At the high and low levels of activity during the month, direct labor hours are 90,000 and 40,000, respectively. The related costs are $165,000 and $100,000. What are the fixed and variable costs at any level of activity?
> What are the limitations of activity-based costing?
> What are the benefits of activity-based costing?
> What is the formula for assigning activity cost pools to products?
> What makes a cost driver accurate and appropriate?
> What is a cost driver?
> As discussed in the chapter, the principles underlying activity-based costing have evolved into the broader approach known as activity-based management. One of the common practices of activity-based management is to identify all business activities, clas
> What are the similarities between a job order and a process cost system?
> Under what conditions is direct labor a valid basis for allocating overhead?
> Mark Haley is uncertain about the steps used to prepare a production cost report. State the procedures that are required in the sequence in which they are performed
> Sam Bowyer believes there are no significant differences in the flow of costs between job order cost accounting and process cost accounting. Is Bowyer correct? Explain.
> Your roommate is confused about the features of process cost accounting. Identify and explain the distinctive features for your roommate.
> At Trent Company, there are 800 units of ending work in process that are 100% complete as to materials and 40% complete as to conversion costs. If the unit cost of materials is $3 and the total costs assigned to the 800 units is $6,000, what is the per u
> (a) Ann Quinn believes the production cost report is an external report for stockholders. Is Ann correct? Explain. (b) Identify the sections in a production cost report.
> How are equivalent units of production computed?
> Reyes Company transfers out 12,000 units and has 2,000 units of ending work in process that are 25% complete. Materials are entered at the beginning of the process and there is no beginning work in process. Reyes uses the FIFO method to compute equivalen
> Soria Co. started and completed 2,000 units for the period. Its beginning inventory is 800 units 25% complete and its ending inventory is 400 units 20% complete. Soria uses the FIFO method to compute equivalent units. How many units were transferred out
> There are many resources available on the Web to assist people in time management. Some of these resources are designed specifically for college students. Instructions: Go to http://www.dartmouth.edu/~acskills/videos/video_tm.html (or do an Internet sea
> What is meant by the term “equivalent units of production”?
> Contrast the primary focus of job order cost accounting and of process cost accounting.
> What is the difference between operations costing and a process cost system?
> “At the end of the year, under- or overapplied overhead is closed to Income Summary.” Is this correct? If not, indicate the customary treatment of this amount.
> What purposes are served by a production cost report?
> Jane Neff believes that the cost of goods manufactured schedule in job order cost accounting is the same as shown in Chapter 1. Is Jane correct? Explain.
> Clauss Company transfers out 14,000 units and has 2,000 units of ending work in process that are 25% complete. Materials are entered at the beginning of the process and there is no beginning work in process. Assuming unit materials costs of $3 and unit c
> What elements are involved in computing a predetermined overhead rate?
> Sam Bowden believes actual manufacturing overhead should be charged to jobs. Do you agree? Why or why not?
> Coats Company had zero units of beginning work in process. During the period, 9,000 units were completed, and there were 600 units of ending work in process. What were the units started into production?
> In a recent year, an oil refinery in Texas City, Texas, on the Houston Ship Channel exploded. The explosion killed 14 people and sent a plume of smoke hundreds of feet into the air. The blast started as a fire in the section of the plant that increased t
> Amanda Inc. sold 10,000 units and recorded sales of $400,000 for the first month of 2014. In making the sales, the company incurred the following costs and expenses. (a) Prepare a CVP income statement for the month ended January 31, 2014. (b) Compute t
> Indicate the source documents that are used in charging costs to specific jobs.
> What is the purpose of a job cost sheet?
> Identify which costing system—job order or process cost—the following companies would primarily use: (a) Quaker Oats, (b) Jif Peanut Butter, (c) Gulf Craft (luxury yachts), and (d) Warner Bros. Motion Pictures.
> Performance Company sells two types of performance tires. The lower-priced model is guaranteed for only 50,000 miles; the higher-priced model is guaranteed for 150,000 miles. The unit contribution margin on the higher-priced tire is twice as high as that
> What is meant by the term sales mix? How does sales mix affect the calculation of the break-even point?
> If management chooses to reduce its selling price to match that of a competitor, how will the break-even point be affected?
> The traditional income statement for Wheat Company shows sales $900,000, cost of goods sold $500,000, and operating expenses $200,000. Assuming all costs and expenses are 75% variable and 25% fixed, prepare a CVP income statement through contribution mar
> If production is greater than sales, how does absorption costing net income differ from variable costing net income?
> If production equals sales, what, if any, is the difference between net income under absorption costing versus under variable costing?
> Provide three examples of management decisions that benefit from CVP analysis.
> R. B. Dillman Company manufactures a high-tech component that passes through two production processing departments, Molding and Assembly. Department managers are partially compensated on the basis of units of products completed and transferred out relati
> Doc Rowan Corporation sells one product, its waterproof hiking boot. It began operations in the current year and had an ending inventory of 8,500 units. The company sold 20,000 units throughout the year. Fixed manufacturing overhead is $5 per unit, and t
> Distinguish between absorption costing and variable costing.
> Pine Company has a degree of operating leverage of 8. Fir Company has a degree of operating leverage of 4. Interpret these measures.
> What is a measure of operating leverage, and how is it calculated?
> What is operating leverage? How does a company increase its operating leverage?
> What is meant by “cost structure?” Explain how a company’s cost structure affects its break-even point
> How is the contribution margin per unit of limited resource computed?
> What is meant by CVP analysis?
> “Cost-volume-profit (CVP) analysis is based entirely on unit costs.” Do you agree? Explain
> Diane Barone was a good friend of yours in high school and is from your home town. While you chose to major in accounting when you both went away to college, she majored in marketing and management. You have recently been promoted to accounting manager f
> How should mixed costs be classified in CVP analysis? What approach is used to effect the appropriate classification?
> “The relevant range is indispensable in cost behavior analysis.” Is this true? Why or why not?
> Contrast the effects of changes in the activity level on total fixed costs and on unit fixed costs.
> The traditional income statement for Pace Company shows sales $900,000, cost of goods sold $600,000, and operating expenses $200,000. Assuming all costs and expenses are 70% variable and 30% fixed, prepare a CVP income statement through contribution marg
> Huang Company’s break-even sales are $500,000. Assuming fixed costs are $180,000, what sales volume is needed to achieve a target net income of $90,000?
> Define the term “margin of safety.” If Revere Company expects to sell 1,250 units of its product at $12 per unit, and break-even sales for the product are $13,200, what is the margin of safety ratio?
> Duggan Company applies manufacturing overhead to jobs on the basis of machine hours used. Overhead costs are expected to total $325,000 for the year, and machine usage is estimated at 125,000 hours. For the year, $342,000 of overhead costs are incurred a
> William Mendel & Sons, Inc. is a small manufacturing company in La Jolla that uses activity-based costing. Mendel & Sons accumulates overhead in the following activity cost pools. 1. Hiring personnel. 2. Managing parts inventory. 3. Purchasing. 4. Testin
> Having itemized its costs for the first quarter of next year’s budget, Santana Corporation desires to install an activity-based costing system. First, it identified the activity cost pools in which to accumulate factory overhead. Second, it identified th
> Pure Decorating uses a job order cost system to collect the costs of its interior decorating business. Each client’s consultation is treated as a separate job. Overhead is applied to each job based on the number of decorator hours incurred. Listed below
> After graduating, you might decide to start a small business. As discussed in this chapter, owners of any business need to know how to calculate the cost of their products. In fact, many small businesses fail because they don’t accurately calculate their
> The gross earnings of the factory workers for Vargas Company during the month of January are $66,000. The employer’s payroll taxes for the factory payroll are $8,000. The fringe benefits to be paid by the employer on this payroll are $6,000. Of the total
> Information for Markowis Corporation is given in BE19-7. If the company has fixed costs of $213,000, how many units of each model must the company sell in order to break even?
> Markowis Corporation sells three different models of mosquito “zapper.” Model A12 sells for $50 and has variable costs of $40. Model B22 sells for $100 and has variablecosts of $70. Model C124 sells for $400 and has variable costs of $300. The sales mix
> For Kosko Company actual sales are $1,200,000 and break-even sales are $960,000. Compute (a) the margin of safety in dollars and (b) the margin of safety ratio.
> For Ortega Company, variable costs are 60% of sales, and fixed costs are $210,000. Management’s net income goal is $60,000. Compute the required sales needed to achieve management’s target net income of $60,000. (Use the mathematical equation approach.)
> Dilts Company has a unit selling price of $400, variable costs per unit of $250, and fixed costs of $210,000. Compute the break-even point in units using (a) the mathematical equation and (b) contribution margin per unit.
> Wesland Corp. had total variable costs of $175,000, total fixed costs of $120,000, and total revenues of $250,000. Compute the required sales in dollars to break even.
> Burns Company incurred the following costs during the year: direct materials $20 per unit; direct labor $14 per unit; variable manufacturing overhead $15 per unit; variable selling and administrative costs $8 per unit; fixed manufacturing overhead $128,0
> Information concerning The Rock Company is provided in BE19-16. What are the total product costs for the company under absorption costing? BE19-16: Direct materials …………………………………………….$14,400 Direct labor …………………………………………………..$25,600 Fixed manufacturing
> The Rock Company produces basketballs. It incurred the following costs during the year. Direct materials …………………………………………….$14,400 Direct labor …………………………………………………..$25,600 Fixed manufacturing overhead ……………………..$12,000 Variable manufacturing overhead …
> Many of you will work for a small business. Some of you will even own your own business. In order to operate a small business, you will need a good understanding of managerial accounting, as well as many other skills. Much information is available to ass
> The degree of operating leverage for Montana Corp. and APK Co. are 1.6 and 5.4, respectively. Both have net incomes of $50,000. Determine their respective contribution margins
> Sam’s Shingle Corporation is considering the purchase of a new automated shingle-cutting machine. The new machine will reduce variable labor costs but will increase depreciation expense. Contribution margin is expected to increase from $200,000 to $240,0
> In Briggs Company, data concerning two products are contribution margin per unit—Product A $12, Product B $15; machine hours required for one unit—Product A 2, Product B 3. Compute the contribution margin per unit of limited resource for each product.
> Acorn Corp. had total variable costs of $180,000, total fixed costs of $170,000, and total revenues of $300,000. Compute the required sales in dollars to break even.
> Rice Company has a unit selling price of $520, variable costs per unit of $286, and fixed costs of $163,800. Compute the break-even point in units using (a) the mathematical equation and (b) contribution margin per unit.
> Radial Inc. had sales of $2,400,000 for the first quarter of 2014. In making the sales, the company incurred the costs and expenses shown below. Prepare a CVP income statement for the quarter ended March 31, 2014. Variable Fixed Cost of goods sold
> Determine the missing amounts. Unit Selling Price Unit Variable Contribution Contribution Margin Ratio (b) ) (d) Costs Margin per Unit 1. $640 $300 $352 (c) (f) (a) $93 2. 3. (e) $325 25%
> Stiever Corp. has collected the following data concerning its maintenance costs for the past 6 months. Compute the variable- and fixed-cost elements using the high-low method. Units Produced Total Cost July August September 18,000 $32,000 32,000 36
> For Hunt Company, a mixed cost is $15,000 plus $18 per direct labor hour. Diagram the behavior of the cost using increments of 500 hours up to 2,500 hours on the horizontal axis and increments of $15,000 up to $60,000 on the vertical axis.
> For Lodes Company, the relevant range of production is 40–80% of capacity. At 40% of capacity, a variable cost is $4,000 and a fixed cost is $6,000. Diagram the behavior of each cost within the relevant range assuming the behavior is linear.
> Howser Company’s fixed overhead costs are $4 per unit, and its variable overhead costs are $8 per unit. In the first month of operations, 50,000 units are produced, and 48,000 units are sold. Write a short memo to the chief financial officer explaining w
> Deines Corporation has fixed costs of $480,000. It has a unit selling price of $6, unit variable costs of $4.40, and a target net income of $1,500,000. Compute the required sales in units to achieve its target net income.
> For Stevens Company, actual sales are $1,000,000 and break-even sales are $840,000. Compute (a) the margin of safety in dollars and (b) the margin of safety ratio.
> For Flynn Company, variable costs are 70% of sales, and fixed costs are $195,000. Management’s net income goal is $75,000. Compute the required sales in dollars needed to achieve management’s target net income of $75,000. (Use the contribution margin app
> Mendle and Kiner is an architectural firm that is contemplating the installation of activity-based costing. The following activities are performed daily by staff architects. Classify these activities as value-added or non–value-added: (a) designing and d
> Rich Novelty Company identified the following activities in its production and support operations. Classify each of these activities as either value-added or non value added. (a) Machine setup. (d) Moving work in process. (b) Design engineering.
> Weisman, Inc. uses activity-based costing as the basis for information to set prices for its six lines of seasonal coats. Compute the activity-based overhead rates using the following budgeted data for each of the activity cost pools. Expected Use o
> Mordica Company identifies three activities in its manufacturing process: machine setups, machining, and inspections. Estimated annual overhead cost for each activity is $150,000, $325,000, and $87,500, respectively. The cost driver for each activity and
> Mason Company manufactures four products in a single production facility. The company uses activity-based costing. The following activities have been identified through the company’s activity analysis: (a) inventory control, (b) machine setups, (c) emplo
> Storrer Co. identifies the following activities that pertain to manufacturing overhead: materials handling, machine setups, factory machine maintenance, factory supervision, and quality control. For each activity, identify an appropriate cost driver.
> Kwik Pix is a large digital processing center that serves 130 outlets in grocery stores, service stations, camera and photo shops, and drug stores in 16 nearby towns. Kwik Pix operates 24 hours a day, 6 days a week. Classify each of the following activit
> LRF Printing provides printing services to many different corporate clients. Although LRF bids most jobs, some jobs, particularly new ones, are negotiated on a “cost-plus” basis. Costplus means that the buyer is willing to pay the actual cost plus a retu
> Spin Cycle Company uses three activity pools to apply overhead to its products. Each activity has a cost driver used to allocate the overhead costs to the product. The activities and related overhead costs are as follows: product design $40,000; machinin
> Trammell, Inc. operates 20 injection molding machines in the production of tool boxes of four different sizes, named the Apprentice, the Handyman, the Journeyman, and the Professional. Classify each of the following costs as unit-level, batch-level, prod
> At December 31, balances in Manufacturing Overhead are Shimeca Company— debit $1,200, Garcia Company—credit $900. Prepare the adjusting entry for each company at December 31, assuming the adjustment is made to cost of goods sold.
> Preprah Engineering Contractors incurred service salaries and wages of $32,000 ($24,000 direct and $8,000 indirect) on an engineering project. The company applies overhead at a rate of 25% of direct labor. Record the entries to assign service salaries an
> In March, Stinson Company completes Jobs 10 and 11. Job 10 cost $20,000 and Job 11 $30,000. On March 31, Job 10 is sold to the customer for $35,000 in cash. Journalize the entries for the completion of the two jobs and the sale of Job 10.
> During the first quarter, Roland Company incurs the following direct labor costs: January $40,000, February $30,000, and March $50,000. For each month, prepare the entry to assign overhead to production using a predetermined rate of 80% of direct labor c
