Question: Consider a digital music service such as

> Larcker Manufacturing’s cost accountant has provided you with the following information for January operations: Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21 per unit Fixed manufacturing overhead costs . . . . . . .

> Refer to the data in Exercise 6-34. Compute the individual product costs per unit assuming that Tiger Furnishings uses direct labor costs to allocate overhead to the products. In Exercise 6-34 Tiger Furnishings produces two models of cabinets for home t

> For each of the following costs incurred in a manufacturing operation, indicate whether they are included in prime costs (P), conversion costs (C), or both (B): a. Property taxes on the factory. b. Direct materials used in the production process. c. Tran

> Organic Grounds produces two brands of coffee: Star and Bucks. The two coffees are produced in one factory using the same production process. The only difference between the two coffees is the cost of the unroasted coffee beans. The following data are av

> S. Lee Enterprises produces two models of lawn tractor: SL1 and SL2. The models are both produced in the company’s Louisville factory and go through identical assembly operations. The difference is in the quality (hence, cost) of the pa

> The Office Mart store in South Beach experienced the following events during the current year: 1. Incurred $400,000 in marketing costs. 2. Purchased $1,200,000 of merchandise. 3. Paid $40,000 for transportation-in costs. 4. Incurred $400,000 of administr

> Howrley-David, Inc., manufactures two models of motorcycles: the Fatboy and the Screamer. Both models are assembled in the same plant and require the same assembling operations. The difference between the models is the cost of materials. The following da

> Refer to the data in Exercise 6-34. Draw the cost flow diagram assuming that Tiger Furnishings uses direct labor costs to allocate overhead costs. In Exercise 6-34 Tiger Furnishings produces two models of cabinets for home theater components, the Basic

> Refer to the data in Exercise 6-34. Compute the predetermined overhead rate assuming that Tiger Furnishings uses machine-hours to allocate overhead costs. In Exercise 6-34 Tiger Furnishings produces two models of cabinets for home theater components, th

> Refer to the data in Exercise 6-34. Compute the predetermined overhead rate assuming that Tiger Furnishings uses direct labor costs to allocate overhead costs. In Exercise 6-34 Tiger Furnishings produces two models of cabinets for home theater component

> Tiger Furnishings produces two models of cabinets for home theater components, the Basic and the Dominator. Data on operations and costs for March follow: Required Compute the predetermined overhead rate assuming that Tiger Furnishings uses direct labo

> Rex Santos, a cost accountant, prepares a product profitability report for Jane Gates, the production manager. Much to Rex’s surprise, almost one-third of the company’s products are not profitable. He says, “Jane, it looks like we will have to drop one-t

> Give at least three applications of the learning phenomenon that were not mentioned in the text.

> Clovis Supply sells two models of saddles to retail outfitters—basic and custom. Basic saddles sell for $1,000 each and custom saddles sell for $1,500. The variable cost of a basic saddle is $600 and that of a custom saddle is $750. Annual fixed costs at

> What is the difference between outlay cost and opportunity cost?

> Oholics, Ltd., produces chocolate that it sells to candy makers. On April 1, it had no work-in-process inventory. It started production of 20,000 pounds of chocolate in April and completed production of 19,000 pounds. The costs of the resources used by O

> Opech, Inc., produces oil and ships it in a pipeline. On May 1, it had no work-in-process inventory. It started production of 300 million barrels of oil in May and shipped 270 million barrels in the pipeline. The costs of the resources used by Opech in M

> Why might two companies in the same industry have different cost systems?

> Van Goe produces paints. On January 1, it had no work-in-process inventory. It starts production of 300,000 gallons of paint in January and completes 240,000 gallons. The costs of the resources used by Van Goe in January consist of the following: Materia

> For each of the following costs incurred in a manufacturing firm, indicate whether the costs are most likely fixed (F) or variable (V) and whether they are most likely period costs (P) or product costs (M) under full absorption costing: a. Depreciation o

> What is the difference between R2 and adjusted R2?

> What is the difference between simple and multiple regression?

> Refer to Exercise 2-42. In Exercise 2-42 Karen Corporation has compiled the following information from the accounting system for the one product it sells: Sales price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $900 per unit Fixed

> Which method of cost estimation is not usually based primarily on company accounting records?

> What are the common methods of cost estimation?

> McDonald’s, the fast-food restaurant, is known for high employee turnover, high quality, and low costs. Using your knowledge of the learning phenomenon, how does McDonald’s get high quality and low costs when it has so much employee turnover?

> Sundial, Inc., produces two models of sunglasses: AU and NZ. The sunglasses have the following characteristics: The total fixed costs per year for the company are $2,208,000. Required a. What is the anticipated level of profits for the expected sales

> In doing cost analysis, you realize that there could be errors in the accounting records. For example, maintenance costs were recorded as zero in December. However, you know that maintenance was performed in December. You fi nd that maintenance costs wer

> Why do most companies use normal or standard costing? After all, actual costing gives the actual cost, so the firm could just wait until it knows what the cost will be.

> Custom Homebuilders (CH) designs and constructs high-end homes on large lots owned by customers. CH has developed several formulas, which it uses to quote jobs. These include costs for materials, labor, and other costs. These estimates are also dependent

> What are the characteristics of the following three costing systems: (a) Job costing, (b) Process costing, and (c) Operation costing?

> The dean of the Midstate University Business School is trying to understand the costs of the school’s two degree programs: Bachelors (BBA) and Masters (MBA). She has asked you for recommendations on how to allocate the costs of the following services, wh

> A friend comes to you with the following problem. “I provided my boss a cost equation using regression analysis. He was unhappy with the results. He told me to do more work and not return until I had a lower cost estimate for one of the variables—the num

> Alameda Tile sells products to many people remodeling their homes and thinks that they could profitably offer courses on tile installation, which might also increase the demand for their products. The basic installation course has the following (tentativ

> Consider the Business Application item “Using Statistical Analysis to Improve Profitability.” Pick a favorite sports team or recurring cultural event (musical concert, opera, play, rock concert, etc). What factors do you think are important in determinin

> A decision maker is interested in obtaining a cost estimate based on a regression equation. There are no problems with changes in prices, costs, technology, or relationships between activity and cost. Only one variable is to be used. What are some questi

> Some people claim that the scattergraph and the regression methods go hand in hand. Why?

> For each of the following statements, indicate whether it is true, false, or uncertain. Explain why. Give examples in your answer. a. A cost is something used up to produce revenues in a particular accounting period. b. The cost of direct materials is fi

> Why might an experienced executive prefer account analysis to statistical cost estimation methods?

> After doing an account analysis and giving the results to your boss, you discover an error in the data for 3 of the 24 months covered by your analysis. In 6 of the 24 months, your assistant had dropped 000 from the costs. Therefore, you thought $10,000,0

> Eagle Company makes the MusicFinder, a sophisticated satellite radio. Eagle has experienced a steady growth in sales for the past five years. However, Ms. Luray, Eagle’s CEO, believes that to maintain the company’s present growth will require an aggressi

> When using past data to predict a cost that has fixed and variable components, it is possible to have an equation with a negative intercept. Does this mean that at a zero production level, the company will make money on its fixed costs? Explain.

> For each of the following costs incurred in a manufacturing firm, indicate whether the costs are fixed (F) or variable (V) and whether they are period costs (P) or product costs (M) under full absorption costing: a. Depreciation on pollution control equi

> How can one compensate for the effects of price instability when preparing cost estimates using high-low or regression techniques?

> Lima Company manufactured 30,000 units of product last month and identified the following costs associated with the manufacturing activity: Variable costs: Direct materials used. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5

> Assume that Painless Dental Clinics, Inc., offers three basic dental services. Here are its prices and costs: Variable costs include the labor costs of the dental hygienists and dentists. Fixed costs of $400,000 per year include building and equipment

> Academy Products manufactures a variety of custom components for use in aircraft navigation and communications systems. The controller has asked for your help in estimating fixed and variable overhead costs for Academy’s Rio Puerco plan

> Cubicle Solutions sells productivity software such as word processors, spreadsheets, and personal information managers. Cubicle prides itself on customer support and maintains a large call center where customers can call in with technical questions about

> Using the same data source as in Problem 5-44, collect a total of 20 years of data. In Problem 5-44 Obtain 13 years of data from the published financial statements of a company. You will be able to find the data on the Internet. Also, Moody’s, Standard

> Obtain 13 years of data from the published financial statements of a company. You will be able to find the data on the Internet. Also, Moody’s, Standard & Poor’s, and Value-Line are good sources of financial data. Using the first 12 years of data, perfor

> The accounting department of a large limousine company is analyzing the costs of its services. The cost data and level of activity for the past 16 months are presented below: In addition to the above information, you learn that the accounting departmen

> Refer to the example in Appendix B. The numbers in Exhibit 5.21 for the fifth, sixth, and seventh units were given. In Appendix B Engineers have found the following mathematical relationship for the learning phenomenon: Y = aXb where Y = Number of labor

> Assume that Whee, Cheatham, and Howe is an auditing firm that has found that its summer interns are subject to a 90 percent learning curve for one of its important tasks, proofreading financial statements. For one of its interns, Kim Down, the firm has s

> Assume that General Dynamics, which manufactures high-technology instruments for spacecraft, is considering the sale of a navigational unit to a government agency in India that wishes to launch its own communications satellite. The government agency plan

> When is cost-plus pricing most likely to be used?

> What is the difference between short-run and long-run decisions? Give one example of each.

> What is the difference between a sunk cost and a differential cost?

> Fixed costs are often defined as “fixed over the short run.” Does this mean that they are not fixed over the long run? Why or why not?

> According to the theory of constraints, what are the ways to increase profits?

> The friend in question 2-16 decides that she does not want to go to Oklahoma after all. How will the costs of your trip change? Was your choice of allocation in question 2-16 incorrect? Why? Information From question 2-16 You and two friends drive your c

> In the theory of constraints, what are ways to improve performance at the bottleneck?

> Management notes that the contribution from one product is higher than the contribution from a second product. Hence, it concludes that the company should concentrate on production of the first product. Under what, if any, conditions will this approach r

> Consider the Business Application item, “Cost-Volume-Profit Analysis and Airline Pricing” in Chapter 3. Based on the article alone, was go! engaging in predatory pricing? Why or why not?

> You buy an airline ticket to New York City to see a play. You buy the ticket on the day you fly and pay $100. The person sitting next to you, who bought a ticket two months earlier, paid $200. Are the costs different or is this an example of price discri

> A company has several units of old-model telephones that it is selling for $10 per unit. The units cost $25 to produce. Is the company engaging in predatory pricing? Explain.

> Consider the Business Application item, referred to in Question 4-17. Suppose the company had signed a lease for five years and had two years remaining on the contract. Would the remaining lease payments be relevant to the decision to move? Explain why o

> Consider the Business Application item, “Cost Analysis and the Choice of Office Space for a Small Business”. In the decision to relocate to the virtual office, what are the differential costs? What costs would not be differential?

> A company has learned that a particular input product required for its production of several products is in limited supply. What approach should management take to maximize profits in the presence of this constraint?

> What is dumping? What role would a cost accountant play in determining whether dumping has occurred?

> Atlantic Soup Company is presently operating at 75 percent of capacity. Worried about the company’s performance, the president is considering dropping its clam chowder line. If clam chowder is dropped, the revenue associated with it wou

> You and two friends drive your car to Texas for spring break. A third friend asks if you can drop her off in Oklahoma. How would you allocate the cost of the trip among the four of you?

> Refer to the facts in Exercise 4-42. Mel suddenly finds an opportunity to sell boxed dinners. The new opportunity would require the use of the 30 percent unused capacity. The contribution margin from the dinners would amount to $3,000 annually. In Exerc

> Mel’s Meals 2 Go purchases cookies that it includes in the 10,000 box lunches it prepares and sells annually. Mel’s kitchen and adjoining meeting room operate at 70 percent of capacity. Mel’s purchases the cookies for $0.60 each but is considering making

> Mobility Partners makes wheelchairs and other assistive devices. For years it has made the rear wheel assembly for its wheelchairs. A local bicycle manufacturing firm, Trailblazers, Inc., offered to sell these rear wheel assemblies to Mobility. If Mobili

> Terracotta, Inc., makes toy soldiers. Company management believes that a new model would sell well at a price of $65. The company estimates unit materials costs to be $16 for the model, and overhead costs would average $20 per unit. The local wage rate f

> Dino’s, Inc., makes a variety of T-shirts with logos. The company has discovered a new market for sweatshirts with logos. Market research indicates that a sweatshirt like this would sell well in the market priced at $36 each. Dino’s desires an operating

> Sid’s Skins makes a variety of covers for electronic organizers and portable music players. The company’s designers have discovered a market for a new clear plastic covering with college logos for a popular music player. Market research indicates that a

> Mission Electronics manufactures and sells basic DVD players under various generic store brand names. The cost of one of their models follows: Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18.0

> Andreasen Corporation manufactures thermostats for office buildings. The following is the cost of each unit: Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18.00 Labor . . . . . . . . . . . . . . . .

> Mother’s Bottlers, Inc., is a small bottling company that bottles and sells cold teas for $5 per unit. The cost of each unit follows: Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.50 Labor .

> Assume that Cold Rock sells ice cream for $4.80 per gallon. The cost of each gallon follows: Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.80 Labor . . . . . . . . . . . . . . . . . . . .

> In evaluating product profitability, we can ignore marketing costs because they are not considered product costs. Do you agree?

> Carlsbad Enterprises has a capacity to produce 400,000 computer cases per year. The company is currently producing and selling 320,000 cases per year at a selling price of $80 per case. The cost of producing and selling one case follows: Variable manufac

> Maria’s Food Service provides meals that nonprofit organizations distribute to handicapped and elderly people. Here is her forecasted income statement for April, when she expects to produce and sell 3,000 meals: Fixed costs included i

> Under what circumstances would fixed costs be relevant when management is making decisions in a multiproduct setting?

> If you are considering buying a second car, what are the differential costs of that decision? Are they the same as in Question 4-26? Why or why not? In Question 4-26 If you are considering driving to a weekend resort for a quick break from school, what

> If you are considering driving to a weekend resort for a quick break from school, what are the differential costs of operating your car for that drive?

> Many airline frequent-flier programs upgrade elite (high volume) flyers one, three, or five days in advance from economy to first class. What are the differential costs of doing this? What are the opportunity costs? What are the opportunity costs of not

> A manager in your organization just received a special order at a price that is “below cost.” The manager points to the document and says, “These are the kinds of orders that will get you in trouble. Every sale must bear its share of the full costs of ru

> One of your acquaintances notes, “This whole subject of differential costing is easy; variable costs are the only costs that are relevant.” How would you respond?

> As a marketing manager for an airline, would you sell a seat to a passenger who walked up to the gate at the last minute at the variable (marginal) cost? Why or why not? Do the costs from the accounting system include all relevant costs for the decision?

> On what three main factors does the theory of constraints focus?

> The cost per seat-mile for a major U.S. airline is 13.7¢. Therefore, to estimate the cost of flying a passenger from Detroit to Los Angeles, we should multiply 1,980 miles by 13.7¢. Do you agree?

> What are some nonfinancial factors in decisions to drop a product line?

> Why are production constraints important in determining the optimal product mix?

> If we want to maximize profit, why do we use unit contribution margins in our analysis instead of unit gross margins?

> What is price discrimination? How could a cost accountant help determine if differences in prices were evidence of price discrimination?

> What is predatory pricing? Why is it illegal in many jurisdictions?

> What do the terms target cost and target price mean? Explain how they are developed.

> What are life-cycle product costing and pricing?