Question: Borealis Manufacturing has just completed a major
Borealis Manufacturing has just completed a major change in its quality control (QC) process. Previously, products had been reviewed by QC inspectors at the end of each major process, and the company’s 10 QC inspectors were charged as direct labor to the operation or job. In an effort to improve efficiency and quality, a computerized video QC system was purchased for $250,000. The system consists of a minicomputer, 15 video cameras, other peripheral hardware, and software. The new system uses cameras stationed by QC engineers at key points in the production process. Each time an operation changes or there is a new operation, the cameras are moved, and a new master picture is loaded into the computer by a QC engineer. The camera takes pictures of the units in process, and the computer compares them to the picture of a “good†unit. Any differences are sent to a QC engineer, who removes the bad units and discusses the flaws with the production supervisors. The new system has replaced the 10 QC inspectors
with two QC engineers.
The operating costs of the new QC system, including the salaries of the QC engineers, have been
included as factory overhead in calculating the company’s plant wide manufacturing-overhead rate, which is based on direct-labor dollars. The company’s president is confused. His vice president of production has told him how efficient the new system is. Yet there is a large increase in the overhead rate. The computation of the rate before and after automation is as follows:
“Three hundred percent,†lamented the president. “How can we compete with such a high overhead rate?â€
Required:
1. a. Define “manufacturing overhead,†and cite three examples of typical costs that would be
included in manufacturing overhead.
b. Explain why companies develop predetermined overhead rates.
2. Explain why the increase in the overhead rate should not have a negative financial impact on Borealis Manufacturing.
3. Explain how Borealis Manufacturing could change its overhead application system to eliminate confusion over product costs.
4. Discuss how an activity-based costing system might benefit Borealis Manufacturing.
> As a group, take a walking tour of your campus and the surrounding community. Make a list of all of the environmental costs of which you see evidence. Required: Make a presentation to the class about your findings. List and categorize the environmental
> Metropolitan Dental Associates is a large dental practice in Chicago. The firm’s controller is preparing the budget for the next year. The controller projects a total of 48,000 office visits, to be evenly distributed throughout the year
> Laser News Technology, Inc., manufactures computerized laser printing equipment used by newspaper publishers throughout North America. In recent years, the company’s market share has been eroded by stiff competition from Asian and Europ
> Advanced Technologies (AT) produces two compression machines that are popular with manufacturers of plastics: no. 165 and no. 172. Machine no. 165 has an average selling price of $60,000, whereas no. 172 typically sells for approximately $55,000. The com
> Chataqua Can Company manufactures metal cans used in the food-processing industry. A case of cans sells for $50. The variable costs of production for one case of cans are as follows: Variable selling and administrative costs amount to $1 per case. Budget
> Dayton Lighting Company had operating income for the first 10 months of the current year of $200,000. One hundred thousand units were manufactured during this period (the same as the planned production), and 100,000 units were sold. Fixed manufacturing o
> Great Out doze Company manufactures sleeping bags, which sell for $65 each. The variable costs of production are as follows: Budgeted fixed overhead in 20x1 was $200,000 and budgeted production was 25,000 sleeping bags. The year’s actua
> Colorado Telecom, Inc., manufactures telecommunications equipment. The company has always been production oriented and sells its products through agents. Agents are paid a commission of 15 percent of the selling price. Colorado Telecom’
> Alpine Thrills Ski Company recently expanded its manufacturing capacity. The firm will now be able to produce up to 15,000 pairs of cross-country skis of either the mountaineering model or the touring model. The sales department assures management that i
> Ohio Limestone Company produces thin limestone sheets used for cosmetic facing on buildings. The following income statement represents the operating results for the year just ended. The company had sales of 1,800 tons during the year. The manufacturing c
> Cincinnati Tool Company (CTC) manufactures a line of electric garden tools that are sold in general hardware stores. The company’s controller, Will Fulton, has just received the sales forecast for the coming year for CTCâ€
> Refer to the original data given for Jupiter Game Company in the problem 7-46. An activity-based costing study has revealed that Jupiter’s $150,000 of fixed costs include the following components: Management is considering the installat
> Rio Bus Tours has incurred the following bus maintenance costs during the recent tourist season. (The real is Brazil’s national monetary unit. On the day this exercise was written, the real was equivalent in value to .2545 U.S. dollar.)
> For each of the following independent cases, use the equation method to compute the economic order quantity.
> Jupiter Game Company manufactures pocket electronic games. Last year Jupiter sold 25,000 games at $25 each. Total costs amounted to $525,000, of which $150,000 were considered fixed. In an attempt to improve its product, the company is considering replac
> Silver Screen Inc. owns and operates a nationwide chain of movie theatres. The 500 properties in the Silver Screen chain vary from low-volume, small-town, single-screen theatres to high-volume, urban, multiscreen theatres. The firm’s ma
> Celestial Products, Inc., has decided to introduce a new product, which can be manufactured by either a computer-assisted manufacturing system or a labour-intensive production system. The manufacturing method will not affect the quality of the product. T
> Terry Smith and two of his colleagues are considering opening a law office in a large metropolitan area that would make inexpensive legal services available to those who could not otherwise afford services. The intent is to provide easy access for their
> The European Division of Worldwide Reference Corporation produces a pocket dictionary containing popular phrases in six European languages. Annual budget data for the coming year follow. Projected sales are 100,000 books. Required: 1. Calculate the brea
> Athletico Inc. manufactures warm-up suits. The company’s projected income for the coming year, based on sales of 160,000 units, is as follows: Required: In completing the following requirements, ignore income taxes. 1. Prepare a CVP gr
> Serendipity Sound, Inc., manufactures and sells compact discs. Price and cost data are as follows: In the following requirements, ignore income taxes. Required: 1. What is Serendipity Sound’s break-even point in units? 2. What is the c
> Consolidated Industries is studying the addition of a new valve to its product line. The valve would be used by manufacturers of irrigation equipment. The company anticipates starting with a relatively low sales volume and then boosting demand over the n
> Lawrence Corporation sells two ceiling fans, Deluxe and Basic. Current sales total 60,000 units, consisting of 39,000 Deluxe units and 21,000 Basic units. Selling price and variable cost information follow. Salespeople currently receive flat salaries tha
> Houston-based Advanced Electronics manufactures audio speakers for desktop computers. The following data relate to the period just ended when the company produced and sold 42,000 speaker sets: Management is considering relocating its manufacturing facili
> Alexandria Aluminum Company, a manufacturer of recyclable soda cans, had the following inventory balances at the beginning and end of 20x1. During 20x1, the company purchased $250,000 of raw material and spent $400,000 on direct labor. Manufacturing over
> Corrigan Enterprises is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow. Model no. 6754: Variable costs, $16.00 per unit Annual fixed costs, $
> College Pak Company produced and sold 60,000 backpacks during the year just ended at an average price of $20 per unit. Variable manufacturing costs were $8 per unit, and variable marketing costs were $4 per unit sold. Fixed costs amounted to $180,000 for
> Review Exhibit 6-12, which is a Tableau portrayal of the regression results for Donut Desire’s five donut shop locations, based on the entire ten-year data set (i.e., the past ten years). Required: The regression equation for the North
> Refer to Exhibit 6–11 and the Tableau displays presented in Exhibits 6–12, 6–13, 6–14, and 6–15. Suppose you are a managerial accountant or cost analyst for Donut D
> Review Exhibit 6–12, which is a Tableau portrayal of the regression results for Donut Desire’s five donut shop locations, based on the entire ten-year data set (i.e., the past ten years). In addition, review Exhibit 6&
> Dana Rand owns a catering company that prepares banquets and parties for both individual and business functions throughout the year. Rand’s business is seasonal, with a heavy schedule during the summer months and the year-end holidays a
> The controller of Chittenango Chain Company believes that the identification of the variable and fixed components of the firm’s costs will enable the firm to make better planning and control decisions. Among the costs the controller is
> Refer to the original data in the problem 6-41 for Martha’s Vineyard Marine Supply. Required: 1. Build a spreadsheet: Construct an Excel spreadsheet and use the Excel commands to perform a least-squares regression. Estimate the variabl
> Martha’s Vineyard Marine Supply is a wholesaler for a large variety of boating and fishing equipment. The company’s controller, Mathew Knight, has recently completed a cost study of the firm’s materia
> Rolling Hills Golf Association is a non-profit, private organization that operates three 18-hole golf courses north of Philadelphia. The organization’s financial director has just analyzed the course maintenance costs incurred by the go
> Vancouver Shakespearean Theater’s board of directors is considering the replacement of the theater’s lighting system. The old system requires two people to operate it, but the new system would require only a single ope
> The Allegheny School of Music has hired you as a consultant to help in analyzing the behaviour of the school’s costs. Use the account-classification method of cost estimation to classify each of the following costs as variable, fixed, or semi variable. B
> Antioch Extraction, which mines ore in Montana, uses a calendar year for both financial-reporting and tax purposes. The following selected costs were incurred in December, the low point of activity, when 1,500 tons of ore were extracted: Peak activity of
> Northwest Aircraft Industries (NAI) was founded 45 years ago by Jay Preston as a small machine shop producing machined parts for the aircraft industry, which is prominent in the Seattle/Tacoma area of Washington. By the end of its first decade, NAIâ
> Knickknack, Inc., manufactures two products: Odds and Ends. The firm uses a single, plant wide overhead rate based on direct-labor hours. Production and product-costing data are as follows: Knickknack, Inc., prices its products at 120 percent of cost, wh
> Manchester Technology, Inc., manufactures several different types of printed circuit boards; however, two of the boards account for the majority of the company’s sales. The first of these boards, a television circuit board, has been a s
> Montreal Electronics Company manufactures two large-screen television models: The Nova, which has been produced for 10 years and sells for $900, and the Royal, a new model introduced in early 20x0, which sells for $1,140. Based on the following income st
> Refer to the information given in the problem 5-65 for Fresno Fibre Optics and two of its customers, Trace Telecom and Caltex Computer. Additional information for six of Fresno’s other customers for the most recent year follows: Requir
> Grady and Associates performs a variety of activities related to information systems and e-commerce consulting in Toronto, Canada. The firm, which bills $125 per hour for services performed, is in a very tight local labor market and is having difficulty
> Midwest Home Furnishings Corporation (MHFC) manufactures a variety of housewares for the consumer market in the Midwest. The company’s three major product lines are cooking utensils, tableware, and flatware. MHFC implemented activity-based costing four y
> Better Bagels, Inc., manufactures a variety of bagels, which are frozen and sold in grocery stores. The production process consists of the following steps. 1. Ingredients, such as flour and raisins, are received and inspected. Then they are stored until
> Use the Internet to access the website for one of the following companies, or any other company of your choosing. Required: Find the management discussion and analysis portion of the firm’s most recent online annual report. Then briefly
> Refer to the product costs developed in requirement 5 of Problem 5–60. Prepare a table showing how Gigabyte’s traditional, volume-based product-costing system distorts the product costs of Gismos, Thingamajigs, and Wha
> Refer to the new target prices for Gigabyte’s three products, based on the new activity-based costing system calculated in the problem 5-60. Required: Write a memo to the company president commenting on the situation Gigabyte Inc. has
> Marconi Manufacturing produces two items in its Trumbull Plant: Tuff Stuff and Ruff Stuff. Since inception, Marconi has used only one manufacturing-overhead cost pool to accumulate costs. Overhead has been allocated to products based on direct-labor hour
> Hoboken Industries currently manufactures 30,000 units of part MR24 each month for use in production of several of its products. The facilities now used to produce part MR24 have a fixed monthly cost of $150,000 and a capacity to produce 84,000 units per
> The controller for Canandaigua Vineyards, Inc., has predicted the following costs at various levels of wine output. The company’s marketing manager has predicted the following prices for the firm’s fine wines at variou
> World Gourmet Coffee Company (WGCC) is a distributor and processor of different blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. WGCC currently has 15 different coffees that it offers
> Roberta Coy makes custom mooring covers for boats. Each mooring cover is hand sewn to fit a particular boat. If covers are made for two or more identical boats, each successive cover generally requires less time to make. Coy has been approached by a loca
> Refer to Exhibit 2–3, and answer the following questions. Required: 1. List the major differences between the income statements shown for The Procter & Gamble Company, Walmart Stores, Inc., and Southwest Airlines Company. 2. Explai
> Several costs incurred by Bayview Hotel and Restaurant are given in the following list. For each cost, indicate which of the following classifications best describe the cost. More than one classification may apply to the same cost item. Cost Classificati
> The following data are the actual results for Marvelous Marshmallow Company for October. Standard cost and budget information for Marvelous Marshmallow Company follows: Required: 1. Use any of the methods explained in the chapter to compute the followin
> The following terms are used to describe various economic characteristics of costs. a. Opportunity cost b. Out-of-pocket cost c. Sunk cost d. Differential cost e. Marginal cost f. Average cost Required: Choose one of the terms listed above to characteri
> Water Technology, Inc., incurred the following costs during 20x1. The company sold all of its products manufactured during the year. During 20x1, the company operated at about half of its capacity, due to a slowdown in the economy. Prospects for 20x2 are
> Indicate for each of the following costs whether it is a product cost or a period cost. 1. Wages of aircraft mechanics employed by an airline. 2. Wages of drill-press operators in a manufacturing plant. 3. Cost of food in a microwavable dinner. 4. Cost i
> Maxey & Sons manufactures two types of storage cabinets—Type A and Type B—and applies manufacturing overhead to all units at the rate of $80 per machine hour. Production information follows. The controller, who is
> Hightide Upholstery Company manufactures a special fabric used to upholster the seats in power boats. The company’s annual fixed production cost is $100,000. Required: 1. Draw a graph of the company’s fixed production cost showing the total cost at the
> San Diego Sheet Metal, Inc., incurs a variable cost of $40 per pound for raw material to produce a special alloy used in manufacturing aircraft. Required: 1. Draw a graph of the firm’s raw material cost, showing the total cost at the following productio
> Heartland Airways operates commuter flights in three Midwestern states. Due to a political convention held in Topeka, the airline added several extra flights during a two-week period. Additional cabin crews were hired on a temporary basis. However, rathe
> Cape Cod Shirt Shop Manufactures T-shirts and decorates them with custom designs for retail sale on the premises. Several costs incurred by the company are listed below. For each cost, indicate which of the following classifications best describe the cos
> Highlander Cutlery manufactures kitchen knives. One of the employees, whose job is to cut out wooden knife handles, worked 48 hours during a week in January. The employee earns $12 per hour for a 40-hour week, and overtime is paid after 40 hours. For add
> Shortly after being hired as an analyst with Global American Airlines, Kim Williams was asked to prepare a report that focused on passenger ticketing cost. The airline writes most of its own tickets (largely through reservations personnel), makes little
> Tampa Instrument Company manufactures gauges for construction machinery. The company has two production departments: Machining and Assembly. There are three service departments: Maintenance, Human Resources (HR), and Computer Aided Design (CAD). The usag
> The following cost data for the year just ended pertain to Sentiments, Inc., a greeting card manufacturer: Required: 1. Compute each of the following costs for the year just ended: (a) total prime costs, (b) total manufacturing overhead costs, (c) total
> Determine the missing amounts in each of the following independent cases. Case A Case B Case C Beginning inventory, raw material ……………â€&brv
> Mason Corporation began operations at the beginning of the current year. One of the company’s products, a refrigeration element, sells for $185 per unit. Information related to the current year’s activities follows. Ma
> On April 12, after the close of business, Singh & Sons had a devastating fire that destroyed the company’s work-in-process and finished-goods inventories. Fortunately, all raw materials escaped damage because materials owned by the
> Nation’s Capital Fitness, Inc., operates a chain of fitness centres in the Washington, D.C., area. The firm’s controller is accumulating data to be used in preparing its annual profit plan for the coming year. The cost
> Consider the following cost items: 1. Salaries of players on the Boston Red Sox. 2. Year-end completed goods of Levi Strauss jeans. 3. Executive compensation costs at Home Depot. 4. Advertising costs for Sony. 5. Costs incurred during the period to insur
> The following selected data were taken from the accounting records of Metcalf Manufacturing. The company uses direct-labour hours as its cost driver for overhead costs. March’s costs consisted of machine supplies ($102,000), depreciatio
> For each of the cost items described below, choose the graph that best represents it. 1. The salary costs of the shift supervisors at a truck depot. Each shift is eight hours. The depot operates with one, two, or three shifts at various times of the year
> Outback Corporation manufactures tactical LED flashlights in Brisbane, Australia. The firm uses an absorption costing system for internal reporting purposes; however, the company is considering using variable costing. Data regarding Outbackâ€&
> Yellowstone Company began operations on January 1 to produce a single product. It used an absorption costing system with a planned production volume of 100,000 units. During its first year of operations, the planned production volume was achieved, and th
> Coyote Loco, Inc., a distributor of salsa, has the following historical collection pattern for its credit sales. 70 percent collected in the month of sale. 15 percent collected in the first month after sale. 10 percent collected in the second month after
> Urban Elite Apparel designs women’s apparel and sells it through retail outlets across the country. All of the company’s clothing lines are manufactured by contract manufacturers around the world. A division manager is responsible for each of the company
> AccuSound Corporation manufactures printed circuits for stereo amplifiers. A common product defect is a “drift” caused by failure to maintain precise heat levels during the production process. Rejects from the 100 percent testing program can be reworked
> Susan Lopez, a consultant with Deloitte & Young, has just begun an engagement at Four Corners Airlines, which is based in Santa Fe, New Mexico. The company has fallen on hard times of late despite record profits for the rest of the airline industry. Mana
> Dave Nelson recently retired at age 48, courtesy of the numerous stock options he had been granted while president of WowzaShops.com, an Internet start-up company. He soon moved to Montana to follow his dream of living in the mountains and Big Sky Countr
> Due to evaporation during production, Plano Plastics Company requires 8 pounds of material input for every 7 pounds of good plastic sheets manufactured. During May, the company produced 4,200 pounds of good sheets. Required: Compute the total standard a
> The director of cost management for Odessa Company uses a statistical control chart to help management determine when to investigate variances. The critical value is 1 standard deviation. The company incurred the following direct-labor efficiency varianc
> Refer to the data in the exercise 10-26. Draw diagrams depicting the direct-material and direct-labor variances similar to the diagrams in Exhibits 10–2, 10–3, and 10–4. Data from Exercise 10-26: Dur
> During June, Danby Company’s material purchases amounted to 6,000 pounds at a price of $7.30 per pound. Actual costs incurred in the production of 2,000 units were as follows: Direct labor: $116,745 ($18.10 per hour) Direct material: $
> Cayuga Hardwoods produces handcrafted jewellery boxes. A standard-size box requires 8 board feet of hardwood in the finished product. In addition, 2 board feet of scrap lumber are normally left from the production of one box. Hardwood costs $4.00 per boa
> Choose one of the following manufacturers (or any manufacturer of your choosing), and use the Internet to gather information about any new products the company has recently introduced or plans to introduce. Required: Discuss the steps you think the comp
> The behaviour of the annual maintenance and repair cost in the Bus Transportation Department of the Summerset Public School District is shown by the solid line in the following graph. The dashed line depicts a semi variable-cost approximation of the depa
> Refer to the data in the preceding exercise. Use diagrams similar to those in Exhibits 10-2, 10–3, and 10–4 to determine the direct-material and direct-labour variances. Indicate whether each variance is favourable or
> Saskatewan Can Company manufactures recyclable soft-drink cans. A unit of production is a case of 12 dozen cans. The following standards have been set by the production-engineering staff and the controller. Actual material purchases amounted to 240,000 k
> Handy Hardware is a retail hardware store. Information about the store’s operations follows. November 20x1 sales amounted to $200,000. Sales are budgeted at $220,000 for December 20x1 and $200,000 for January 20x2. Collections are expec
> Sound Investments, Inc., is a large retailer of stereo equipment. The controller is about to prepare the budget for the first quarter of 20x2. Past experience has indicated that 75 percent of the store’s sales are cash sales. The collec
> Tanya Williams is the new accounts manager at East Bank of Mississippi. She has just been asked to project how many new bank accounts she will generate during 20x2. The economy of the county in which the bank operates has been growing, and the bank has e
> The following information is from Tejas Window Tint’s financial records. Month Sales Purchase April …………………………………. $72,000…………………………… $42,000 May ………………………………….. 66,000 ……………………………. 48,000 June …………………………………. 60,000 ……………………………. 36,000
> Greener Grass Fertilizer Company plans to sell 200,000 units of finished product in July and anticipates a growth rate in sales of 5 percent per month. The desired monthly ending inventory in units of finished product is 80 percent of the next month’s es
> Bodin Company budgets on an annual basis. The following beginning and ending inventory levels (in units) are planned for the year 20x1. Two units of raw material are required to produce each unit of finished product. Required: 1. If Bodin Company plans
> Choose a city or state in the United States (or a Canadian city or province), and use the Internet to explore the annual budget of the governmental unit you selected. For example, you could check out the budget for Houston, Texas, at www.houstontx.gov/bu
> Fill in the missing amounts in the following schedules.
