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Question: A company is considering replacing an old


A company is considering replacing an old piece of machinery, which cost $600,000 and has $350,000 of accumulated depreciation to date, with a new machine that has a purchase price of $545,000. The old machine could be sold for $231,000. The annual variable production costs associated with the old machine are estimated to be $61,000 per year for eight years. The annual variable production costs for the new machine are estimated to be $19,000 per year for eight years.
A. Prepare a differential analysis dated September 13 to determine whether to continue with (Alternative 1) or replace (Alternative 2) the old machine.
B. What is the sunk cost in this situation?


> Indicate how prior period adjustments would be reported on the financial statements presented only for the current period.

> Why would management be concerned about the accuracy of product costs?

> How does activity-based costing differ from the multiple production department factory overhead rate method?

> Why would a manufacturing company with multiple production departments still prefer to use a single plant wide overhead rate?

> How does lean manufacturing differ from the conventional manufacturing process?

> How are cost of production reports used for controlling and improving operations?

> Several items are omitted from the income statement and cost of goods manufactured statement data for two different companies for the month of December: Instructions: 1. For both companies, determine the amounts of the missing items (A) through (F), id

> What is the most important purpose of the cost of production report?

> Rameriz Company is a process manufacturer with two production departments, Blending and Filling. All direct materials are introduced in Blending from the materials store area. What is included in the cost transferred to Filling?

> What is the purpose for determining the cost per equivalent unit?

> Why is the cost per equivalent unit often determined separately for direct materials and conversion costs?

> In a job order cost system, direct labor and factory overhead applied are debited to individual jobs. How are these items treated in a process cost system and why?

> In job order cost accounting, the three elements of manufacturing cost are charged directly to job orders. Why is it not necessary to charge manufacturing costs in process cost accounting to job orders?

> Which type of cost system, process or job order, would be best suited for each of the following: (A) TV assembler, (B) building contractor, (C) automobile repair shop, (D) paper manufacturer, (E) custom jewelry manufacturer? Give reasons for your answers

> A. What is (1) over applied factory overhead and (2) under applied factory overhead? B. If the factory overhead account has a debit balance, was factory overhead under applied or over applied? C. If the factory overhead account has a credit balance at th

> What are the three categories of manufacturing costs included in the cost of finished goods and the cost of work in process?

> A. How does the rate earned on total assets differ from the rate earned on stockholders’ equity? B. Which ratio is normally higher? Why?

> Data pertaining to the current position of Lucroy Industries Inc. follows: Cash……………………&acirc

> How is property, plant, and equipment measured on the balance sheet under IFRS? How does this differ from the way property, plant, and equipment is measured on the balance sheet under U.S. GAAP?

> Briefly discuss the difference between (A) a “rules-based” approach to accounting standard setting and (B) a “principles-based” approach to accounting standard setting.

> What document is the source for (A) debiting the accounts in the materials ledger and (B) crediting the accounts in the materials ledger?

> What manufacturing cost term is used to describe the cost of materials that are an integral part of the manufactured end product?

> A stockbroker advises a client to buy preferred stock, saying “With that type of stock, you will never have to worry about losing the dividends.” Is the broker right?

> What are the major differences between managerial accounting and financial accounting?

> The dividend yield of Suburban Propane was 7.7% in a recent year, and the dividend yield of Google was 0% in the same year. What might explain the difference between these ratios?

> Distinguish between prime costs and conversion costs.

> Kroger , a grocery store, recently had a price-earnings ratio of 13.7, while the average price-earnings ratio in the grocery store industry was 22.5. What might explain this difference?

> What is the difference between adjusting entries and adjusting entries and adjusting entries correcting entries?

> Rodgers Corporation produces and sells football equipment. On July 1, Year 1, Rodgers issued $65,000,000 of 10-year, 12% bonds at a market (effective) interest rate of 10%, receiving cash of $73,100,469. Interest on the bonds is payable semiannually on D

> What body is responsible for setting International Financial Reporting Standards?

> Briefly discuss why global accounting standards are needed in today’s business environment.

> Knott Inc. has a petty cash fund of $750. (A) Since the petty cash fund is only $750, should Knott implement controls over petty cash? (B) What controls, if any, could be used for the petty cash fund?

> (A) What is the most important output of the accounting cycle? (B) Do all companies have an accounting cycle? Explain.

> What inventory costing methods are allowed under IFRS? How does this differ from the treatment under U.S. GAAP?

> Is the matching concept related to (A) the cash basis of accounting or (B) the accrual basis of accounting?

> In what ways can the cost of a process be improved?

> What is the benefit of identifying non-value-added activities?

> How does a Pareto chart assist management?

> Why is the direct labor cost category eliminated in many lean manufacturing environments?

> Last Chance Company offers legal consulting advice to prison inmates. Last Chance prepared the end-of-period spreadsheet that follows at June 30, 2018, the end of the fiscal year. Instructions: 1. Prepare an income statement for the year ended June 30.

> Why do lean manufacturers use a “raw and in process inventory” account, rather than separately reporting materials and work in process?

> Why does lean accounting result in fewer transactions?

> How is supply chain management different from traditional supplier and customer relationships?

> Why would a lean manufacturer strive to produce zero defects?

> Why do lean manufacturers favor pull or “make to order” manufacturing?

> How is setup time related to lead time?

> Why is a product-oriented layout preferred by lean manufacturers over a process-oriented layout?

> What are some examples of non-value-added lead time?

> What is the benefit of the lean philosophy?

> Nav-Go Enterprises Inc. produces aeronautical navigation equipment. Navo-Go Enterprises' stockholders’ equity accounts, with balances on January 1, 20Y1, are as follows: Common Stock, $5 stated value (900,000 shares authorized, 620,000 shares issu

> The following data relate to labor cost for production of 20,000 cellular telephones: Actual:…………………………..8,450 hrs. at $22.50 Standard:………………………8,400 hrs. at $23.00 A. Determine the direct labor rate variance, direct labor time variance, and total dire

> The following data are accumulated by Geddes Company in evaluating the purchase of $150,000 of equipment, having a four-year useful life: A. Assuming that the desired rate of return is 15%, determine the net present value for the proposal. Use the tabl

> On the basis of the following data, the general manager of Featherweight Shoes Inc. decided to discontinue Children’s Shoes because it reduced income from operations by $17,000. What is the flaw in this decision, if it is assumed fixed

> Chinook Industries Inc. is evaluating two capital investment proposals for a retail outlet, each requiring an investment of $900,000 and each with an eight-year life and expected total net cash flows of $1,000,000. Location 1 is expected to provide equal

> Nature’s Way Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 2,500 units at $60 each. The new manufacturing equipment will cost $227,000 and is ex

> Galactic Inc. is considering an investment in new equipment that will be used to manufacture a smartphone. The phone is expected to generate additional annual sales of 6,000 units at $250 per unit. The equipment has a cost of $850,000, residual value of

> Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $750,000. The net cash flows estimated for the two proposals are as follows: The estimated residual

> Mill Metals Inc. has three grades of metal product, Type 5, Type 10, and Type 20. Financial data for the three grades are as follows: Mill’s operations require all three grades to be melted in a furnace before being formed. The furnac

> Buckeye Healthcare Corp. is proposing to spend $186,725 on an eight-year project that has estimated net cash flows of $35,000 for each of the eight years. A. Compute the net present value, using a rate of return of 12%. Use the present value of an annuit

> Office Mart Inc. has “cash and carry” customers and credit customers. Office Mart estimates that 25% of monthly sales are to cash customers, while the remaining sales are to credit customers. Of the credit customers, 30% pay their accounts in the month o

> Jocame Inc. began business on January 2. Salaries were paid to employees on the last day of each month, and social security tax, Medicare tax, and federal income tax were withheld in the required amounts. An employee who is hired in the middle of the mon

> Ethan Fromme, the Chief Financial Officer of Maximal Inc., has asked for your help in interpreting the company’s operating performance. He has provided you with the following three performance graphs for the most recent ï¬&#129

> Park City Mountain Resort , a Utah ski resort, announced a $415 million expansion of lodging properties, lifts, and terrain. Assume that this investment is estimated to produce $99 million in equal annual cash flows for each of th

> The internal rate of return method is used by Tester man Construction Co. in analyzing a capital expenditure proposal that involves an investment of $113,550 and annual net cash flows of $30,000 for each of the six years of its useful life. A. Determine

> Talladega Tire and Rubber Company has capacity to produce 500,000 tires. Talladega presently produces and sells 400,000 tires for the North American market at a price of $200 per tire. Talladega is evaluating a special order from a European automobile co

> Spanish Peaks Railroad Inc. is considering acquiring equipment at a cost of $1,250,000. The equipment has an estimated life of eight years and no residual value. It is expected to provide yearly net cash flows of $312,500. The company’s minimum desired r

> Strauss & C o. manufactures slacks and jeans under a variety of brand names, such as Dockers® and 501 Jeans®. Slacks and jeans are assembled by a variety of different sewing operations. Assume that the sales budget for Dockers a

> At the beginning of June, Bezco Toy Company budgeted 5,000 toy action figures to be manufactured in June at standard direct materials and direct labor costs as follows: Direct materials…………………………$50,000 Direct labor………………………………….36,000 Total………………………………

> Carnival Corporation has recently placed into service some of the largest cruise ships in the world. One of these ships, the Carnival Breeze, can hold up to 3,600 passengers, and it can cost $750 million to build. Assume the following additional informat

> Coca Cola Enterprises is the largest bottler of Coca-Cola® in Western Europe. The company purchases Coke® and Sprite® concentrate from The Coca- Cola Company , dilutes and mixes the concentrate with carbonated water, and then fills the blended beverage i

> The following data are accumulated by Lone Peak Inc. in evaluating two competing capital investment proposals: Determine the expected average rate of return for each proposal. 3D Printer Truck Amount of investment $40,000 7 years $3,000 $24,080 $50

> Fremont Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $40 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 25% of direct

> The following data for Flexco Inc. relate to the payroll for the week ended December 9: Employees Grove and Seaver are office staff, and all of the other employees are sales personnel. All sales personnel are paid 1½ times the regular rat

> Charles Schwab Corporation is one of the more innovative brokerage and financial service companies in the United States. The company recently provided information about its major business segments as follows (in millions): A. How does a brokerage compa

> The condensed product-line income statement for Dish N’ Dat Company for the month of March is as follows: Fixed costs are 15% of the cost of goods sold and 40% of the selling and administrative expenses. Dish N’ Dat

> A condensed income statement by product line for Healthy Beverage Inc. indicated the following for Fruit Cola for the past year: Sales……………………………………………..$12,750,000 Cost of goods sold…………….……………….8,500,000 Gross profit………………………………….…$ 4,250,000 Operating

> On January 1, 20Y6, the controller of Omicron Inc. is planning capital expenditures for the years 20Y6–20Y9. The following interviews helped the controller collect the necessary information for the capital expenditures budget: Director of Facilities: A c

> Materials used by the Instrument Division of XPort Industries are currently purchased from outside suppliers at a cost of $210 per unit. However, the same materials are available from the Components Division. The Components Division has unused capacity a

> Smart Stream Inc. uses the product cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 10,000 cell phones are as follows: Smart Stream desires a profit equal to a 30% return on invested assets of $1,200

> Data for the North, South, East, and West divisions of Free Bird Company are as follows: A. Determine the missing items, identifying each by the letters (A) through (L). (Round percentages and investment turnover to one decimal place.) B. Determine the

> Sweet Tooth Candy Company budgeted the following costs for anticipated production for August: Prepare a factory overhead cost budget, separating variable and fixed costs. Assume that factory insurance and depreciation are the only fixed factory costs.

> Calgary Lumber Company incurs a cost of $315 per hundred board feet (hbf) in processing certain “rough-cut” lumber, which it sells for $440 per hbf. An alternative is to produce a “finished cut” at a total processing cost of $465 per hbf, which can be so

> Granite Construction Company is considering selling excess machinery with a book value of $175,000 (original cost of $315,000 less accumulated depreciation of $140,000) for $180,000, less a 5% brokerage commission. Alternatively, the machinery can be lea

> The following selected accounts and their current balances appear in the ledger of Kanpur Co. for the fiscal year ended June 30, 2018: Instructions: 1. Prepare a multiple-step income statement. 2. Prepare a retained earnings statement. 3. Prepare a bal

> XSport Sporting Goods Co. operates two divisions—the Winter Sports Division and the Summer Sports Division. The following income and expense accounts were provided from the trial balance as of December 31, 20Y9, the end of the fiscal year, after all adju

> Yozamba Technology has two divisions, Consumer and Commercial, and two corporate service departments, Tech Support and Purchasing. The corporate expenses for the year ended December 31, 20Y7, are as follows: Tech Support Department…&

> The following data relating to direct materials cost for October of the current year are taken from the records of Good Clean Fun Inc., a manufacturer of organic toys: Quantity of direct materials used……………………………………3,000 lbs. Actual unit price of direct

> In divisional income statements prepared for Demopolis Company, the Payroll Department costs are charged back to user divisions on the basis of the number of payroll distributions, and the Purchasing Department costs are charged back on the basis of the

> Steelcase Inc. is one of the largest manufacturers of office furniture in the United States. In Grand Rapids, Michigan, it assembles filing cabinets in an Assembly Department. Assume the following information for the Assembly Department: Direct labor pe

> Joplin Industries Inc. manufactures and sells high-quality sporting goods equipment under its highly recognizable J-Sports logo. The company began operations on May 1 and operated at 100% of capacity (270,000 units) during the first month, creating an en

> Alpha University wishes to monitor the efficiency and quality of its course registration process. A. Identify three input and three output measures for this process. B. Why would Alpha University use nonfinancial measures for monitoring this process?

> The actual and planned data for Underwater University for the Fall term were as follows: Registration, records, and marketing costs vary by the number of enrolled students, while instructional costs vary by the number of credit hours. Depreciation is a

> Based on XPort Industries’ data in Exercise 19, assume that a transfer price of $190 has been established and that 60,000 units of materials are transferred, with no reduction in the Components Division’s current sales. A. How much would XPort Industries

> Cloud Productivity Inc. uses flexible budgets that are based on the following data: Sales commissions .....................................................................................................14% of sales Advertising expense..................

> Cedar Springs Company completed the following selected transactions during June 20Y3: June 1. Established a petty cash fund of $1,000. 12. The cash sales for the day, according to the cash register records, totaled $9,440. The actual cash received from c

> American Express Company is a major financial services company, noted for its American Express® card. Some of the performance measures used by the company in its balanced scorecard follow: Average card member spending………………….Number of Internet features

> The following data relate to factory overhead cost for the production of 10,000 computers: If productive capacity of 100% was 15,000 hours and the total factory overhead cost budgeted at the level of 14,000 standard hours was $356,000, determine the va

> Anticipated sales for Safety Grip Company were 42,000 passenger car tires and 19,000 truck tires. Rubber and steel belts are used in producing passenger car and truck tires as follows: The purchase prices of rubber and steel are $1.20 and $0.80 per pou

> Partially completed budget performance reports for Garland Company, a manufacturer of light duty motors, follow: A. Complete the budget performance reports by determining the correct amounts for the lettered spaces. B. Compose a memo to Cassandra Reid,

> La Batre Bicycle Company manufactures commuter bicycles from recycled materials. The following data for July of the current year are available: Quantity of direct labor used…………………………….5,050 hrs. Actual rate for direct labor………………………….$16.80 per hr. Bic

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