Argone division of Gemini Corporation is located in the United States. Its effective income tax rate is 30%. Another division of Gemini, Calcia, is located in Canada, where the income tax rate is 42%. Calcia manufactures, among other things, an intermediate product for Argone called IP-2007. Calcia operates at capacity and makes 15,000 units of IP-2007 for Argone each period, at a variable cost of $60 per unit. Assume that there are no outside customers for IP-2007. Because the IP-2007 must be shipped from Canada to the United States, it costs Calcia an additional $4 per unit to ship the IP-2007 to Argone. There are no direct fixed costs for IP-2007. Calcia also manufactures other products. A product similar to IP-2007 that Argone could use as a substitute is available in the United States for $75 per unit. Required: 1. What is the minimum and maximum transfer price that would be acceptable to Argone and Calcia for IP-2007, and why? 2. What transfer price would minimize income taxes for Gemini Corporation as a whole? Would Calcia and Argone want to be evaluated on operating income using this transfer price? 3. Suppose Gemini uses the transfer price from requirement 2, and each division is evaluated on its own after-tax division operating income. Now suppose Calcia has an opportunity to sell 8,000 units of IP-2007 to an outside customer for $68 each. Calcia will not incur shipping costs because the customer is nearby and offers to pay for shipping. Assume that if Calcia accepts the special order, Argone will have to buy 8,000 units of the substitute product in the United States at $75 per unit. a. Will accepting the special order maximize after-tax operating income for Gemini Corporation as a whole? b. Will Argone want Calcia to accept this special order? Why or why not? c. Will Calcia want to accept this special order? Explain. d. Suppose Gemini Corporation wants to operate in a decentralized manner. What transfer price should Gemini set for IP-2007 so that each division acting in its own best interest takes actions with respect to the special order that are in the best interests of Gemini Corporation as a whole?
> National Savings Bank (NSB) is examining the profitability of its Premier Account, a combined savings and checking account. Depositors receive a 7% annual interest rate on their average deposit. NSB earns an interest rate spread of 3% (the difference bet
> A given cost may be allocated for one or more purposes. List four purposes.
> The job costing system at Smith’s Custom Framing has five indirect cost pools (purchasing, material handling, machine maintenance, product inspection, and packaging). The company is in the process of bidding on two jobs; Job 215, an ord
> Idaho Potatoes (IP) operates at capacity and processes potatoes into potato cuts at its highly automated Pocatello plant. It sells potatoes to the retail consumer market and to the institutional market, which includes hospitals, cafeterias, and universit
> Ramirez Wholesalers operates at capacity and sells furniture items to four department-store chains (customers). Mr. Ramirez commented, “We apply ABC to determine product-line profitability. The same ideas apply to customer profitability
> Family Supermarkets (FS) operates at capacity and decides to apply ABC analysis to three product lines: baked goods, milk and fruit juice, and frozen foods. It identifies four activities and their activity cost rates as follows: The revenues, cost of g
> Open Doors, Inc., produces two types of doors, interior and exterior. The company’s simple costing system has two direct cost categories (materials and labor) and one indirect cost pool. The simple costing system allocates indirect cost
> Quikprint Corporation owns a small printing press that prints leaflets, brochures, and advertising materials. Quikprint classifies its various printing jobs as standard jobs or special jobs. Quikprint’s simple job-costing system has two
> Parker Company produces mathematical and financial calculators and operates at capacity. Data related to the two products are presented here: Total manufacturing overhead costs are as follows: Required: 1. Choose a cost driver for each overhead cost
> Tarquin’s Trophies makes trophies and plaques and operates at capacity. Tarquin does large custom orders, such as the participant trophies for the Mishawaka Little League. The controller has asked you to compare plant-wide, department,
> Automotive Products (AP) designs and produces automotive parts. In 2011, actual variable manufacturing overhead is $308,600. AP’s simple costing system allocates variable manufacturing overhead to its three customers based on machine-ho
> The Walliston Group (WG) provides tax advice to multinational firms. WG charges clients for (a) direct professional time (at an hourly rate) and (b) support services (at 30% of the direct professional costs billed). The three professionals in WG and thei
> Describe two ways in which a house construction company may use job-cost information.
> Hamilton, Inc., manufactures boom boxes (music systems with radio, cassette, and compact disc players) for several well-known companies. The boom boxes differ significantly in their complexity and their manufacturing batch sizes. The following costs were
> The Ride-On-Wave Company (ROW) produces a line of non-motorized boats. ROW uses a normal-costing system and allocates manufacturing overhead using direct manufacturing labor cost. The following data are for 2011: Inventory balances on December 31, 2011
> Braden Brothers, Inc., is an architecture firm specializing in high-rise buildings. Its job-costing system has a single direct-cost category (architectural labor) and a single indirect-cost pool, which contains all costs of supporting the office. Support
> Job costing; actual, normal, and variation from normal costing. Chico & Partners, a Quebec-based public accounting partnership, specializes in audit services. Its job-costing system has a single direct-cost category (professional labor) and a single
> Rafael Company produces pipes for concert quality organs. Each job is unique. In April 2011, it completed all outstanding orders, and then, in May 2011, it worked on only two jobs, M1 and M2: Direct manufacturing labor is paid at the rate of $26 per ho
> Donnell Transport assembles prestige manufactured homes. Its job costing system has two direct-cost categories (direct materials and direct manufacturing labor) and one indirect-cost pool (manufacturing overhead allocated at a budgeted $30 per machine-ho
> What is broad averaging and what consequences can it have on costs?
> Define cost pool, cost tracing, cost allocation, and cost-allocation base.
> Management accounting should not fit the straitjacket of financial accounting.” Explain and give an example.
> How does management accounting differ from financial accounting?
> Match each of the following items with one or more of the denominator-level capacity concepts by putting the appropriate letter(s) by each item: a. Theoretical capacity b. Practical capacity c. Normal capacity utilization d. Master-budget capacity utiliz
> Name the four areas in which standards of ethical conduct exist for management accountants in the United States. What organization sets forth these standards?
> ABC systems only apply to manufacturing companies.” Do you agree? Explain
> How can the extent of price discounting be tracked on a customer-by-customer basis?
> Explain how the direct materials mix and yield variances provide additional information about the direct materials efficiency variance.
> How can the sales-quantity variance be decomposed further?
> The University of Chicago Press is wholly owned by the university. It performs the bulk of its work for other university departments, which pay as though the press were an outside business enterprise. The press also publishes and maintains a stock of boo
> How can the sales-volume variance be decomposed further to obtain useful information?
> Eric Johnson was recently promoted to Controller of Research and Development (R&D) for Pharma Cor, a Fortune 500 pharmaceutical company, which manufactures prescription drugs and nutritional supplements. The company’s total R&D cost for 2012 was expected
> George Perez is the controller at Allied Electronics, a manufacturer of devices for the computer industry. He is being considered for a promotion to chief financial officer. Required: 1. In this table, indicate which executive is primarily responsible f
> Burst, Inc., cans peaches for sale to food distributors. All costs are classified as either manufacturing or marketing. Burst prepares monthly budgets. The March 2012 budgeted absorption-costing income statement is as follows: Monthly costs are classif
> A series of independent situations in which a firm is about to make a strategic decision follow. Decisions: a. Roger Phones is about to decide whether to launch production and sale of a cell phone with standard features. b. Computer Magic is trying to de
> WebNews.com offers its subscribers several services, such as an annotated TV guide and local-area information on weather, restaurants, and movie theaters. Its main revenue sources are fees for banner advertisements and fees from subscribers. Recent data
> Monroe Moulding is a large manufacturer of wood picture frame moulding. The company operates distribution centers in Dallas and Philadelphia. The distribution centers cut frames to size (called “chops”) and ship them to custom picture framers. Because of
> Hamilton Semiconductors manufactures specialized chips that sell for $25 each. Hamilton’s manufacturing costs consist of variable cost of $3 per chip and fixed costs of $8,000,000. Hamilton also incurs $900,000 in fixed marketing costs each year. Hamilto
> Community Bank recently introduced a new bonus plan for its business unit executives. The company believes that current profitability and customer satisfaction levels are equally important to the bank’s long-term success. As a result, t
> Chris Moreno seeks your advice on revising the existing bonus plan for division managers of Global Event Group. Assume division managers do not like bearing risk. Moreno is considering three ideas: Make each division manager’s compensation depend on divi
> An auditor for the Internal Revenue Service is trying to reconstruct some partially destroyed records of two taxpayers. For each of the cases in the accompanying list, find the unknowns designated by the letters A through D. Case 1 Case 2 (in thousa
> Global Event Group has two major divisions: print and Internet. Summary financial data (in millions) for 2011 and 2012 are as follows: The two division managers’ annual bonuses are based on division ROI (defined as operating income di
> Zynga Multinational, Inc., has divisions in the United States, Germany, and New Zealand. The U.S. division is the oldest and most established of the three, and has a cost of capital of 8%. The German division was started three years ago when the exchange
> Konekopf Corporation has a division in the United States, and another in France. The investment in the French assets was made when the exchange rate was $1.30 per euro. The average exchange rate for the year was $1.40 per euro. The exchange rate at the e
> P. F. Skidaddle’s operates casual dining restaurants in three regions: Denver, Seattle, and Sacramento. Each geographic market is considered a separate division. The Denver division is made up of four restaurants, each built in early 20
> Nature’s Elixir Corporation operates three divisions that process and bottle natural fruit juices. The historical-cost accounting system reports the following information for 2011: Nature’s Elixir estimates the usefu
> Doorchime Company makes doorbells. It has a weighted average cost of capital of 9%, and total assets of $5,550,000. Doorchime has current liabilities of $800,000. Its operating income for the year was $630,000. Doorchime does not have to pay any income t
> Jeremiah Industries manufactures high-grade aluminum luggage made from recycled metal. The company operates two divisions: metal recycling and luggage fabrication. Each division operates as a decentralized entity. The metal recycling division is free to
> The Bosh Corporation makes and sells 20,000 multisystem music players each year. Its assembly division purchases components from other divisions of Bosh or from external suppliers and assembles the multisystem music players. In particular, the assembly d
> Industrial Diamonds, Inc., based in Los Angeles, has two divisions: South African mining division, which mines a rich diamond vein in South Africa U.S. processing division, which polishes raw diamonds for use in industrial cutting tools The processing di
> Cam Cody schedules book signings for science fiction authors and creates e-books and books on CD to sell at each signing. Cody uses a normal-costing system with two direct cost pools, labor and materials, and one indirect cost pool, general overhead. Gen
> Assume that Pat Borges, CEO of Crango, had mandated a transfer price equal to 200% of full cost. Now he decides to decentralize some management decisions and sends around a memo that states the following: “Effective immediately, each division of Crango i
> Crango Products is a cranberry cooperative that operates two divisions, a harvesting division and a processing division. Currently, all of harvesting’s output is converted into cranberry juice by the processing division, and the juice i
> Refer to Problem 22-28. Required: 1. Suppose the manager of division A has the option of (a) cutting the external price to $195, with the certainty that sales will rise to 1,000 units or (b) maintaining the external price of $200 for the 800 units and t
> Europa, Inc., has two divisions, A and B, that manufacture expensive bicycles. Division A produces the bicycle frame, and division B assembles the rest of the bicycle onto the frame. There is a market for both the subassembly and the final product. Each
> Sally wants to purchase a Burgers-N-Fries franchise. She can buy one for $500,000. Burgers-N-Fries headquarters provides the following information: Sally will also have to pay Burgers-N-Fries a franchise fee of 10% of her revenues each year. Sally want
> Best-Cost Foods is considering replacing all 10 of its old cash registers with new ones. The old registers are fully depreciated and have no disposal value. The new registers cost $749,700 (in total). Because the new registers are more efficient than the
> Unbreakable Manufacturing manufactures over 20,000 different products made from metal, including building materials, tools, and furniture parts. The manager of the furniture parts division has proposed that his division expand into bicycle parts as well.
> Ludmilla Quagg owns a fitness center and is thinking of replacing the old Fit-O-Matic machine with a brand new Flab-Buster 3000. The old Fit-O-Matic has a historical cost of $50,000 and accumulated depreciation of $46,000, but has a trade-in value of $5,
> Jack Garrett, a manager of the plate division for the Marble Top Manufacturing company, has the opportunity to expand the division by investing in additional machinery costing $420,000. He would depreciate the equipment using the straight-line method, an
> The Smacker Company is a family-owned business that produces fruit jam. The company has a grinding machine that has been in use for three years. On January 1, 2011, Smacker is considering the purchase of a new grinding machine. Smacker has two options: (
> Halsey Company sells women’s clothing. Halsey’s strategy is to offer a wide selection of clothes and excellent customer service and to charge a premium price. Halsey presents the following data for 2010 and 2011. For s
> Define cost-volume-profit analysis.
> You have the opportunity to expand your business by purchasing new equipment for $159,000. The equipment has a useful life of nine years. You expect to incur cash fixed costs of $96,000 per year to use this new equipment, and you expect to incur cash var
> Crumbly Cookie Company is considering expanding by buying a new (additional) machine that costs $62,000, has zero terminal disposal value, and has a 10-year useful life. It expects the annual increase in cash revenues from the expansion to be $28,000 per
> Whimsical Corporation is an international manufacturer of fragrances for women. Management at Whimsical is considering expanding the product line to men’s fragrances. From the best estimates of the marketing and production managers, annual sales (all for
> Assume the same facts as in Problem 21-27, except that the plant is located in Austin, Texas. Pro Chips has no special waiver on income taxes. It pays a 30% tax rate on all income. Proceeds from sales of equipment above book value are taxed at the same 3
> Pro Chips is a manufacturer of prototype chips based in Dublin, Ireland. Next year, in 2012, Pro Chips expects to deliver 552 prototype chips at an average price of $80,000. Pro Chips’ marketing vice president forecasts growth of 60 pro
> Flexible Security Devices (FSD) has introduced a just-in-time production process and is considering the adoption of lean accounting principles to support its new production philosophy. The company has two product lines: Mechanical Devices and Electronic
> Assume the same facts as in Problem 20-32 except now there are only two trigger points: Completion of good finished units of product and Sale of finished goods. Required: 1. Prepare summary journal entries for August, including the disposition of under-
> Assume that the second trigger point for Rippel Corporation is the sale—rather than the completion—of finished goods. Also, the inventory account is confined solely to direct materials, whether these materials are in a storeroom, in work in process, or i
> The Rippel Corporation manufactures electrical meters. For August, there were no beginning inventories of direct materials and no beginning or ending work in process. Rippel uses a JIT production system and backflush costing with three trigger points for
> The Margro Corporation is an automotive supplier that uses automatic turning machines to manufacture precision parts from steel bars. Margro’s inventory of raw steel averages $600,000. John Oates, president of Margro, and Helen Gorman,
> The Domestic Engines Co. produces the same power generators in two Illinois plants, a new plant in Peoria and an older plant in Moline. The following data are available for the two plants: All fixed costs per unit are calculated based on a normal capac
> Computers 4 U purchases one model of computer at a wholesale cost of $200 per unit and resells it to end consumers. The annual demand for the company’s product is 500,000 units. Ordering costs are $800 per order and carrying costs are $50 per computer, i
> Global Tunes Corp. produces J-Pods, music players that can download thousands of songs. Global Tunes forecasts that demand in 2011 will be 48,000 J-Pods. The variable production cost of each J-Pod is $54. Due to the large $10,000 cost per setup, Global T
> Chadwick Shoe Co. produces and sells an excellent quality walking shoe. After production, the shoes are distributed to 20 warehouses around the country. Each warehouse services approximately 100 stores in its region. Chadwick uses an EOQ model to determi
> Soothing Meadow, a retailer of bed and bath linen, sells 380,000 packages of Mona Lisa designer sheets each year. Soothing Meadow incurs an ordering cost of $57 per purchase order placed with Mona Lisa Enterprises and an annual carrying cost of $12.00 pe
> Wainwright Corporation manufactures auto parts for two leading Japanese automakers. Nancy Evans is the management accountant for one of Wainwright’s largest manufacturing plants. The plant’s General Manager, Chris Shel
> Pauli’s Pizza has recently begun collecting data on the quality of its customer order processing and delivery. Pauli’s made 1,800 deliveries during the first quarter of 2012. The following quality data pertains to firs
> Fun Time Toys (FTT) produces dolls in two processes: molding and assembly. FTT is currently producing two models: Chatty Chelsey and Talking Tanya. Production in the molding department is limited by the amount of materials available. Production in the as
> Aardee Industries manufactures pharmaceutical products in two departments: mixing and tablet making. Additional information on the two departments follows. Each tablet contains 0.5 gram of direct materials. The mixing department makes 200,000 grams of
> The Brandt Corporation makes wire harnesses for the aircraft industry only upon receiving firm orders form its customers. Brandt has recently purchased a new machine to make two types of wire harnesses, one for Boeing airplanes (B7) and the other for Air
> Seawall is still debating whether it should introduce Y28. The following table provides information on selling prices, variable costs, and inventory carrying costs for Z39 and Y28: Required: 1. Using the average manufacturing cycle times calculated in
> Mile-High Foods, Inc., was formed in March 2011 to provide prepackaged snack boxes for a new low cost regional airline beginning on April 1. The company has just leased warehouse space central to the two airports to store materials. To move packaged mate
> The Seawall Corporation uses an injection molding machine to make a plastic product, Z39, after receiving firm orders from its customers. Seawall estimates that it will receive 50 orders for Z39 during the coming year. Each order of Z39 will take 80 hour
> East Coast Healthcare operates two medical groups, one in Philadelphia and one in Baltimore. The semi-annual bonus plan for each medical group’s president has three components: a. Profitability performance. Add 0.75% of operating income
> The Tan Corporation uses multicolor molding to make plastic lamps. The molding operation has a capacity of 200,000 units per year. The demand for lamps is very strong. Tan will be able to sell whatever output quantities it can produce at $40 per lamp. Ta
> The Thomas Corporation sells 300,000 V262 valves to the automobile and truck industry. Thomas has a capacity of 110,000 machine-hours and can produce 3 valves per machine-hour. V262’s contribution margin per unit is $8. Thomas sells only 300,000 valves b
> Riposte Corporation manufactures a computer chip called XD1. Manufacturing costs of one XD1 chip, excluding rework costs, are direct materials, $60; direct manufacturing labor, $12; and manufacturing overhead, $38. At the inspection point, defective unit
> The Kim Company is a furniture manufacturer with two departments: molding and finishing. The company uses the weighted-average method of process costing. In August, the following data were recorded for the finishing department: Conversion costs are add
> Fantastic Furniture manufactures plastic lawn furniture in a continuous process. The company pours molten plastic into molds and then cools the plastic. Materials are added at the beginning of the process, and conversion is considered uniform through the
> Assume that Job #10 of Crystal Clear Machine Shop generates normal scrap with a total sales value of $650 (it is assumed that the scrap returned to the storeroom is sold quickly). Required: Prepare the journal entries for the recognition of scrap, assum
> Assume that the 7 spoiled units of Whitefish Machine Shop’s Job #10 can be reworked for a total cost of $1,700. A total cost of $10,150 associated with these units has already been assigned to Job #10 before the rework. Required: Prepare the journal ent
> Zeller Company uses standard costing. The company has two manufacturing plants, one in Nevada and the other in Ohio. For the Nevada plant, Zeller has budgeted annual output of 4,000,000 units. Standard labor hours per unit are 0.25, and the variable over
> Crystal Clear Machine Shop is a manufacturer of motorized carts for vacation resorts. Peter Cruz, the plant manager of Crystal Clear, obtains the following information for Job #10 in August 2010. A total of 32 units were started, and 7 spoiled units were
> Metal Works, Inc., manufactures various metal parts in batches as ordered by customers, and accounts for them using job costing. Job 2346-8, a large job for customer X, incurred $240,000 of direct materials costs and $620,000 of direct labor costs. Metal
> Refer to the information in Problem 18-32 except for the transferred-in costs for May, which equal the total cost of good units completed and transferred out in May from the cleaning department, which were calculated in Problem 18-31 using the FIFO metho
> In Boston Company’s packaging department, conversion costs are added evenly during the process, and direct materials are added at the end of the process. Spoiled units are detected upon inspection at the end of the process and are dispo
> Refer to the information in Problem 18-30. Required: Do Problem 18-30 using the FIFO method of process costing. (Problem 18-33 explores additional facets of this problem.) Data from Problem 18-30: The Boston Company is a food-processing company based
