Big Red Motors, Inc., employs 15 sales personnel to market its line of luxury automobiles. The average car sells for $75,000, and a 6 percent commission is paid to the salesperson. Big Red Motors is considering a change to the commission arrangement where the company would pay each salesperson a salary of $1,600 per month plus a commission of 2 percent of the sales made by that salesperson. What is the amount of total monthly car sales at which Big Red Motors would be indifferent as to which plan to select?
> Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: Decreased waste $300,000 Increased quality 400,
> Consider each of the following independent cases. Required: 1. Hal’s Stunt Company is investing $120,000 in a project that will yield a uniform series of cash inf lows over the next four years. If the internal rate of return is 14 percent, how much cash
> Buena Vision Clinic is considering an investment that requires an outlay of $600,000 and promises a net cash inf low one year from now of $810,000. Assume the cost of capital is 10 percent. Required: 1. Break the $810,000 future cash inf low into three c
> Refer to Exercise 19-11. 1. Compute the payback period for each project. Assume that the manager of the clinic accepts only projects with a payback period of three years or less. Offer some reasons why this may be a rational strategy even though the NPV
> A clinic is considering the possibility of two new purchases: new MRI equipment and new biopsy equipment. Each project requires an investment of $425,000. The expected life for each is five years with no expected salvage value. The net cash inf lows asso
> Sato Company is considering an investment in equipment that is capable of producing more efficiently than the current technology. The outlay required is $2,293,200. The equipment is expected to last five years and will have no salvage value. The expected
> Eastman, Inc., manufactures and sells three products: R, S, and T. In January, Eastman, Inc., budgeted sales of the following. At the end of the year, actual sales revenue for Product R and Product S was $3,075,000 and $3,254,000, respectively. The actua
> Data for Torleson Company are as follows: Budgeted price $15.00 Actual price $14.80 Budgeted quantity 1,450 Actual quantity sold 2,500 Required: 1. Calculate the sales price variance. 2. Calculate the sales volume variance. 3. Suppose that the product is
> During its first year of operations, Snobegon, Inc. (located in Lake Snobegon, Minnesota), produced 40,000 plastic snow scoops. Snow scoops are oversized shovel-type scoops that are used to push snow away. Unit sales were 38,200 scoops. Fixed overhead wa
> Patterson Company produces wafers for integrated circuits. Data for the most recent year are provided: Required: 1. Using the five most expensive activities, calculate the overhead cost assigned to each product. Assume that the costs of the other activit
> Flaherty, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows: Manufacturing costs (per unit): Direct materials (4 lbs. @ $1.50) $ 6.00 Direct labor (0.5 hr. @ $18) 9.00 Variable overhead (0.5 hr
> Mayfair Electric Utility has excess electrical generating capacity. In order to utilize its excess capacity, Mayfair entered into a five-year contract with the U.S. government to sell Mayfair’s generated excess power to the U.S. power grid. The contract
> Otero Fibers, Inc., specializes in the manufacture of synthetic fibers that the company uses in many products such as blankets, coats, and uniforms for police and firefighters. Otero has been in business since 1985 and has been profitable every year sinc
> Carina Franks operates a catering company in Austin, Texas. Carina provides food and servers for parties. She also rents tables, chairs, dinnerware, glassware, and linens. Estefan and Maria Montero have contacted Carina about plans for their daughter&aci
> Many different businesses employ markup on cost to arrive at a price. For each of the following situations, explain what the markup covers and why it is the amount that it is. a. Department stores have a markup of 100 percent of purchase cost. b. Jewelry
> Whang Construction Company is a general contractor that specializes in custom residential housing. Each job requires a bid that includes Whang’s direct costs and subcontractor costs as well as an amount referred to as “
> Foster Hancock is an accountant who is planning to open an accounting firm in his hometown. He has heard that established accountants in town charge $65 per hour. That amount sounds good to Foster. In fact, he believes that he should be able to charge $7
> Amy Chang wants to start a business supplying florists with field-grown f lowers. She has located an appropriate acreage and believes she can grow daisies, asters, chrysanthemums, carnations, and other assorted types during a nine-month growing period. B
> Janet Gordon and Phil Hopkins graduated several years ago with M.S. degrees in accounting and set up a full-service accounting firm. Janet and Phil have many small business clients and have noticed some pricing trends while compiling annual financial sta
> Wehner Company is currently manufacturing Part ABS-43, producing 55,000 units annually. The part is used in the production of several products made by Wehner. The cost per unit for ABS-43 is as follows: Direct materials $45.60 Direct labor 9.80 Variable
> Electan Company produces two types of printers. The company uses ABC, and all activity drivers are duration drivers. Electan Company is considering using DBC and has gathered the following data to help with its decision. A. Activities with duration drive
> Feinan Sports, Inc., manufactures sporting equipment, including weight-lifting gloves. A national sporting goods chain recently submitted a special order for 4,600 pairs of weight lifting gloves. Feinan Sports was not operating at capacity and could use
> Roxanne Morton owns a beauty shop with eight hair and nail professionals. Her shop is relatively large and has four rooms at the back, three of which are currently empty (the fourth is used to store supplies). Roxanne’s is popular and typically busy Mond
> Elliott, Inc., has four salaried clerks to process purchase orders. Each clerk is paid a salary of $25,750 and is capable of processing as many as 6,500 purchase orders per year. Each clerk uses a PC and laser printer in processing orders. Time available
> Six months ago, Lee Anna Carver purchased a fire-engine red, used LeBaron convertible for $10,000. Lee Anna was looking forward to the feel of the sun on her shoulders and the wind whipping through her hair as she zipped along the highways of life. Unfor
> Petoskey Electronics Company manufactures specialized products for boats and recreational vehicles using its newly introduced patented engine analytics device. The first-year revenues and costs for the product device are as follows: Selling price $500 pe
> Jem Hernandez owns Jem’s Special Event Planning Service, a full-service event planner. Jem does much of the work herself and hires additional help as needed. She plans corporate events, weddings, and special occasion parties. Each of th
> Jason Rogers works full-time for UPS and runs a lawn-mowing service part-time after work during the warm months of April through October. Jason has three men working with him, each of whom is paid $6 per lawn mowing. Jason has 30 residential customers wh
> Tony and Tina Roselli own and run TNT’s Pizza Restaurant. Tony is responsible for managing the day-to-day aspects, hiring workers, and overseeing the kitchen, building, and grounds. He is the chief cook and handles all purchasing. Tina is the hostess and
> Carleigh, Inc., is a pork processor. Its plants, located in the Midwest, produce several products from a common process: sirloin roasts, chops, spare ribs, and the residual. The roasts, chops, and spare ribs are packaged, branded, and sold to supermarket
> Nutterco, Inc., produces two types of nut butter: peanut butter and cashew butter. Of the two, peanut butter is the more popular. Cashew butter is a specialty line using smaller jars and fewer jars per case. Data concerning the two products follow: Annua
> Golding Bank provided the following data about its two checking account products and their associated resources and activities: At practical capacity, Golding uses 25,000 check processing hours. Required: 1. Calculate the capacity cost rate for the chec
> Ehrling, Inc., manufactures metal racks for hanging clothing in retail stores. Ehrling was approached by the CEO of Carly’s Corner, a regional nonprofit food bank, with an offer to buy 350 heavy-duty metal racks for storing canned goods
> Brees, Inc., a manufacturer of golf carts, has just received an offer from a supplier to provide 2,600 units of a component used in its main product. The component is a track assembly that is currently produced internally. The supplier has offered to sel
> Gelbart Company manufactures gas grills. Fixed costs amount to $16,335,000 per year. Variable costs per gas grill are $225, and the average price per gas grill is $600. Required: 1. How many gas grills must Gelbart Company sell to break even? 2. If Gelba
> Cheetah Company manufactures custom-designed skins (covers) for iPods® and other portable electronic devices. Variable costs are $9.20 per custom skin, the price is $19, and fixed costs are $104,860. Required: 1. What is the contribution margin for one c
> Busy-Bee Baking Company produces a variety of breads. The plant manager would like to expand production into sweet rolls as well. The average price of a loaf of bread is $1. Anticipated price for a package of sweet rolls is $1.50. Costs for the new level
> Busy-Bee Baking Company produces a variety of breads. The average price of a loaf of bread is $1. Costs are as follows: Other data: Total fixed costs (traditional) $140,000 Total fixed costs (ABC) 57,500 Required: 1. Compute the break-even point in uni
> X-Cee-Ski Company recently expanded its manufacturing capacity, which will allow it to produce up to 21,000 pairs of cross-country skis of the mountaineering model or the touring model. The Sales Department assures management that it can sell between 9,0
> Alo Company produces commercial printers. One is the regular model, a basic model that is designed to copy and print in black and white. Another model, the deluxe model, is a color printer-scanner-copier. For the coming year, Alo expects to sell 90,000 r
> Income statements for two different companies in the same industry are as follows: Required: 1. Compute the degree of operating leverage for each company. 2. Compute the break-even point for each company. Explain why the break-even point for Hobart, Inc.
> Nail Glow, Inc., produces novelty nail polishes. Each bottle sells for $5.90. Variable unit costs are as follows: Acrylic base $0.86 Pigments 0.57 Other ingredients 0.43 Bottle, packing material $1.15 Selling commission 0.14 Fixed overhead costs are $34,
> Golding Bank provided the following data about its resources and activities for its checking account process: • Computers are used only by the issuing (30 percent) and processing transaction (70 percent) activities. •
> Choose the best answer for each of the following multiple-choice questions. 1. Cost-volume-profit analysis includes some simplifying assumptions. Which of the following is not one of these assumptions? a. Cost and revenues are predictable. b. Cost and re
> Carmichael Corporation is in the process of preparing next year’s budget. The pro forma income statement for the current year is as follows: Required: 1. What is the break-even sales revenue (rounded to the nearest dollar) for Carmichae
> Sara Pacheco is a sophomore in college and earns a little extra money by making beaded key ring accessories. She sells them on Saturday mornings at the local f lea market. Sara charges $5 per unit and has unit variable costs (beads, wire rings, etc.) of
> Helmet-Pro Company produces helmets for bicycle racing. Currently, Helmet-Pro charges a price of $240 per helmet. Variable costs are $96 per helmet, and fixed costs are $1,255,800. The tax rate is 25 percent. Last year, 14,000 helmets were sold. Required
> Campbell Company manufactures and sells adjustable canopies that attach to motor homes and trailers. The market covers both new unit purchases as well as replacement canopies. Campbell developed its business plan for the year based on the assumption that
> Sports-Reps, Inc., represents professional athletes and movie and television stars. The agency had revenue of $12,345,000 last year, with total variable costs of $5,678,700 and fixed costs of $2,192,400. Required: 1. What is the contribution margin ratio
> Jonah Graham owns and operates The Green Thumb Company (GTC), which provides live plants and f lower arrangements to professional offices. Jonah has fixed costs of $3,240 per month for office/greenhouse rent, advertising, and a delivery van. Variable cos
> Reagan, Inc., has developed a chew-proof dog bed—the Tuff-Pup. Fixed costs are $204,400 per year. The average price for the Tuff-Pup is $36, and the average variable cost is $22 per unit. Currently, Reagan produces and sells 20,000 Tuff-Pups annually. Re
> Schylar Pharmaceuticals, Inc., plans to sell 130,000 units of antibiotic at an average price of $22 each in the coming year. Total variable costs equal $1,086,800. Total fixed costs equal $8,000,000. (Round all ratios to four significant digits, and roun
> Davis Company produces two hair dryers: regular and deluxe. The company has four activities: machining, engineering, receiving, and inspection. Information on these activities and their drivers is given below. Overhead costs: Machining $24,000,000 Engine
> A value stream has three activities and two products. The units produced and shipped per week are 50 of the deluxe model (Model A) and 200 of the basic model (Model B). The cycle time for Model A is four hours and that of Model B is three hours. The reso
> Henderson, Inc., has just created five order fulfillment value streams, two focused and three that produce multiple products. The size of the plant in which the value streams are located is 100,000 square feet. The facility costs total $1,000,000 per yea
> Bienestar, Inc., implemented cellular manufacturing as recommended by a consultant. The production f low improved dramatically. However, the company was still faced with the competitive need to improve its cycle time so that the production rate is one bo
> Bienestar Inc., has the following departmental structure for producing a well-known multivitamin: A consultant designed the following cellular manufacturing structure for the same product: The times above the processes represent the time required to proc
> Helix, Inc., formed the following matrix for its five products: Required: Using the information in the matrix, identify the value streams.
> Holbrook Company gathered the following data for the past two years: Required: 1. Prepare a productivity profile for each year. 2. Prepare partial income statements for each year. Calculate the total change in income. 3. Calculate the change in profits a
> Suppose the following input prices are provided for each year: Required: 1. Compute the profit-linked productivity measure. By how much did profits increase due to productivity? 2. Calculate the price-recovery component for 20x2. Explain its meaning.
> Helena Company needs to increase its profits and so has embarked on a program to increase its overall productivity. After one year of operation, Kent Olson, manager of the Columbus plant, reported the following results for the base period and its most re
> Bellamy Company produces handcrafted pottery that uses two inputs: materials and labor. During the past quarter, 36,000 units were produced, requiring 144,000 pounds of materials and 72,000 hours of labor. An engineering efficiency study commissioned by
> Listed below are several possible input combinations for producing 7,500 units of a pocket PC. Two of the input combinations are technically efficient. Required: 1. Identify the technically efficient input combinations. Explain your choices. 2. Which of
> Larsen, Inc., produces two types of electronic parts and has provided the following data: There are four activities: machining, setting up, testing, and purchasing. Required: 1. Calculate the activity consumption ratios for each product. 2. Calculate the
> Refer to Brief Exercise 2-1. For next year, Bob’s Bistro predicts that 50,000 units will be produced with the following total costs: Direct materials = ? Direct labor = $ 100,000 Variable overhead = 60,000 Fixed overhead = 260,000 Next
> The following Box Scorecard was prepared for a value stream: Required: 1. How many nonfinancial measures are used to evaluate performance? Why are nonfinancial measures used? 2. Classify the operational measures as time-based, quality-based, or efficienc
> Rivera Manufacturing, Inc., has implemented lean manufacturing in its Kansas City plant as a pilot program. One of its value streams produces a family of small electric tools. The value-stream team managers were quite excited about the results, as some o
> Lanman, Inc., estimates its hidden external failure costs using the Taguchi loss function. Lanman produces plastic sheets that vary in thickness and grade. For one of its large-volume products, it was determined that k = $40,000 and T = 0.31 inches in di
> Quality attributes such as performance and aesthetics are important to customers. Performance refers to how consistently and how well a product functions. Aesthetics is concerned with the appearance of tangible products as well as the appearance of the f
> Rachel Boyce, president of a company that manufactures electronic components, has a number of questions concerning quality and quality costs. She has heard a few things about quality and has asked you to respond to the following questions. Required: 1. W
> Suppose that Waurika’s manager decides to launch an environmental performance improvement program. First, efforts were made to reduce the amount of packaging. The demand for packaging materials was reduced by 10 percent. Second, a way was found to reuse
> Waurika Pharmaceuticals produces two organic chemicals (Org AB and Org XY) used in the production of two of its most wide-selling anti-cancer drugs. The controller and environmental manager have identified the following environmental activities and costs
> Suppose that the newly hired environmental manager examines the report and makes the following comment: “This report understates the total environmental costs. It fails to consider the costs we are imposing on the local community. For example, we have po
> At the end of 20x5, Bing Pharmaceuticals began to implement an environmental quality management program. As a first step, it identified the following costs in its accounting records as environmentally related for the calendar year just ended: Required: 1
> Classify the following environmental activities as prevention costs, detection costs, internal failure costs, or external failure costs. For external failure costs, classify the costs as societal or private. Also, label those activities that are compatib
> Lansing, Inc., provided the following data for its two producing departments: Machine hours are used to assign the overhead of the Molding Department, and direct labor hours are used to assign the overhead of the Polishing Department. There are 30,000 un
> Achieving sustainable development will likely require the cooperation of communities, governments, and businesses. The World Business Council for Sustainable Development (WBCSD) claims that ecoefficiency is “the business contribution to sustainable devel
> For years, companies dealt with pollution problems through compliance management (ensuring that a company follows environmental laws and regulations as cheaply as possible). No effort was made to improve environmental performance beyond the minimal perfo
> The controller of Willson Company has computed quality costs as a percentage of sales for the past five years (20x1 was the first year the company implemented a quality improvement program). This information is as follows: Required: 1. Prepare a trend gr
> In 20x4, Tru-Delite Frozen Desserts, Inc., instituted a quality improvement program. At the end of 20x5, the management of the corporation requested a report to show the amount saved by the measures taken during the year. The actual sales and quality cos
> Oaks Company has sales of $12 million and quality costs of $2,400,000. The company is embarking on a major quality improvement program. During the next three years, Oaks intends to attack failure costs by increasing its appraisal and prevention costs. Th
> Muskogee Company had sales of $60,000,000 in 20x1. In 20x5, sales had increased to $75,000,000. A quality improvement program was implemented at the beginning of 20x1. Overall conformance quality was targeted for improvement. The quality costs for 20x1 a
> Ming Company reported the following sales and quality costs for the past four years. Assume that all quality costs are variable and that all changes in the quality cost ratios are due to a quality improvement program. Required: 1. Compute the quality cos
> Kang Company reported sales of $3,240,000 in 20x5. At the end of the calendar year, the following quality costs were reported: Design review $162,000 Recalls 54,000 Reinspection 27,000 Materials inspection 21,600 Quality training 54,000 Process acceptanc
> Ivanov, Inc., produces two different generators and is concerned about their quality. The company has identified the following quality activities and costs associated with the two products: Required: 1. Calculate the quality cost per unit for each produc
> Classify the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs: 1. Inspection of reworked units 2. Inspecting and testing a newly developed product (not yet being sold) 3. Retesting a reworked
> Warner Company has the following data for the past year: Actual overhead $470,000 Applied overhead: Work-in-process inventory $100,000 Finished goods inventory 200,000 Cost of goods sold 200,000 Total $500,000 Warner uses the overhead control account
> Computador has a manufacturing plant in Des Moines that has the theoretical capability to produce 243,000 laptops per quarter but currently produces 91,125 units. The conversion cost per quarter is $7,290,000. There are 60,750 production hours available
> Hatch Manufacturing produces multiple machine parts. The theoretical cycle time for one of its products is 65 minutes per unit. The budgeted conversion costs for the manufacturing cell dedicated to the product are $12,960,000 per year. The total labor mi
> Consider the following list of scorecard measures: a. Product profitability b. Ratings from customer surveys c. Number of patents pending d. Strategic job coverage ratio e. Revenue per employee f. Quality costs g. Percentage of market h. Employee turnove
> Iron Mountain Outdoor Adventures is considering implementing the Balanced Scorecard to drive change within the company Iron Mountain management believes that performance evaluation is an integral part of this effort. More specifically, performance evalua
> A Balanced Scorecard expresses the complete story of a company’s strategy through an integrated set of financial and nonfinancial measures that are both predictive and historical and that may be measured subjectively or objectively.” Required: 1. Using t
> 1. For each numbered (1–10) performance measure characteristic, select the appropriate lettered (A–J) descriptor that best explains the characteristic. 1. Financial ______ A. Readily quantified 2. Internal ______ B. Monetary units 3. Mandatory ______ C.
> Suppose that Mandy communicates the following weights to her CEO: Perspective: Financial, 40%; Customer, 20%; Process, 20%; Learning & growth, 20% Financial objectives: Profits, 50%; Revenues, 25%; Costs, 25% Customer objectives: Customer satisfaction,
> Bannister Company, an electronics firm, buys circuit boards and manually inserts various electronic devices into the printed circuit board. Bannister sells its products to original equipment manufacturers. Profits for the last two years have been less th
> Consider the following quality improvement strategy as expressed by a series of if-then statements: • If real-time feedback information capabilities improve, then post-sales service time will improve. • If post-sales service time improves, then post-sale
> The following if-then statements were taken from a Balanced Scorecard: a. If employee capabilities increase, then process time decreases. b. If process time decreases, then customer retention will increase. c. If customer retention increases, then market
> Selected activities and other information are provided for Patterson Company for its most recent year of operations. Required: 1. Form reduced system cost pools for activities 7 and 8. 2. Assign the costs of the reduced system cost pools to Wafer A and W
> Assume that the company identifies poor plant layout as the root cause of wait time and move time. Required: 1. Express an improvement strategy as a series of if-then statements that will reduce the conversion cost per laptop. 2. Assume that you set an M
> Refer to Exercise 12-8. Required: Suppose that clerical error—either Thayne’s or the supplier’s—is the common root cause of the non-value-added activities. For each non-value-added a
