Consider the Business Application feature “Technology, Data Analysis, Customer Profitability, and Cost of Quality.” Do you think it is easier to estimate the cost savings from adapting a lean manufacturing system or to estimate the costs from a disaster such as the COVID pandemic? Why? Does this make it more or less likely that there will be “too much” lean manufacturing?
> Benton Corporation manufactures computer microphones, which come in two models: Standard and Premium. Data for a representative quarter for the two models follow: Manufacturing overhead in the plant has three main functions: supervision, setup labor, and
> After reviewing the new activity-based costing system that Nancy Chen has implemented at IVC’s CenterPoint manufacturing facility, Tom Spencer, the production supervisor, believes that he can reduce production costs by reducing the time spent on machine
> Refer to the information in Exercise 9-31. The manager of the Los Angeles office is now unhappy with the results of the controller’s study. The manager asks the controller to develop separate rates for fixed and variable costs in the Pe
> As the representative of the local accounting club, you have been asked by the dean to help them understand the costs of the different degrees offered at the school. You decide to use an activity-based costing system. Write a report outlining the first t
> Trombly Travel Products (TTP) manufactures and sells travel bags and accessories. TTP produces backpacks at its West Street plant. The different backpack models are identified by the primary material used: canvas, nylon, or leather. The company uses a pl
> West State Furniture (WSF) manufactures desks and desk chairs using two departments within a single facility. The West Department produces the desks, and the State Department produces the chairs. WSF uses plantwide allocation to allocate its overhead to
> Edlie Accessories (EA) makes travel bags, both for sale under their own label (“Branded”) and for other resellers to put their label on the bags (“Private-Label”). The bags sold thro
> Wakefield Instruments manufactures three digital piano models, which differ only in the components included: Solo, Recital, and Concert. Production takes place in two departments, Assembly and Finishing. The Solo and Recital models are complete after the
> McClellan Recreation manufactures and sells two models of paddle boards: Starter and Pro. The Starter model is a basic board used for instruction and purchased by novices. The Pro model is made with premium materials and comes with several accessories. T
> Refer to the information in Exercise 8-51. Required a. Prepare a production cost report using the FIFO method. b. Is the ending inventory higher using FIFO or the weighted-average method? Why? c. Would you recommend that Beverly Plastics use the FIFO met
> Lincolnshire Lumber sells boards for many uses including wood floors. For floors, the boards are sold to local installers or do-it-yourself homeowners. The boards go through up to four processes, although only the first two are completed for all sales. L
> Refer to the information in Exercise 8-49. Required a. Prepare a production cost report for August using the weighted-average method. b. Is the ending inventory higher using FIFO or the weighted-average method? Why? c. Would you recommend that Terminal I
> Armada Shipping is a global logistics company. The company is organized into two divisions: Contracts and Retail. The Contracts Division, which is by far the larger division, handles customers who have regular shipping requirements and have signed contra
> Fulton Construction is a general contractor for large construction projects. The budget costs and the time to reach a particular percentage of completion (in months) follow. Also shown are the actual results (cost and months) up to the latest report, whi
> Customers don’t cost money; they bring in revenue.” Do you agree? Why?
> Clarita Contracting builds roads, tunnels, bridges, and other transportation infrastructure. The following are the budgeted costs and time (months) to a given stage of completion for a project to upgrade a bridge to current standards. The project was ori
> Queenston Professional Support (QPS) provides professional services (IT, payroll and billing, and so on) to firms requiring temporary help in those areas. QPS bills clients for its various services based on the hours its professionals spend. In January,
> Farnsworth Executive Coaching (FEC) offers services to firms in advising executives on improving productivity and leadership. For August, FEC worked 660 hours for Grace Corporation and 390 hours for Temple Construction. In addition, FEC had small engagem
> In October, Temptations Event Planners (TEP) planned events for two clients. TEP worked 140 hours for Ward Corporation and 240 hours for Girardin Industries. TEP bills clients at the rate of $350 per hour; labor cost for its planning staff is $140 per ho
> Heidt Cleaning Services (HCS) is a local custodial service company serving both the residential and commercial markets. The owner is considering dropping the commercial clients because that business seems only marginally profitable. Twenty-five employees
> Refer to the information in Exercise 7-41. The controller at Wanda Instrumentation chose direct materials cost as the allocation base in Year 2, based on what the financial staff thought reflected the relation between overhead and direct labor cost. Year
> Wanda Instrumentation produces navigational equipment for ships, aircraft (both staffed and drones), and land vehicles. The parts are produced to specification by their customers. Depending on the customer and the type of job, the customer pays according
> Audubon, Inc. uses a predetermined factory overhead rate based on machine-hours. For October, Audubon recorded $4,500 in overapplied overhead, based on 34,100 actual machine-hours worked and actual manufacturing overhead incurred of $583,725. Audubon est
> Jason’s Custom Tooling (JCT) uses a job order cost system and applies overhead using a predetermined overhead rate based on direct labor costs. The following debits (credits) appeared in Workin- Process Inventory for November: Job 13-11
> Brunswick Home Remodelers (BHM) uses a job order cost system. The following debits (credits) appeared in Work-in-Process Inventory for April: BHM applies overhead to production at a predetermined rate of 65 percent based on direct materials cost. Job BH-
> You are working at a hotel in a resort location. The manager says that the hotel must raise the rates in the winter when it has fewer tourists because the cost per room is much higher. How would you respond?
> Regular Company produces audio equipment, specifically headphones and speakers. A new CEO has just been hired and announces a new policy that if a product cannot earn a markup of at least 25 percent, it will be dropped. The markup is computed as product
> Heidelberg Fabrication manufactures two products, G-09 and G-35: Production at the plant is automated and any labor cost is included in overhead. Data on manufacturing overhead at the plant follow: Required a. Heidelberg currently applies overhead on the
> In what ways is joint cost allocation similar to the allocation of fixed costs? In what ways is it different?
> How is joint cost allocation like service department cost allocation?
> This chapter indicated that joint costing is used for inventory valuation and regulatory purposes. Under what conditions might the method of joint cost allocation have an impact on other decisions?
> Consider a firm with three service departments (S1–S3) with a pattern of usage as follows: That is, service department S2 uses 10 percent of the service from S1, service department S3 uses 30 percent, and production departments use 60 p
> Surf Beach State College (SBSC) has a business school with three products: undergraduate degrees, graduate degrees, and executive education. SBSC has three service departments: Computer Support, Career Development, and the Library. The dean would like to
> What are some of the factors that a company needs to consider in addition to cost savings when deciding whether to outsource a service department, such as Information Services?
> Consider a company with two producing departments and one service department. The service department distributes its costs to the producing departments on the basis of the number of employees in each department. If the costs in the service department are
> Consider the Business Application “Managing Excess Capacity Resources—The Case of Employees.” In a related article, the authors write that manufacturers would “probably not try to pass them [excess capacity costs] along to the consumer, at least in the s
> Would process costing work well for a service firm? Why or why not?
> I have to pay for capacity whether it is used or not. Therefore, excess or idle capacity really doesn’t cost me anything.” Do you agree? Why?
> Consider the Business Application feature “Technology, Data Analysis, Customer Profitability, and Cost of Quality.” What does it mean to “fire a customer”? Why would a firm want to do this? How would a firm do this?
> The cost accounting manager at your business says that he is trying to choose between a job costing system and an ABC system. How would you respond?
> One of the issues we identified with traditional costing systems is that all costs are allocated using volume-related drivers, such as direct labor-hours. How is time-driven ABC, which relies on minutes, different?
> Consider the Business Application “Fraudulent Reporting of Project Completion to Improve Financial Performance.” Would a solution to the problem of misreporting in the case of projects be solved by writing the contract to make payment when the project is
> How might a manufacturing system differ under a quality-based view versus the traditional view of managing quality?
> Can you think of any products for which one or several of the elements of service, quality, and cost are not important to the customer? If so, explain why.
> Many if not most schools in the United States have large excess capacity cost because they are underutilized in the summer months. The dean at the local business school is developing a cost of customer system to assess costs of students in different degr
> A firm produces a product by sending it through three production departments (A, B, and C). A uses job costing, B uses operations costing, and C uses process costing. Is this possible? Why? Is this likely? Why?
> Consider two firms in the same industry. Is it possible that one uses job costing and the other uses process costing? Explain.
> Consider a manufacturing firm with multiple departments all using continuous production processes and process costing. Suppose Department A transfers product to Department B for completion to the final product. Is it necessary that both departments use t
> In the chapter, we said that the costs from a prior department are often excluded when comparing a department’s cost with its standards or budgets. However, when a department buys materials from an outside firm, those costs would almost always be part of
> Throughout the chapter, we treated conversion costs (direct labor and manufacturing overhead) as a single resource. Why could we do this without distorting the resulting costs? When would we need to treat them separately?
> Service department cost allocation is the first stage in a two-stage system. Suppose a company has a purchasing department that is responsible for buying all materials, including miscellaneous supplies for the company’s three production departments. Each
> If the reciprocal method is conceptually superior, why don’t all firms use it?
> One critic of cost allocation noted, “You can avoid the problem of arbitrary cost allocations by not allocating any common costs to other cost objects.” What are your thoughts on this comment?
> If cost allocations are arbitrary and potentially misleading, why do companies, including successful ones, continue to allocate costs?
> What is the difference between resources supplied and resources consumed? Why is the difference important?
> In what ways does quality affect cost?
> Under what conditions should the cost of excess capacity be assigned to products or customers? When should excess capacity costs not be assigned to products or customers?
> Interview the manager of a campus print shop or a print shop in the local area about how the company bids on prospective jobs. Does it use cost information from former jobs that are similar to prospective ones, for example? Does it have a specialist in c
> Why does it matter how capacity costs are assigned to products?
> What are the basic steps in computing costs using activity-based costing?
> What are two different ways of treating the difference between applied overhead and actual overhead at the end of the accounting period?
> What are some ways in which customers affect a firm’s costs? What are some ways in which suppliers affect a firm’s costs?
> Why is it important for managers to assess whether activities are value-added or nonvalue added? What are some common nonvalue-added activities found in many businesses?
> What is the death spiral? How is it related to the cost accounting system?
> Why do companies allocate costs? What are some of the advantages and disadvantages to doing so?
> What are the five steps to follow when computing costs using a process costing system?
> What are the three methods of allocating service department costs?
> Can activity-based management be implemented without an activity-based costing system? Explain.
> You can get the cost of customers by first computing the cost of the products they buy and then multiplying by the number of units each customer buys.” Do you think this approach would assist in cost management? Why?
> How are activity-based costing and activity-based management similar? How do they differ?
> Why would a number of accountants express a preference for the net realizable value method of joint cost allocation over the physical quantities method?
> What costs are irrelevant for the decision of whether to sell a joint product or process it further?
> In the context of time-driven ABC, what are time equations?
> What two questions must a manager answer if a company is implementing time-driven activity-based costing?
> How does complexity lead to higher costs? Why is it important for the cost system design to consider complexity?
> The production team at Schaefer Manufacturing has been working on improving quality and has been approaching the problem from the technical side (measuring defects, and so on), but also from the financial perspective. They want to develop recommendations
> Refer to the information and data in Exercise 7-48 for Fulton Construction. Required Prepare a graphical analysis of the current status of the cost and timing of the project at the current time. Note: The graphs in Exhibit 7.14 suggest one approach, but
> Refer to the information and data in Exercise 7-47 for Clarita Contracting. Required Prepare a graphical analysis of the current status of the cost and timing of the project at the current time. Note: The graphs in Exhibit 7.14 suggest one approach, but
> Atwater Chemicals produces an engine additive for machinery. The additive is produced by adding various ingredients to a petroleum-based lubricant. Atwater purchases the lubricant from two suppliers, Woodlawn Petroleum and Spokane Chemicals. The quality
> The controller of a local firm that uses a continuous production process asks you to recommend whether the company should use weighted-average or FIFO process costing. What factors would you consider in making a recommendation?
> How is computing the cost of customers the same as computing the cost of products? How is the computation different?
> Some criticize the accounting profession for using expressions in the audit report that seem to build in deniability should the client commit a fraudulent act. What expressions enable the CPA to build a defense should the audit wind up in the courtroom?
> How might the existence of the dark triad personalities underlie undesirable behaviors by management and how might it influence the audit?
> AU-C 240, Consideration of Fraud in a Financial Statement Audit, specifically identifies red flags the auditor should be on the lookout as throughout the audit process (from client engagement through report issuance). Provide examples of such considerati
> You may know the difference between right and wrong behavior and never would consider committing fraud. But how do you maintain the highest level of professional conduct as it relates to fraudulent behaviors in others or when fraud is suspected?
> What are the objectives of audit risk assessment, and why is it important in assessing the likelihood that fraud may occur? How might the assessment influence the auditors’ evaluation of ICFR?
> How do AI and machine learning systems differ from the existing data analytic auditing systems like IDEA? Include a discussion of the professions’ concerns surrounding the use of AI in auditing.
> The modern day audit is evolving rapidly. Some fear that auditors will be replaced by artificial intelligence (AI). Is this a valid concern?
> Do you believe the end-user cares whether the lead audit engagement partner signs their name to the report or the firm simply files Form AP with the PCAOB? Explain.
> What is the purpose of an audit firm developing a system of quality controls?
> In 1995, Congress added Section 10A to the Securities Exchange Act of 1934 as part of the Private Securities Litigation Reform Act. Is it accurate to say that Congress enacted Section 10A with the intent to require auditors to blow the whistle on the fra
> Why are non-GAAP financial measures used by many investors and analysts?
> Identify and discuss the ‘Best Audit Practices’ the PCAOB has identified as a way to improve audit quality, and reduce audit deficiencies.
> Discuss whether an ethical conflict exists in violation of the AICPA rules in each of the following situations: a. A senior on an audit receives a gift certificate from a client to the most expensive restaurant in town. b. An audit engagement partner at
> When do ethical conflicts arise in the performance of professional accounting services? How should a CPA go about resolving ethical conflicts?
> Can a CPA auditor be independent without being objective and impartial? Can a CPA auditor be objective and impartial without being independent? Explain your answer in the context of recent rule changes by the SEC discussed in the chapter that loosened in
> Do you believe the threats and safeguards approach establishes a situational or relativistic ethic? How might utilitarianism be used to evaluate the ethicality of permitting certain relationships when threats exist?
> Given the discussions in this chapter about conflicts of interest in the performance of professional services and improper relationships with the clients, do you think the accounting profession is trustworthy? Why or why not?
> We all know people who say, “Don’t bother me with the facts. I’ve already made up my mind.” How might such an attitude influence judgment tendencies of auditors?
> What can CPA firms do about the relatively high rate of audit deficiencies identified in PCAOB inspections of firm audits?
