CHAPTER 1
p. 6 Even the Best Have to Get Better Q: What are some of the steps that this company has taken in
order to ensure that production meets demand? A: The company has organized flexible teams, with jobs
arranged by the amount of time a task takes. Employees now are multiskilled, so they can switch
p. 9 Why Manufacturing Matters for U.S. Workers Q: In what ways does the shift to automated
factories change the amount and composition of product costs? A: As factories become more automated,
p. 17 Low Fares but Decent Profits Q: What are some of the line items that would appear in the cost of
NEW item: p. 20 People Matter Q: What are some of the common problems for many clothing factories
in developing countries? A: Some of the common problems for many clothing factories in developing
countries would be pressure to produce goods faster, lack of training for workers, unsafe buildings,
CHAPTER 2
p. 49 Jobs Won, Money Lost Q: What type of costs do you think the company had been
underestimating?
A: It is most likely that the company failed to estimate and track overhead. In a highly diversified
p. 55 The Cost of an iPhone? Just Tear One Apart Q: What type of costs are marketing and selling
costs, and how are they treated for accounting purposes? A: Product costs include materials, labor, and
p.64 Sales Are Nice, but Service Revenue Pays the Bills Q: Explain why GE would use job order
costing to keep track of the cost of repairing a malfunctioning engine for a major airline.
A: GE operates in a competitive environment. Other companies offer competing bids to win service
CHAPTER 3
p. 94 Choosing a Cost Driver Q: What is the result if a company uses the wrong “cost driver” to assign
p. 98 Haven’t I Seen That Before? Q: In what ways might the relative composition (materials, labor, and
overhead) of a remanufactured product’s cost differ from that of a newly made product?
A: We would expect that the materials costs would be substantially reduced since the bulk of the physical
CHAPTER 4
Answers to Insight and Accounting Across the Organization Questions
p. 153 Traveling Light Q: Why do airlines charge even higher rates for heavier bags, bags that are odd
shapes (e.g., ski bags), and bags with hazardous materials in them? A: Each of these factors increases
the costs to the airlines. Heavier baggage is more difficult to handle, thus increasing labor costs. It also
p. 148 What Does NASCAR Have to Do with Breakfast Cereal? Q: What are the benefits of reducing
setup time? A: Setup time is a non–value-added activity. Customers are not willing to pay extra for more
setup time. By reducing the time spent on setups, the company can reduce non–value-added costs. Also,
p. 143 ABC Evaluated Q: What might explain why so many companies say that ideally they would use
ABC, but they haven’t adopted it yet? A: As noted in the chapter, implementation of an ABC system can
be very expensive. It may be difficult to justify an expenditure for a system that allocates overhead costs
CHAPTER 5
Answers to Insight and Accounting Across the Organization Questions
p. 186 Gardens in the Sky Q: What are some of the variable and fixed costs that are impacted by
hydroponic farming? A: Compared to traditional methods, hydroponic farming would reduce the use of
investments in artificial lighting could be high.
p. 190 Skilled Labor Is Truly Essential Q: Would you characterize labor costs as being a fixed cost, a
variable cost, or something else in this situation? A: Because these labor costs are essentially unchanged
for most levels of production, they are primarily fixed. However, it could be described as being a “step
p. 197 Charter Flights Offer a Good Deal Q: How did FlightServe determine that it would break even
with 3.3 seats full per flight? A: FlightServe determined its break-even point with the following formula:
p. 201 How a Rolling Stones’ Tour Makes Money Q: What amount of sales dollars are required for the
promoter to break even?
A: Fixed costs 5 $1,200,000 1 $400,000 5 $1,600,000
CHAPTER 6
p. 228 Don’t Just Look—Buy Something Q: Besides increasing their conversion rates, what steps can
online merchants use to lower their break-even points? A: In theory, one of the principal advantages of
online retailers is that they can minimize their investment in “bricks and mortar” and thus minimize their
product delivery. This increases their fi xed costs and consequently increases their break-even point.
p. 232 Healthy for You, and Great for the Bottom Line Q: Why do you suppose restaurants are so
eager to sell beverages and desserts? A: There is a reason why servers at restaurants keep your
beverage glass full, and why they wave the dessert tray in your face at the end of the meal. Both of these
p. 234 Something Smells Q: What is the limited resource for a retailer, and what implications does this
have for sales mix? A: For retailers, the limited resource is not just shelf space, but shelf space per day.
At first, you might think that a product that is small and has a high contribution margin would be the
product of choice. But, you also have to factor in the amount of time that a product sits on the shelf.
p. 238 There Is Something About a Train Q: Why did Warren Buffett think that this was a good time to
invest in railroad stocks? A: Railroads have extremely high fixed costs. Mr. Buffett bought Burlington
CHAPTER 7
p. 278 That Letter from AmEx Might Not Be a Bill Q: What are the relevant costs that American
Express would need to know in order to determine to whom to make this offer? A: Clearly, American
Express would make this offer to those customers that are most likely to default on their bills.
p. 282 Giving Away the Store? Q: What are the relevant revenues and costs that Amazon should
consider relative to the decision whether to offer the Prime free-shipping subscription? A: The relevant
p. 290 Time to Move to a New Neighborhood? Q: What were some of the factors that complicated the
company’s decision to move? How should the company have incorporated such factors into its
incremental analysis? A: The company received only $7.5 million for its California property, only 58 of 75
key employees were willing to move, construction was delayed by a year which caused the new plant to
CHAPTER 8
p. 317 The Only Game in Town? Q: Do the substantially different prices that Apple and Google charge
for a similar service reflect different costs incurred by each company, or is the price difference due to
something else? A: While it is possible that the companies incur different costs to provide this service,
p. 318 Wal-Mart Says the Price Is Too High Q: What are some issues that Levi Strauss should consider
in deciding whether it should agree to meet Wal-Mart’s target price? A: Levi may be tempted to reduce
the quality of its product, or it may be forced to move more of its operations to low-wage suppliers. A big
concern is that other retailers may complain that Levi is selling its jeans to Wal-Mart at a price that is
p. 322 At Least It Was Simple Q: What kind of help might the sales staff need in implementing this new
approach? A: Many customers might object to the price increases, and some might even threaten to buy
p. 325 It Ain’t Like It Used to Be Q: What implications does this have for a service company’s need for
managerial accounting? A: When service companies billed by the hour, they were better able to ensure
their profitability because labor hours is their primary cost. But when billing schemes become
CHAPTER 9
p. 363 Businesses Often Feel Too Busy to Plan for the Future Q: Describe a situation in which a
business “sells as much as it can” but cannot “keep its employees paid.” A: If sales are made to
p. 368 The Implications of Budgetary Optimism Q: Why is it important that government budgets
accurately estimate future revenues during economic downturns? A: Accuracy of government revenue
estimates is especially important during economic downturns because most governments must balance
p. 370 Betting That Prices Won’t Fall Q: What are the potential downsides of stockpiling a huge amount
of raw materials? A: If prices continue to go up, these managers will avoid paying higher prices until their
inventory runs out. However, it is a risky strategy. First of all, prices fluctuate. If a price goes up by 90% in
storage, insurance, and handling costs can be very expensive, and obsolescence can occur.
p. 379 Without a Budget, Can the Games Begin? Q: Why does it matter whether the Olympic
p. 383 Budget Shortfalls as Far as the Eye Can See Q: Why would a university’s budgeted
scholarships probably fall when the stock market suffers a serious drop? A: Scholarships typically cannot
be paid out of the “principal” portion of donations made to scholarship endowment funds. Instead,
CHAPTER 10
p. 418 Just What the Doctor Ordered? Q: Explain how the use of flexible budgets might help to identify
the best solution to this problem. A: A fixed budget assumes a particular level of activity. In the case of
television shows, the number of viewers can impact revenues and costs. NBC Universal could prepare
p. 421 Budgets and the Exotic Newcastle Disease Q: What is the major benefit of tying a budget to the
overall goals of the company? A: People working on a budgeting process that is clearly guided and
p. 423 Competition versus Collaboration Q: How might managers of separate divisions be able to
p. 426 Flexible Manufacturing Requires Flexible Accounting Q: What implications do these
improvements in production capabilities have for management accounting information and performance
evaluation within the organization? A: In order to maximize the potential of flexible manufacturing
facilities, managers need to be supplied with information on a more frequent basis. In turn, the tools used
p. 434 Does Hollywood Look at ROI? Q: What might be the reason that movie studios do not produce
G-rated movies as much as R-rated ones? A: Perhaps Hollywood believes that big-name stars or large
budgets, both of which are typical of R-rated movies, sell movies. However, one study recently
CHAPTER 11
p. 468 How Do Standards Help a Business? Q: How will the creation of such standards help a
business or organization? A: A business or organization may use the data to compare its performance
p. 479 What’s Brewing at Starbucks? Q: What implications does Starbucks’ commitment to corporate
social responsibility have for the standard cost of a cup of coffee? A: Starbucks’ Global Responsibility
Report explicitly describes its goals related to corporate social responsibility. By including measurable
must include this added cost in its determination of its products’ costs.
p. 483 It May Be Time to Fly United Again Q: Which of the perspectives of a balanced scorecard were
the focus of United’s CEO? A: Improving on-time flight departures is an objective within the internal
CHAPTER 12
p. 520 Can You Hear Me—Better? NEW Q: If customers are slow to initially adopt 4G, how might the
conclusions of a cash payback analysis of Verizon’s 4G investment differ from a present value analysis? A: If the
initial adoption of 4G by customers is slow, then the amount of cash received in the early years will be
low. This would lengthen the cash payback period, making it unlikely that the investment would get high
p. 524 It Need Not Cost an Arm and a Leg Q: In addition to the obvious humanitarian benefit of
reducing serious injuries, how else might the manufacturer of this product convince potential customers of
its worth? A: Serious injuries cost employers huge sums, which can sometimes force small companies
out of business. In addition to the obvious humanitarian benefit, the manufacturer can demonstrate that
p. 526 Wide-Screen Capacity Q: What implications does the excess capacity have for the cash payback
and net present value calculations of these investments? A: Because the companies have excess
capacity, they are not selling as many units as expected. Also, to increase sales, they are being forced to
CHAPTER 13
p. 554 Net What? Q: In general, why do differences exist between net income and net cash provided by
operating activities? A: The differences are explained by differences in the timing of the reporting of
NEW item: p. 564 Burning through Our Cash Q: What implications does a company’s cash burn rate
have for its survival? A: All companies must have the ability to respond quickly to changes in economic
CHAPTER 14
p. 610 How to Manage the Current Ratio Q: How might management influence a company’s current
ratio? A: Management can affect the current ratio by speeding up or withholding payments on accounts
decreasing long-term assets or long-term debt, or by issuing or purchasing common stock.
NEW item: p. 624 Another Measure of Sustainable Income? Q: What incentive do companies have to
report pro forma income? A: Many companies feel pressure to meet market expectations each time