Can opportunity costs be negative? Give an example.
> Watson’s Bay Co. is considering a contract to manufacture didgeridoos. Producing didgeridoos will require an investment in equipment of $100,000 and operating costs of $15 per didgeridoo produced. The contract calls for the company to deliver 3,000 didge
> The Bartolotta Company had an overabsorbed overhead balance at year-end. The firm wrote off one-third of it to Cost of Goods Sold, thereby raising net income by $100,000, and the remainder was charged to inventory accounts. Overhead is allocated to produ
> News.com is a Web site that offers users access to current national and international news stories. News.com does not charge users a fee for accessing the site, but rather charges advertisers $0.05 per hit to the Web site. A “hit” is a user that logs on
> The coating department of a parts manufacturing department coats various parts with an antirust, zinc based material. The parts to be processed are loaded into baskets; the baskets are passed through a coating machine that dips the parts into the zinc so
> A new pharmaceutical drug calls for 4.5 ounces of compound AN7-X1 per batch of 250 tablets. AN7- X1 has a standard price of $2 per ounce. An initial inventory of 8,000 ounces of AN7-X1 is purchased for $17,200. The firm produces 1,000 batches of the new
> The MRI department at Community Hospital, a large urban health center, performs magnetic resonance imaging for heart disease, brain disorders, and total body scans for the various patient care units (neurology, cardiovascular, OB/GYN, oncology, and so fo
> Prior to the Securities Acts of 1933 and 1934, corporations with publicly traded stock were not required to issue financial statements, yet many voluntarily issued income statements and balance sheets. Discuss the advantages and disadvantages of such vol
> Mickles Ltd. uses a standard cost system. In June, Mickles’ direct labor efficiency variance was $1,470 U and its direct labor rate variance was $825 F. Mickles manufactured 460 batches of product in June. Actual direct labor hours in June were 980 hours
> Zipp Cards buys baseball cards in bulk from the companies that produce them. Zipp buys sheets of 48 cards, then cuts the sheets into individual cards, and sorts and packages them, usually by team. Zipp then sells the packages to large discount stores. Th
> Diagnostic Imaging & Medical (DIM) has introduced a revolutionary new magnetic resonance imaging (MRI) device that it sells to hospital radiology departments. Their new device has a much larger chamber that reduces patients’ claustr
> Pool Scrubbers manufactures three different models of swimming pool cleaners (710, 720, and 830). These are sophisticated computer-controlled, programmed cleaners that scrub and vacuum the pool’s bottom, walls, and steps and provide supplemental filtrati
> Joanna Wu manages the University Lab Testing department within the University Hospital. Lab Testing, a profit center, performs most of the standard medical tests (such as blood tests) for other university clinical care units as well as for outside health
> Shop and Save (S&S) is a large grocery chain with 350 supermarkets. Twenty-eight S&S stores are located within the Detroit metropolitan region and serviced by the S&S Detroit Bakery, a large central bakery producing all of the fresh-baked goods (breads,
> Spectra Inc. produces color monitors for personal computers. The firm makes 19-inch monitors with the following cost structure: Direct materials ……………&aci
> Two years ago Federal Insurance was charged with making misleading marketing claims about the way it was selling its insurance products. In response to these allegations and subsequent investigations, Federal’s board of directors fired the chief executiv
> Dr. Madison, inventor and owner of Madison Corrosion Treatment, has discovered that ordinary mufflers and pipes, when treated with his patented process, will become permanently impervious to corrosion. To reap the rewards from his ingenuity, he has opene
> Fidelity Bank has five service departments (telecom, information management, building occupancy, training & development, and human resources). The bank uses a step-down method of allocating service department costs to its three lines of business (ret
> Avid, a small, privately held biotech pharmaceutical manufacturing firm, specializes in developing and producing a set of drugs for rare classes of cancers. Avid has two divisions that share the same manufacturing and research facility. The two divisions
> Sarah Adams manages Executive Inn of Toronto, a 200-room facility that rents furnished suites to executives by the month. The market is for people relocating to Toronto and waiting for permanent housing. Adams’s compensation contains a
> The Pottery Store is a chain of retail stores in upscale malls that sells pottery, woodcarvings, and other craft items. The typical customer is shopping for a gift and spends between $50 and $200. Buyers in the corporate office contact artists around the
> Metro Blood Bank, a for-profit firm, collects whole blood from donors, tests it, and then separates it into two components: platelets and plasma. Three pints of whole blood yield two pints of platelets and one pint of plasma. The cost of collecting the t
> Required: a. What differentiates unit-level costs, batch-level costs, product-line costs, and capacity-sustaining costs? Give examples. b. “One advantage of an activity-based cost system is that it prevents unit costs from rising when volumes fall and un
> MacGiver Brass is a brass plating firm with sales of $8 million and profits before taxes of $625,000. MacGiver has a loan outstanding at its local bank for working capital purposes. As the loan officer reviewing MacGiver’s loan application, you are charg
> Telstar Electronics manufactures and imports a wide variety of consumer and industrial electronics, including stereos, televisions, camcorders, telephones, and VCRs. Each line of business (LOB) handles a single product group (e.g., televisions) and is or
> Varilux manufactures a single product and sells it for $10 per unit. At the beginning of the year, there were 1,000 units in inventory. Upon further investigation, you discover that units produced last year had $3 of fixed manufacturing costs and $2 of v
> The Densain Water plant in Naples, Florida, bottles purified and flavored waters in a variety of sizes (20, 36, 48, and 64 ounces) for sale through vending machines and retail stores. Volume is measured as bottled ounces. The plant’s annual budgeted fixe
> Rose Hospital has two service departments (building services and food service), and three patient care units (intensive care, surgery, and general medicine). Building Services provides janitorial, maintenance, and engineering services as well as space (u
> SCX is a $2 billion chemical company with a plastics plant located in Durango, Colorado. The Durango plastics plant of SCX was started 30 years ago to produce a particular plastic film for snack food packages. The Durango plant is a profit center that ma
> A large corporation maintains a fleet of three 30-passenger corporate jets that provide (weather permitting) daily scheduled service between Detroit and several cities that are home to its production facilities. The jets are used for business, not person
> GAMMA produces over a hundred different types of residential water faucets at its Delta, Florida, plant. This plant uses activity-based costing to calculate product costs. The following table summarizes the plant’s overhead for the year
> Jacklin Stampings allocates overhead to products based on machine hours. It uses a flexible overhead budget to calculate a predetermined overhead rate at the beginning of the year. This rate is used during the year to allocate overhead to the various sta
> Parkview Hospital, a regional hospital, serves a population of 400,000 people. The next closest hospital is 50 miles away. Parkview’s accounting system is adequate for patient billing. The system reports revenues generated per department but does not bre
> A large corporation has a manufacturing division with 40 parts departments and 20 assembly departments. The parts departments manufacture most of the parts for the products, and the assembly departments assemble the parts (some of which are purchased out
> Vintage Cellars manufactures a 1,000-bottle wine storage system that maintains optimum temperature (55–57 °F) and humidity (50–80 percent) for aging wines. The system has a backup battery for power failures and can store red and white wines at different
> You work in the finance department of a telecommunications firm with a large direct sales force selling high-speed fiber optics access lines to companies wanting telephone and Internet access. Your firm uses a top-down budget that sets the sales quota fo
> Several years ago, your firm paid $25,000,000 for Clean Tooth, a small, high-technology company that manufactures laser-based tooth cleaning equipment. Unfortunately, due to extensive production line and sales resistance problems, the company is consider
> Tilist Golf is a premier producer of golf clubs and golf balls. The Ball Division makes two types of balls: a professional ball (the “Masters”) played by professional and top amateur players, and a mass market ball (th
> In March, a devastating ice storm struck Monroe County, New York, causing millions of dollars of damage. Mathews & Peat (M&P), a large horticultural nursery, was hit hard. As a result of the storm, $653,000 of additional labor and maintenance cos
> Two types of machine tools are available for performing a particular job in Apex Corporation. Tool A has an initial investment of $52,000, with operating costs of $26,000 per year, an economic service life of 12 years, and a salvage value of $6,000 at th
> The MedView brochure said, “Only 45 scans per month to cover the monthly equipment rental of $18,000.”* The footnote at the bottom of the brochure read: *“Assumes a reimbursable fee of $475 per scan.” The MedView brochure refers to a new radiology imagin
> Blue Sage Mountain produces hinged snowboards. The price charged affects the quantity sold. The following equation captures the relation between price and quantity each month: Selling price = $530 - .2 x Quantity sold In
> James, Inc., a large mail-order catalog firm, is thinking of expanding into Canada. The Buffalo district office would manage the expansion and must decide how much to spend on the advertising campaign. The expansion project will be either successful (S)
> Brighton Holdings owns private companies and hires professional managers to run its companies. One company in Brighton Holdings’ portfolio is Sunder Properties. Sunder owns and operates apartment complexes, and has the following operating statement. SUND
> The opening paragraph of an accounting textbook says, “Managers need accounting information and need to know how to use it.” Critically evaluate this statement.
> Faculty members at a leading business school receive a budget to cover research expenditures, software and hardware purchases, travel expenses, photocopying for classroom use, and so forth. The budget is increased $250 for each class taught (independent
> You work for a venture capitalist and have been asked to analyze a proposal from a group of investors interested in building a new ski area in Colorado, the Gold Mountain Ski Resort. The demand for skiing is growing. Existing ski resorts have raised pric
> Sue Koehler manages a revenue center of a large national manufacturer that sells office furniture to local businesses in Detroit. She has decision rights over pricing. Her compensation is a fixed wage of $23,000 per year plus 2 percent of her office’s to
> Jasper, Inc., is considering two mutually exclusive investments. Alternative A has a current outlay of $300,000 and returns $100,300 a year for five years. Alternative B has a current outlay of $150,000 and returns $55,783 a year for five years. Required
> A punch press currently in use has a book value of $1,800 and needs design modifications totaling $16,200, which would be capitalized at the present time and depreciated. The press can be sold for $2,600 now, but it could be used for three more years if
> Chateau Napa purchased a small vineyard and is now producing magnum bottles (1.5 liters) of Redwood Cabernet Sauvignon. This wine is much sought after, and bottling the wine in larger bottles enhances its quality, prestige, and demand. Because of the lim
> Celtex is a large and very successful decentralized specialty chemical producer organized into five independent investment centers. Each of the five investment centers is free to buy products either inside or outside the firm and is judged based on resid
> Fuller Aerosols manufactures six different aerosol can products (room deodorants, hair sprays, furniture polish, and so forth) on its fill line. The fill line mixes the ingredients, adds the propellant, fills and seals the cans, and packs the cans in cas
> Amos Doral owns a small store that rents punchbowls, dishes, silverware, glassware, tables, and chairs to people having large parties. Amos runs the business by himself. He is considering adding power spray painters to his inventory of rentable items. A
> Communities are frequently concerned about whether or not police are vigilant in carrying out their responsibilities. Several communities have experimented with incentive compensation for police. In particular, some cities have paid members of the police
> A present investment of $50,000 is expected to yield receipts of $8,330 a year for seven years. What is the internal rate of return on this investment?
> Transmation, with sales of over $2.2 billion, builds and markets several of the world's leading brands of construction and agricultural equipment. Transmation has three operating divisions that are decentralized investment centers. While the three divisi
> Chris Maynard, one of Heath Metal Products’s three customer engineers, is reviewing the costs of the radar housings for Lingle Aerospace (LA). LA is one of Maynard’s largest accounts and the radar housing is a fabricated piece of sheet metal LA uses to a
> Republic Insurance has a direct sales force that sells life insurance policies. All salespeople at the beginning of the year forecast the number of policies they expect to sell that year. At the end of the year, they are evaluated based on how many polic
> Infantino Saab is a car dealership that has been in business for 40 years at the same 20-acre location selling and servicing new and “pre-owned” (used) Saabs. Two years ago Infantino Saab replaced its aging showroom an
> An investment project involves the purchase of equipment at a cost of $100 million. For tax purposes, the equipment has a life of five years and will be depreciated on a straight-line basis. Inflation is expected to be 5 percent and the real interest rat
> Astin Car Stereos manufactures and distributes four different car stereos. The accompanying table summarizes the unit sales, selling prices, and manufacturing costs of each stereo. Selling and distribution (S&D) expenses are $1,270,000. They are trea
> You are working on a special assignment as a financial analyst for the president of household products of RBB Brands. RBB Brands is a large $4 billion diversified consumer products firm. RBB has two divisions, household products and foods, each headed by
> Oppenheimer Visuals manufactures state-of-the-art flat-panel plasma display screens that large computer companies like Dell and Gateway assemble into flat-panel monitors. Oppenheimer produces just the display panels, not any of the electronics, cases, or
> Physicians practicing in Eastern University’s hospital have the following compensation agreement. Each doctor bills the patient (or Blue Cross Blue Shield) for his or her services. The doctor pays for all direct expenses incurred in the clinic, including
> The Linda Lion Co. has an investment opportunity that involves a current outlay of $1,000 for equipment. The investment will yield net cash inflows for four years. The net cash inflow at the end of the first year will be $400. Later years’ cash inflows g
> SnapOn makes snap-together button fasteners (a male top and female bottom) for designer clothes Each top and bottom consists of several metal parts that, when attached to the garment, allow the shirt, jacket, or pants to be closed without the use of a zi
> Hurst Mats manufactures custom replacement floor mats for automobiles. The floor mats are made of spun nylon on highly automated, expensive machinery. Hurst manufactures two mat styles: Plush and Deluxe. Hurst’s unionized work force mak
> The Lancaster Chamber Orchestra is a small community orchestra that offers two distinct concert series for its patrons. Series A is devoted entirely to the performance of a classical repertoire and offers 10 concerts throughout the year, while Series B c
> Littleton Medical Center (LMC) has three service departments (accounting, human resources, and Janitorial/maintenance) and two patient units: hospital and an outpatient clinic. The following table summarizes the operations of LMC for the last fiscal year
> Tax laws in Japan tie taxable income directly to the financial statements’ reported income. That is, to compute a Japanese firm’s tax liability, multiply the net income as reported to shareholders by the appropriate tax rate to derive the firm’s tax liab
> Roberts Machining specializes in fabricating metal racks that hold electronic equipment such as telephone switching units, power supplies, and so forth. Roberts designs and produces the metal stamping dies used to fabricate the racks. It is currently fab
> Rick’s Bags manufactures both golf bags and tennis totes. Fixed manufacturing overhead is budgeted to be $187,200, variable manufacturing overhead is budgeted to be $1.10 per direct labor hour, and fixed selling and administration costs are budgeted to b
> Bio Labs is a genetic engineering firm manufacturing a variety of gene-spliced, agricultural-based seed products. The firm has five separate laboratories producing different product lines. Each lab is treated as a profit center and all five labs are loca
> Woodley Furniture is a small boutique manufacturer of high quality contemporary wood tables. They make two models: end tables and coffee tables in a variety of different woods and finishes. Current annual production of end tables is 8,000 units that sell
> Madigan produces a single high-speed modem. The following table summarizes the current month’s budget for Madigan’s modem production: Projected production and sales ………………………. 4,000 units Variable costs ………………………………………………… $ 640,000 Fixed costs ………………………
> A Wall Street Journal article (December 26, 1996) describes a series of changes at the Pratt & Whitney plant in Maine that manufactures parts for jet engines. In 1993 it was about to be closed because of high operating costs and inefficiencies. A new pla
> At the beginning of year 1, Northern Sun, Inc., a food processing concern, is considering a new line of frozen entrees. The accompanying table shows projected cash outflows and inflows. Assume that all inflows and outflows are end-of-period payments. Req
> Golf World is a 1,000-room luxury resort with swimming pools, tennis courts, three golf courses, and many other resort amenities. The head golf course superintendent, Sandy Green, is responsible for all golf course maintenance and conditioning. Green als
> Brehm Vineyards grows a unique white pinot noir grape that they use to produce a white wine that is in high demand. Brehm uses all the grapes they can grow to produce their own white pinot noir wine. Brehm pinot noir wine contains 100 percent Brehm-grown
> The keyboard division of XBT, a personal computer manufacturing firm, fabricates 50-key keyboards for both XBT and non-XBT computers. Keyboards for XBT machines are included as part of the XBT personal computer and are also sold separately. The keyboard
> Turow Trailers assembles horse trailers. Two models are manufactured: G7 and V8. While labor intensive, the production process is not very complicated. The single plant produces all the trailers with 48 work teams of two or three workers. Sixteen supervi
> Golf Specialties (GS), a Belgian company, manufactures a variety of golf paraphernalia, such as head covers for woods, embroidered golf towels, and umbrellas. GS sells all its products exclusively in Europe through independent distributors. Given the pop
> Diagnostic Imaging Software (DIS) is the leading producer of imaging software for the health sciences. DIS develops, writes, produces, and sells its software through two direct selling organizations: North America and South America. Each of these direct
> Critically evaluate the statement: The step-down method is better than the direct allocation method because at least the step-down method captures on average half of the service flows between service departments. By comparison, the direct allocation meth
> Background Economists and managers have long recognized the importance of productivity in determining an organization’s success. Productivity is the relation between the firm’s output of goods and services and the inpu
> A proposed cost-saving device has an installed cost of $59,400. It will be depreciated for tax purposes on a straight-line basis over three years (zero salvage), although its actual life will be five years. The tax rate is 34 percent and the required rat
> Background Artisans Shirtcraft manufactures and sells hand-painted shirts of original design. The company was founded in 1999 by three sisters: Cathy, Linda, and Valerie Montgomery. Shirtcraft started out as a means of financing a hobby; profits from shi
> Flat Images develops and manufactures large, state-of-the-art flat-panel television screens that consumer electronic companies purchase and incorporate into a complete TV unit by adding the case, mounting brackets, tuner, amplifier, other electronics, an
> Exotic Roses, owned by Margarita Rameriz, provides a variety of rare rose bushes to local nurseries that sell Rameriz’s roses to the end consumer (landscapers and retail customers). Rameriz grows the roses from cuttings that she has spe
> Frames, Inc., manufactures two types of metal frames: large and small. Steel angle iron is first cut to the appropriate sizes; the pieces are then welded together to form the frames. The process involves a high degree of automation. There is considerable
> In 1995 Global Oil Corporation’s Marketing and Refining (M&R) Division was the fifth largestU.S. refiner with 7,700 Global-branded service stations selling about 23 million gallons per day, or 7 percent of the nation’s gasoline. All the service stations
> Giza Farms in Cairo, Egypt, has a corporate headquarters staff and three operating divisions: consulting services, chemicals, and agricultural products. Giza is considering allocating 160 million Egyptian pounds of corporate overhead (which includes sala
> Beckett Manufacturing is a contract manufacturer that assembles products for other companies. Beckett has two service departments, Maintenance and Administration, and two operating divisions, Small Components and Large Components. The following data summ
> Plastic Chairs manufactures plastic lawn chairs using a combination of new and recycled plastic. Varying amounts of each type of plastic can be used to produce a batch of 100 chairs. The table below lists the various combinations of recycled and new plas
> ITI Technology designs and manufactures solid-state computer chips. In one of the production departments, employees fabricate a six-inch circular wafer by laying down successive layers of silicon and then etching the circuits into the layers. Each wafer
> R&D Inc. has the following financial data for the current year (millions): Earnings before R&D expenditures……………………………………. $21.5 Interest expense……………………………….………………………………. $0.0 R&D expenditures…………………………….………………………………. $6.0 Total invested capital (excl
> Blauvelt Products uses a flexible budget to set the overhead rate at the beginning of the year based on units produced. In year 1 budgeted fixed overhead is $1 million and budgeted variable overhead is $2 per unit. Direct material and direct labor togeth
> Is it preferable to use an accelerated depreciation method rather than the straight-line method for tax purposes?
> Robert S. Kaplan in “One Cost System Isn’t Enough” (Harvard Business Review, January–February 1988, pp. 61–66) states, No single system can adequately answer the demands made by diverse functions of cost systems. While companies can use one method to cap
> Commando Force is a new set of children’s action toys consisting of three separately sold pieces: Matt, Kim, and the multi-terrain vehicle (MTV). The MTV can be used by itself or it can hold Matt or Kim or both. With male and female act
