based on his or
her ability to meet budgetary goals).
1. Based on your interviews, write a brief description of the budgeting process within
this organization. The description should a factual account of the steps taken to
develop and distribute the budget without any qualitative evaluation of the process.
You should identify the type of budgeting (top-down or participative) and the
personnel involved in the budgeting process and the overall importance management
places on budgets.
2. Separately consider each of the people you interviewed. How satisfied does each
seem with the organizations budgeting process? What step(s) of the process were
they the most and least satisfied with? Did either of your interviewees identify a
particular step of the process that has been troublesome?
3. Suppose the organization you investigated has retained you as consultant. Based on
the information compiled from the organization and your knowledge from this course,
what recommendations would you make to this organization regarding its budgeting
process?

Research/Case 5
Budget and variance analysis
Nintendo Video Games manufactures video game machines.
Market saturation and
technological innovations have caused pricing pressures that have resulted in declining
profits. To stem the slide in profits until the company can introduce new products, top
management has turned its attention to both manufacturing economies and increased
production. To realized these objectives, management developed an incentive program to
reward production managers who contribute to an increase in the number of units produced
and achieved cost reductions. In addition, the company instituted a Just in Time (JIT)
purchasing program so that it purchases raw materials on an as-needed basis.
The production managers have responded to the pressure to improve manufacturing
performance in several ways that have resulted in an increase over normal production
levels. The video game machines put together by the assembly group required parts from
both the printed circuit boards (PCB) and the reading heads (RH) departments. To attain
increased production levels, the PCB and RH departments started rejecting parts from
suppliers that previously would have been tested and modified to meet manufacturing
standards. Preventive maintenance on machines used in the production of these parts has
been postponed with only emergency repair work being performed to keep production lines
moving. The maintenance staff is concerned that there will be serious breakdowns and
unsafe operating conditions.
The more aggressive assembly group production supervisors have pressured maintenance
personnel to attend to their machines at the expense of other groups. This has resulted in
machine downtime in the PCB and RH departments which, when coupled with demands for
accelerated parts delivery by the assembly department, has led to more frequent parts
rejections and increased friction among departments. Nintendo Video Games operates
under a standard-costing system. The standard costs at a production level of 24,000 units
per year are in presented Table 1.
Nintendo Video Games prepares monthly income statements based on actual expenses.
Part B of Table 1 shows the statement for May, when production and sales both reached
2,200 units. The budgeted sales price was $200 per unit, and budgeted (normal) production
and sales were 24,000 units per year. Top management was surprised by the low profit in
spite of increased sales for May. The original budget had called for income before taxes of
$62,000, and with the added sales, the president had expected at least $68,200 of income
($6,200 more income; 200 extra units x $31 per unit).
The president called on Michelle Barber, director of cost management, to report on the
reasons for the shortfall in income. After a thorough review of the data, Barber prepared the
report in part C of Table 1.
Required:
1. Prepare a budgeted income statement in contribution margin format for Nintendo
Video Games showing why the company expected income before taxes to be
$62,000.
2. Assume that you have been given Michelle Barbers task. Prepare a complete
analysis explaining the reason for the difference between the original projected
income before taxes $62,000 and the actual of $47,740. Compute all the variances

that are helpful in explaining this difference, and explain what you learn from the
variances.

Table 1

STANDARD COST PER UNIT

Quantity

A. Standard Cost Report

Direct materials:
Housing unit
Printed circuit boards (PCB)
Reading heads (RH)
Direct labor:
Assembly department
PCB department
RH department
Overhead:
Variable
Fixed
Total manufacturing cost per unit
Selling and administrative: Fixed

I unit
2 boards
4 heads

Cost

Total

$ 20
15
10

$ 20
30
40

2 hours
1 hour
1.5 hours

8
9
10

16
9
15

4.5 hours
4.5 hours

2
4

9
18
$ 157
12

12

Total standard cost per unit

B. Income Statement for May
Revenues (2,200 units)
Variable costs:
Direct materials
Direct labor
Variable overhead
Fixed costs:
Overhead
Selling and Administrative
Total costs

$ 169

$440,000
$ 220,400
93,460
18,800
37,600
22,000
392,260

Income before taxes

C. Usage Report for May
Cost Item
Direct materials:

$47,740

Actual Quantity

Actual Cost

Housing units
Printed circuit boards
Reading heads
Direct labor:
Assembly department
PCB department
RH department
Overhead:
Variable
Fixed
Total manufacturing costs

2,200 units
4,700 boards
9,200 heads
3,900 hours
2,400 hours
3,500 hours

44,000
75,200
101,200
31,200
23,760
38,500
18,800
37,600
$ 370,260

Research/Case 6
Panasonic Segment Analysis
1. Go to Panasonics website and locate the information for investors. In its 2012 annual
report, it describes each of the segments. For each segment, write a brief description of
what products and services are included in that segment.
2. For each of the segments in the Panasonic Segment Performance Report included in the
case, calculate a profitability ratio for each year.
3. The plasma factory described in the case would have been a part of which segment? For
that segment for the years 2010 through 2012, answer the following questions:
a. Did Sales increase, decrease, or remain about the same?
b. Did profit (loss) increase, decrease, or remain about the same?
c. Did the profitability ratio (as calculated in question 2) increase, decrease, or remain
about the same?
d. What observations can you make about the performance of this segment?
4. For each of the other segments for the years 2010 through 2012 answer the following
questions.
a. Did Sales increase, decrease, or remain about the same?
b. Did profit (loss) increase, decrease, or remain about the same?
c. Did the profitability ratio (as calculated in question 2) increase, decrease, or remain
about the same?
5. Of the eight segments, which three segments appear to be the strongest based on the
limited information you have in this case? Support your answer.
6. Of the eight segments, which segments appear to be the weakest based on the limited
information you have in this case? Support your answer.
Research/Case 7
Outsourcing Decision at a Real Company.
Go to the New York Times website (www.nytimes.com/) or to USA Today
(www.usatoday.com/) and search for the term outsource. Find an article about the
company making a decision to outsource a part of its business operations.

Requirements:
1. Describe the company that is making the decision to outsource. What are of the
business is the company either looking to outsource or did it already outsource?
2. Why did the company decide to outsource (or is considering outsourcing)?
3. List the revenues and costs that might be impacted by this outsourcing decision.
The article will not list many, if any, of these revenues and costs; you should
make reasonable guesses about what revenues and/or costs would be associated
with business operation being outsourced.
4. List the qualitative factors that could influence the companys decision whether to
outsource this business operation or not. Again, you need to make reasonable
guesses about the qualitative factors that might influence the companys decision
to outsource or not.
Research/Case 8
Personal Investment Analysis
A Masters of Business Administration at Central University costs $12,000 for an additional
fifth year of education beyond the bachelors degree. Assume that all tuition is paid at the
beginning of the year. A student considering this investment must evaluate the present
value of cash flows from possessing a graduate degree versus holding only undergraduate
degree. Assume that the average student with an undergraduate degree is expected to
earn an annual salary of $50,000 per year (assumed to paid at the end of the year) for 10
years. Assume that the average student with a graduate Masters of Business Administration
degree is expected to earn an annual salary of $66,000 per year (assumed to be paid at the
end of the year) for nine years after graduation. Assume a minimal rate of return of 10%.
1. Determine the net present value of cash flows from an undergraduate degree.
2. Determine the net present value of cash flows from an MBA degree, assuming no
salary is earned during the graduate year of schooling.
3. What is the net advantage or disadvantage of pursuing a graduate degree under
these assumptions?