Introduction to managerial accounting garrison, noreen and brewer 5ed

www.elsolucionario.net To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 01 - Managerial Accounting and Cost Concepts Chapter Managerial Accounting and Cost Concepts Solutions to Questions 1-1 Managers carry out three major activities in an organization: planning, directing and motivating, and controlling Planning involves establishing a basic strategy, selecting a course of action, and specifying how the action will be implemented Directing and motivating involves mobilizing people to carry out plans and run routine operations Controlling involves ensuring that the plan is actually carried out and is appropriately modified as circumstances change 1-5 a Direct materials are an integral part of a finished product and their costs can be conveniently traced to it b Indirect materials are generally small items of material such as glue and nails They may be an integral part of a finished product but their costs can be traced to the product only at great cost or inconvenience c Direct labor consists of labor costs that can be easily traced to particular products Direct labor is also called ―touch labor.‖ d Indirect labor consists of the labor costs of janitors, supervisors, materials handlers, and other factory workers that cannot be conveniently traced to particular products These labor costs are incurred to support production, but the workers involved not directly work on the product e Manufacturing overhead includes all manufacturing costs except direct materials and direct labor Consequently, manufacturing overhead includes indirect materials and indirect labor as well as other manufacturing costs 1-2 The planning and control cycle involves formulating plans, implementing plans, measuring performance, and evaluating differences between planned and actual performance 1-3 In contrast to financial accounting, managerial accounting: (1) focuses on the needs of managers rather than outsiders; (2) emphasizes decisions affecting the future rather than the financial consequences of past actions; (3) emphasizes relevance rather than objectivity and verifiability; (4) emphasizes timeliness rather than precision; (5) emphasizes the segments of an organization rather than summary data concerning the entire organization; (6) is not governed by GAAP; and (7) is not mandatory 1-6 A product cost is any cost involved in purchasing or manufacturing goods In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead A period cost is a cost that is taken directly to the income statement as an expense in the period in which it is incurred 1-4 The three major elements of product costs in a manufacturing company are direct materials, direct labor, and manufacturing overhead 1-1 www.elsolucionario.net To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 01 - Managerial Accounting and Cost Concepts 1-7 The income statement of a manufacturing company differs from the income statement of a merchandising company in the cost of goods sold section A merchandising company sells finished goods that it has purchased from a supplier These goods are listed as ―purchases‖ in the cost of goods sold section Because a manufacturing company produces its goods rather than buying them from a supplier, it lists ―cost of goods manufactured‖ in place of ―purchases.‖ Also, the manufacturing company identifies its inventory in this section as Finished Goods inventory, rather than as Merchandise Inventory 1-11 Yes, costs such as salaries and depreciation can end up as part of assets on the balance sheet if they are manufacturing costs Manufacturing costs are inventoried until the associated finished goods are sold Thus, if some units are still in inventory, such costs may be part of either Work in Process inventory or Finished Goods inventory at the end of the period 1-12 No A variable cost is a cost that varies, in total, in direct proportion to changes in the level of activity The variable cost per unit is constant A fixed cost is fixed in total, but the average cost per unit changes with the level of activity 1-8 The schedule of cost of goods manufactured lists the manufacturing costs that have been incurred during the period These costs are organized under the three categories of direct materials, direct labor, and manufacturing overhead The total costs incurred are adjusted for any change in the Work in Process inventory to determine the cost of goods manufactured (i.e finished) during the period The schedule of cost of goods manufactured ties into the income statement through the cost of goods sold section The cost of goods manufactured is added to the beginning Finished Goods inventory to determine the goods available for sale In effect, the cost of goods manufactured takes the place of the Purchases account in a merchandising firm 1-13 A differential cost is a cost that differs between alternatives in a decision An opportunity cost is the potential benefit that is given up when one alternative is selected over another A sunk cost is a cost that has already been incurred and cannot be altered by any decision taken now or in the future 1-14 No, differential costs can be either variable or fixed For example, the alternatives might consist of purchasing one machine rather than another to make a product The difference between the fixed costs of purchasing the two machines is a differential cost 1-9 A manufacturing company usually has three inventory accounts: Raw Materials, Work in Process, and Finished Goods A merchandising company may have a single inventory account— Merchandise Inventory 1-10 Product costs are assigned to units as they are processed and hence are included in inventories The flow is from direct materials, direct labor, and manufacturing overhead to Work in Process inventory As goods are completed, their cost is removed from Work in Process inventory and transferred to Finished Goods inventory As goods are sold, their cost is removed from Finished Goods inventory and transferred to Cost of Goods Sold Cost of Goods Sold is an expense on the income statement 1-2 www.elsolucionario.net To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 01 - Managerial Accounting and Cost Concepts Brief Exercise 1-1 (10 minutes) Directing and motivating Budgets Planning Precision; Timeliness Managerial accounting; Financial accounting Managerial accounting Financial accounting; Managerial accounting Feedback Controller 10 Performance report 1-3 www.elsolucionario.net To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 01 - Managerial Accounting and Cost Concepts Brief Exercise 1-2 (10 minutes) The cost of a hard drive installed in a computer: direct materials The cost of advertising in the Puget Sound Computer User newspaper: selling The wages of employees who assemble computers from components: direct labor Sales commissions paid to the company’s salespeople: selling The wages of the assembly shop’s supervisor: manufacturing overhead The wages of the company’s accountant: administrative Depreciation on equipment used to test assembled computers before release to customers: manufacturing overhead Rent on the facility in the industrial park: a combination of manufacturing overhead, selling, and administrative The rent would most likely be prorated on the basis of the amount of space occupied by manufacturing, selling, and administrative operations 1-4 www.elsolucionario.net To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 01 - Managerial Accounting and Cost Concepts Brief Exercise 1-3 (15 minutes) 10 11 12 13 14 15 Depreciation on salespersons’ cars Rent on equipment used in the factory Lubricants used for machine maintenance Salaries of personnel who work in the finished goods warehouse Soap and paper towels used by factory workers at the end of a shift Factory supervisors’ salaries Heat, water, and power consumed in the factory Materials used for boxing products for shipment overseas (units are not normally boxed) Advertising costs Workers’ compensation insurance for factory employees Depreciation on chairs and tables in the factory lunchroom The wages of the receptionist in the administrative offices Cost of leasing the corporate jet used by the company's executives The cost of renting rooms at a Florida resort for the annual sales conference The cost of packaging the company’s product 1-5 www.elsolucionario.net Product Period Cost Cost X X X X X X X X X X X X X X X To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 01 - Managerial Accounting and Cost Concepts Brief Exercise 1-4 (15 minutes) CyberGames Income Statement Sales Cost of goods sold: Beginning merchandise inventory Add: Purchases Goods available for sale Deduct: Ending merchandise inventory Gross margin Selling and administrative expenses: Selling expense Administrative expense Net operating income $1,450,000 $ 240,000 950,000 1,190,000 170,000 1-6 www.elsolucionario.net 210,000 180,000 1,020,000 430,000 390,000 $ 40,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 01 - Managerial Accounting and Cost Concepts Brief Exercise 1-5 (15 minutes) Lompac Products Schedule of Cost of Goods Manufactured Direct materials: Beginning raw materials inventory Add: Purchases of raw materials Raw materials available for use Deduct: Ending raw materials inventory Raw materials used in production Direct labor Manufacturing overhead Total manufacturing costs Add: Beginning work in process inventory $ 60,000 690,000 750,000 45,000 Deduct: Ending work in process inventory Cost of goods manufactured 1-7 www.elsolucionario.net $ 705,000 135,000 370,000 1,210,000 120,000 1,330,000 130,000 $1,200,000 To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 01 - Managerial Accounting and Cost Concepts Brief Exercise 1-6 (15 minutes) A few of these costs may generate debate For example, some may argue that the cost of advertising a rock concert is a variable cost because the number of people who come to the rock concert depends on the amount of advertising However, one can argue that if the price is within reason, any rock concert in New York City will be sold out and the function of advertising is simply to let people know the event will be happening Moreover, while advertising may affect the number of persons who ultimately buy tickets, the causation is in one direction If more people buy tickets, the advertising costs don’t go up Cost (Measure of Activity) The cost of X-ray film used in the radiology lab at Virginia Mason Hospital in Seattle (Number of X-rays taken) The cost of advertising a rock concert in New York City (Number of rock concert tickets sold) The cost of renting retail space for a McDonald’s restaurant in Hong Kong (Total sales at the restaurant) The electrical cost of running a roller coaster at Magic Mountain (Number of times the roller coaster is run) Property taxes paid by your local cinema theater (Number of tickets sold) The cost of sales commissions paid to salespersons at a Nordstrom store (Total sales at the store) Property insurance on a Coca Cola bottling plant (Number of cases of bottles produced) The costs of synthetic materials used to make a particular model of running shoe (Number of shoes of that model produced) The costs of shipping Panasonic televisions to retail stores (Number of televisions sold) 10 The cost of leasing an ultra-scan diagnostic machine at the American Hospital in Paris (Number of patients scanned with the machine) 1-8 www.elsolucionario.net Cost Behavior Variable Fixed X X X X X X X X X X To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 01 - Managerial Accounting and Cost Concepts Brief Exercise 1-7 (15 minutes) Cost The wages of pediatric nurses Prescription drugs Heating the hospital The salary of the head of pediatrics The salary of the head of pediatrics Hospital chaplain’s salary Lab tests by outside contractor Lab tests by outside contractor Cost Object The pediatric department A particular patient The pediatric department The pediatric department A particular pediatric patient A particular patient A particular patient A particular department 1-9 www.elsolucionario.net Direct Cost Indirect Cost X X X X X X X X To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Analytical Thinking (continued) Computation of missing amounts: a Times interest earned = Earnings before interest and taxes Interest expense = Earnings before interest and taxes $80,000 = 6.75 Therefore, the earnings before interest and taxes for the year must be $540,000 b Net income before taxes = $540,000 – $80,000 = $460,000 c Income taxes = $460,000 × 30% tax rate = $138,000 d Net income = $460,000 – $138,000 = $322,000 e Sales on account Accounts receivable = turnover Average accounts receivable balance = $4,200,000 Average accounts receivable balance = 14.0 Therefore, the average accounts receivable balance for the year must have been $300,000 Since the beginning balance was $270,000, the ending balance must have been $330,000 f Acid-test ratio= Cash + Marketable securities + Current receivables Current liabilities = Cash + Marketable securities + Current receivables $320,000 = 1.25 © The McGraw-Hill Companies, Inc., 2010 All rights reserved Solutions Manual, Chapter 14 743 www.elsolucionario.net To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Analytical Thinking (continued) Therefore, the total quick assets must be $400,000 Because there are no marketable securities and the accounts receivable are $330,000, the cash must be $70,000 g Current ratio = = Current assets Current liabilities Current assets $320,000 = 2.75 Therefore, the current assets must total $880,000 Because the quick assets (cash and accounts receivable) total $400,000 of this amount, the inventory must be $480,000 h Inventory turnover = Cost of goods sold Average inventory = Cost of goods sold 1/2 ($360,000 + $480,000) = Cost of goods sold $420,000 = 6.5 Therefore, the cost of goods sold for the year must be $2,730,000 i Gross margin = $4,200,000 – $2,730,000 = $1,470,000 j Net operating income = Gross margin - Operating expenses Operating expenses = Gross margin - Net operating income = $1,470,000 - $540,000 = $930,000 © The McGraw-Hill Companies, Inc., 2010 All rights reserved 744 Introduction to Managerial Accounting, 5th Edition www.elsolucionario.net To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Analytical Thinking (continued) k The interest expense for the year was $80,000 and the interest rate was 10%, the bonds payable must total $800,000 l Total liabilities = $320,000 + $800,000 = $1,120,000 m Earnings per share = Net income - Preferred dividends Average number of common shares outstanding = $322,000 Average number of common shares outstanding = $2.30 The stock is $5 par value per share, so the total common stock must be $700,000 n Debt-to-equity ratio = Total liabilities Stockholders' equity = $1,120,000 Stockholders' equity = 0.875 Therefore, the total stockholders’ equity must be $1,280,000 o Total stockholders' equity = Common stock + Retained earnings Retained earnings = Total stockholders' equity - Common Stock = $1,280,000 - $700,000 = $580,000 © The McGraw-Hill Companies, Inc., 2010 All rights reserved Solutions Manual, Chapter 14 745 www.elsolucionario.net To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Analytical Thinking (continued) p Total assets = Liabilities + Stockholders' equity = $1,120,000 + $1,280,000 = $2,400,000 This answer can also be obtained using the return on total assets: Return on = Net income + [Interest expense × (1 - Tax rate)] total assets Average total assets = $322,000 + [$80,000 × (1 - 0.30)] Average total assets = $378,000 Average total assets = 18.0% Therefore the average total assets must be $2,100,000 Since the total assets at the beginning of the year were $1,800,000, the total assets at the end of the year must have been $2,400,000 (which would also equal the total of the liabilities and the stockholders’ equity) q Total assets = Current assets + Plant and equipment $2,400,000 = $880,000 + Plant and equipment Plant and equipment = $2,400,000 - $880,000 = $1,520,000 © The McGraw-Hill Companies, Inc., 2010 All rights reserved 746 Introduction to Managerial Accounting, 5th Edition www.elsolucionario.net To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ethics Challenge (45 minutes) The loan officer stipulated that the current ratio prior to obtaining the loan must be higher than 2.0, the acid-test ratio must be higher than 1.0, and the interest on the loan must be less than four times net operating income These ratios are computed below: Current ratio = = Current assets Current liabilities $290,000 = 1.8 (rounded) $164,000 Acid-test ratio = = Cash + Marketable securities + Current receivables Current liabilities $70,000 + $0 + $50,000 = 0.7 (rounded) $164,000 Net operating income $20,000 = = 5.0 Interest on the loan $80,000 × 0.10 × (6/12) The company would fail to qualify for the loan because both its current ratio and its acid-test ratio are too low © The McGraw-Hill Companies, Inc., 2010 All rights reserved Solutions Manual, Chapter 14 747 www.elsolucionario.net To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ethics Challenge (continued) By reclassifying the $45 thousand net book value of the old machine as inventory, the current ratio would improve, but the acid-test ratio would be unaffected Inventory is considered a current asset for purposes of computing the current ratio, but is not included in the numerator when computing the acid-test ratio Current ratio = = Current assets Current liabilities $290,000 + $45,000 = 2.0 (rounded) $164,000 Acid-test ratio = = Cash + Marketable securities + Current receivables Current liabilities $70,000 + $0 + $50,000 = 0.7 (rounded) $164,000 Even if this tactic had succeeded in qualifying the company for the loan, we strongly advise against it Inventories are assets the company has acquired to sell to customers in the normal course of business Used production equipment is not inventory—even if there is a clear intention to sell it in the near future The loan officer would not expect used equipment to be included in inventories; doing so would be intentionally misleading © The McGraw-Hill Companies, Inc., 2010 All rights reserved 748 Introduction to Managerial Accounting, 5th Edition www.elsolucionario.net To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Ethics Challenge (continued) Nevertheless, the old machine is an asset that could be turned into cash If this were done, the company would immediately qualify for the loan because the $45,000 would be included in the numerator in both the current ratio and in the acid-test ratio Current ratio = = Current assets Current liabilities $290,000 + $45,000 = 2.0 (rounded) $164,000 Acid-test ratio = = Cash + Marketable securities + Current receivables Current liabilities $70,000 + $0 + $50,000 + $45,000 = 1.0 (rounded) $164,000 However, other options may be available The old machine is being used to relieve bottlenecks in the plastic injection molding process and it would be desirable to keep this standby capacity We would advise Russ to fully and honestly explain the situation to the loan officer The loan officer might insist that the machine be sold before any loan is approved, but she might instead grant a waiver of the current ratio and acid-test ratio requirements on the basis that they could be satisfied by selling the old machine Or she may approve the loan on the condition that the machine is pledged as collateral In that case, Russ would only have to sell the machine if he would otherwise be unable to pay back the loan © The McGraw-Hill Companies, Inc., 2010 All rights reserved Solutions Manual, Chapter 14 749 www.elsolucionario.net To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Teamwork in Action The answer to this question will depend on the company that the students analyze © The McGraw-Hill Companies, Inc., 2010 All rights reserved 750 Introduction to Managerial Accounting, 5th Edition www.elsolucionario.net To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Research and Application The 5-year horizontal analysis in dollar and percentage form is summarized below (dollar amounts are in millions): Sales Earnings from continuing operations Sales Earnings from continuing operations 2004 $45,682 $1,885 2004 155% 196% 2003 2002 $40,928 $1,619 $36,519 $1,376 2003 2002 139% 168% 124% 143% 2001 2000 2001 2000 $32,602 $29,462 $1,101 $962 111% 114% 100% 100% The data reveal that Target has increased sales by 55% over the last five years More importantly, the sales growth has been profitable; Target’s earnings from continuing operations have increased 96% over the same time period Also, Target has consistently improved its performance There were no unexpected drops in sales or earnings This type of consistency is valued by investors © The McGraw-Hill Companies, Inc., 2010 All rights reserved Solutions Manual, Chapter 14 751 www.elsolucionario.net To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Research and Application (continued) The common size comparative balance sheet is shown below (dollar amounts are in millions): Target Corporation Common-Size Comparative Balance Sheet January 29, 2005 and January 31, 2004 Assets Current assets: Cash and cash equivalents Accounts receivable, net Inventory Other current assets Current assets—discontinued Total current assets Property and equipment: Land Buildings and improvements Fixtures and equipment Construction-in-progress Accumulated depreciation Property and equipment, net Other non-current assets Non-current assets—discontinued Total assets 2004 2003 Common-Size Percentages 2004 2003 $ 2,245 5,069 5,384 1,224 13,922 $ 708 4,621 4,531 1,000 2,092 12,952 6.9% 15.7% 16.7% 3.8% 0% 43.1% 2.2% 14.7% 14.4% 3.2% 6.7% 41.2% 3,804 12,518 4,988 962 ( 5,412) 16,860 1,511 $32,293 3,312 11,022 4,577 969 ( 4,727) 15,153 1,377 1,934 $31,416 11.8% 38.8% 15.4% 3.0% ( 16.8%) 52.2% 4.7% 0.0% 100.0% 10.5% 35.0% 14.6% 3.1% ( 15.0%) 48.2% 4.4% 6.2% 100.0% © The McGraw-Hill Companies, Inc., 2010 All rights reserved 752 Introduction to Managerial Accounting, 5th Edition www.elsolucionario.net To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Research and Application (continued) Liabilities and shareholders’ investment Current liabilities: Accounts payable Accrued liabilities Income taxes payable Current portion of long-term debt Current liabilities—discontinued Total current liabilities Long-term debt Deferred income taxes Other noncurrent liabilities Noncurrent liabilities—discontinued Total liabilities Shareholders’ investment: Common stock Additional paid-in-capital Retained earnings Accumulated other income Total shareholders’ investment Total liabilities and shareholders’ investment 2004 2003 Common-Size Percentages 2004 2003 $ 5,779 1,633 304 504 8,220 9,034 973 1,037 19,264 $ 4,956 1,288 382 863 825 8,314 10,155 632 917 266 20,284 17.9% 5.1% 0.8% 1.6% 0.0% 25.5% 28.0% 3.0% 3.2% 0.0% 59.7% 15.8% 4.1% 1.2% 2.8% 2.6% 26.5% 32.3% 2.0% 2.9% 0.9% 64.6% 74 1,810 11,148 ( 3) 13,029 $32,293 76 1,530 9,523 11,132 $31,416 0.2% 5.6% 34.5% ( 0.0%) 40.3% 100.0% 0.2% 4.9% 30.3% 0.0% 35.4% 100.0% © The McGraw-Hill Companies, Inc., 2010 All rights reserved Solutions Manual, Chapter 14 753 www.elsolucionario.net To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Research and Application (continued) Target uses sales for its vertical analysis of profitability This can be confirmed by verifying how Target computed its gross margin rates (31.2% for 2004 and 30.6% for 2003) and selling, general and administrative (SG&A) expense rates (21.4% for 2004 and 21.2% for 2003) that are shown on pages 17-18 of the annual report The computations are shown below: 2004 2003 Sales Cost of sales Gross margin $45,682 31,445 $14,237 $40,928 28,389 $12,539 Gross margin Sales Gross margin rate $14,237 ÷ $45,682 31.2% $12,539 ÷ $40,928 30.6% SG&A expense Sales SG&A rate $9,797 ÷ $45,682 21.4% $8,657 ÷ $40,928 21.2% Target uses sales instead of total revenues as a base because total revenues include net credit card revenues Page 17 of the annual report says ―Net credit card revenues represent income derived from finance charges, late fees and other revenues from use of our Target Visa and proprietary Target Card.‖ These sources of revenue not relate to the company’s primary business operations Computing common-size income statement percentages using total revenue as the baseline could potentially distort conclusions about operational performance The calculations for these ratios are shown below (all numbers except per share information and percentages are in millions): Earnings per share: Earnings from continuing operations Average number of common shares outstanding Earnings per share—continuing operations 2004 $1,885 ÷ 903.8 $2.09 *Target did not have any preferred stock outstanding © The McGraw-Hill Companies, Inc., 2010 All rights reserved 754 Introduction to Managerial Accounting, 5th Edition www.elsolucionario.net To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Research and Application (continued) Price-earnings ratio: Market price per share Earnings per share—continuing operations Price-earnings ratio Dividend payout ratio: Dividends per share Earnings per share—continuing operations Dividend payout ratio Dividend yield ratio: Dividends per share Market price per share Dividend yield ratio Return on total assets: Earnings from continuing operations Add back interest expense: $570 × (1 − 0.378*) Total (a) Average total assets ($31,416 + $32,293)/2 (b) Return on total assets (a) ÷ (b) 2004 $49.49 ÷ $2.09 23.68 $0.31 ÷ $2.09 14.8% $0.31 ÷ $49.49 0.6% $1,885 355 $2,240 $31,855 7.0% *Provision for income taxes ($1,146) divided by earnings before income taxes ($3,031) = 37.8% Return on common stockholders’ equity: Earnings from continuing operations Average common stockholders’ equity ($13,029 + $11,132)/2 Return on common stockholders’ equity Book value per share: Common stockholders’ equity Number of common shares outstanding Book value per share $1,885 ÷ $12,081 15.6% $13,029 ữ 890.6 $14.63 â The McGraw-Hill Companies, Inc., 2010 All rights reserved Solutions Manual, Chapter 14 755 www.elsolucionario.net To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Research and Application (continued) The calculations for these ratios are shown below (all dollar figures are in millions): Working capital: Current assets Current liabilities Working capital Current ratio: Current assets Current liabilities Current ratio Acid-test ratio: ―Quick‖ assets ($2,245 + $5,069) Current liabilities Acid-test ratio Inventory turnover: Cost of sales Average inventory ($5,384 + $4,531)/2 Inventory turnover Average sales period: Number of days in a year Inventory turnover Average sale period in days 2004 $13,922 8,220 $ 5,702 $13,922 ÷ $8,220 1.69 $7,314 ÷ $8,220 0.89 $31,445 ÷ $4,958 6.34 365 days ÷ 6.34 57.6 days Note to instructors: The accounts receivable turnover and average collection period are not calculated because it is impossible to determine the portion of Target’s total sales that are credit sales © The McGraw-Hill Companies, Inc., 2010 All rights reserved 756 Introduction to Managerial Accounting, 5th Edition www.elsolucionario.net To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Research and Application (continued) The calculations for these ratios are shown below (all dollar figures are in millions): Times interest earned ratio: Earnings before interest expense and income taxes Interest expense Times interest earned Debt-to-equity ratio: Total liabilities Stockholder’s equity Debt-to-equity ratio 2004 $3,601 ÷ $570 6.3 $19,264 ÷ $13,029 1.48 Target has better liquidity than Wal-Mart as measured by the current and acid-test ratios Target turns over its inventory less frequently than Wal-Mart which is renowned for its supply chain management practices While Wal-Mart’s times interest earned ratio is much higher than Target’s, both companies provide sufficient comfort to their long-term creditors in this regard The companies have comparable debt-to-equity ratios Target’s return on total assets is lower than Wal-Mart’s; however, Target’s slightly higher price-earnings ratio suggests that investors believe Target has modestly stronger earnings growth prospects than WalMart © The McGraw-Hill Companies, Inc., 2010 All rights reserved Solutions Manual, Chapter 14 757 www.elsolucionario.net ... minutes) Directing and motivating Budgets Planning Precision; Timeliness Managerial accounting; Financial accounting Managerial accounting Financial accounting; Managerial accounting Feedback.. .To download more slides, ebook, solutions and test bank, visit http://downloadslide.blogspot.com Chapter 01 - Managerial Accounting and Cost Concepts Chapter Managerial Accounting and Cost... Work in Process, and Finished Goods A merchandising company may have a single inventory account— Merchandise Inventory 1-10 Product costs are assigned to units as they are processed and hence are