Dave Miller is the controller of Mica Corporation. Mica produces five industrial cleaning products. Miller recently decided to implement activity-based costing at Mica. In designing the system, he decided to identify heating costs as a separate cost pool. These costs will be allocated to products using the square feet of production space as a cost driver. Thus, the more square footage a particular product line requires, the greater its allocation of heating costs will be. Miller has asked each production manager to submit an estimate of the production space occupied by their respective product lines. The figures he receives will be used to allocate the heating cost pool. The five production managers at Mica are paid an annual bonus based on their ability to control production costs traceable to their respective product lines. Instructions: What ethical concern do you have regarding the method used to gather information about space utilization at Mica? What suggestions do you have regarding how this information should be gathered?
> Why JIT is often described as a “philosophy,” rather than as an inventory management technique?
> Smooth Corporation is a small producer of paint. During June, the company produced 10,000 cases of paint. Each case contains 12 quarts of paint. To achieve this level of production, Smooth purchased and used 34,000 gallons of direct materials at a cost o
> Five events pertaining to Lubbock Manufacturing Co. are described as follows. a. Declared and paid a cash dividend. b. Issued a 10 percent stock dividend. c. Issued a 2-for-1 stock split. d. Purchased treasury stock. e. Reissued the treasury stock at a p
> In evaluating the potential future profitability of a company, how would you consider irregular income items, discontinued operations, and prior period adjustments?
> Explain how each of the following is computed: a. Price-earnings ratio. b. Basic earnings per share. c. Diluted earnings per share.
> Visit the home page of the U.S. Securities & Exchange Commission at www.sec.gov. Use EDGAR to locate the most recent 10-K of Ford Motor Company and examine its consolidated income statement. Instructions: a. In the most recent year reported, what percen
> The following data relate to the operations of Slick Software, Inc., during 2021. Instructions: a. Prepare a condensed income statement for 2021, including earnings per share figures. SlickSoftware, Inc., had 200,000 shares of $1 par value common stock
> Explain how the lessee accounts for operating/Type B leases and capital/Type A leases. Why is an operating lease sometimes called off-balance sheet financing?
> Prescott Manufacturing operates several plants, each of which produces a different product. Early in the current year, John Walker was hired as the new manager of the Meadowbrooke Plant. At year-end, all the plant managers are asked to summarize the oper
> Newton Corporation uses a process costing system to trace costs through several phases of production, starting with the Blending Department and ending with the Packaging Department. Recent computer problems have caused some of the companyâ€
> Criticize the following quotation: “At our company, budgeted revenue is set so high and budgeted expenses so low that no department can ever meet the budget. This way, department managers can never relax; they are motivated to keep working harder no matt
> John Hansen owns Hansen Sporting Goods, a retail store organized as a sole proprietorship. He also owns a home that he purchased for $250,000 but that has a market value of $300,000 today. (Hansen has a $140,000 mortgage against this house.) Explain how
> What is meant by a favorable labor efficiency variance? How is the labor efficiency variance computed?
> The Securities and Exchange Commission (SEC) is an important governmental organization that exists primarily for the protection of the interests of investors in the U.S. securities markets. The SEC provides a wealth of information through its website, ww
> Phillips Supply uses a periodic inventory system but needs to determine the approximate amount of inventory at the end of each month without taking a physical inventory. Phillips has provided the following inventory data. a. Estimate the cost of goods s
> Raquel Swimwear sells lines of adult and youth swimming suits. The following is per-unit information for these two product lines. Fixed costs and expenses amount to $117,000 per month. The company currently has total sales of $500,000 per month, of whic
> Sam’s Lawn Maintenance uses a perpetual inventory system. At December 31, the perpetual inventory records indicate the following quantities of a particular mower. A year-end physical inventory, however, shows only 199 of these lawn mow
> The following are selected items from the accounting records of Georgia Peach for the year ended December 31, 2021. Other Information 1. The note payable to Smithfield Bank is due in 60 days. Arrangements have been previously approved to renew this not
> Lincoln Estates manufactures log homes to customers’ specifications and uses job order costing. A predetermined overhead rate is used in applying manufacturing overhead to individual jobs. In the Cutting Department, overhead
> During the current year, Rodgers Company purchased two assets that are described as follows. Rodgers depreciates heavy equipment by the declining-balance method at 200 percent of the straight-line rate. It amortizes intangible assets by the straight-lin
> Classify each of the following costs as a product cost or period cost. If it is a product cost, classify it as direct (or indirect) materials, direct (or indirect) labor, or overhead. a. Wheat used to make flour at General Mills. b. Sales commissions pai
> A recent annual report issued by The Gap, Inc., revealed the following data. The company’s income statement reported total annual revenue of $15.855 billion and net income for the year of $0.848 billion. Instructions: a. Evaluate Th
> On May 10, Hudson Computing sold 90 Millennium laptop computers to Apex Publishers. At the date of this sale, Hudson’s perpetual inventory records included the following cost layers for the Millennium laptops. Prepare journal entries t
> Ahuna, Inc., provides in-home cooking lessons to its clients. The following is the company’s trial balance dated March 1, current year. Ahuna engaged in the following transactions in March. Instructions: a. Record the companyâ&
> Colonial Furniture Co. uses a standard cost system. One of the company’s most popular products is a cherrywood desk. The per-unit standard costs of the desk, assuming a “normal” volume of 2,000 units
> Assume Harley-Davidson Motorcycle Company is analyzing an offer to buy from a supplier a component that would replace a component it currently makes for its motorcycles. What additional factors beyond price should Harley-Davidson take into account in thi
> Nazi, Inc., produces a popular brand of humidifier that is backed by a five-year warranty. In year 1, Nazi began implementing a total quality management program that has resulted in significant changes in its cost of quality. Listed as follows is Nazi&ac
> Eastern Supply sells a variety of merchandise to retail stores on account, but it insists that any customer who fails to pay an invoice when due must replace their account receivable with an interest-bearing note at an above-market interest rate. The com
> The net income of Foster Furniture, Inc., amounted to $1,920,000 for the current year a. Compute the amount of earnings per share assuming that the shares of capital stock outstanding throughout the year consisted of 1. 400,000 shares of $1 par value com
> Viking Beer is a microbrewery that produces one type of beer. The production level is 18,000 gallons per month, which is bottled in 192,000 twelve-ounce bottles. The beer is brewed in batches of 3,600 gallons, which is the capacity of the fermenting tank
> Jake Marley, owner of Marley Wholesale, is negotiating with the bank for a $200,000, 90-day, and 12 percent loan effective July 1 of the current year. If the bank grants the loan, the proceeds will be $194,000, which Marley intends to use on July 1 as fo
> He partnership of Avery and Kirk was formed on July 1, when George Avery and Dinah Kirk agreed to invest equal amounts and to share profits and losses equally. The investment by Avery consists of $30,000 cash and an inventory of merchandise valued at $56
> The accounting records of Idaho Paper Company include the following information relating to the current year. The company manufactures a single product; during the current year, 45,000 units were manufactured and 40,000 units were sold. Instructions: a
> Road King manufactures fiberglass travel trailers. The manufacturing costs incurred during its first year of operations are as follows. During the year, 150 completed trailers were manufactured, of which 120 were sold. (Assume that the ending Finished G
> Discuss the potential benefits associated with using activitybased costing
> Briefly describe the computation of the cost of finished goods manufactured as it appears in a schedule of the cost of finished goods manufactured.
> Hendersonville Roofing uses job order costing and applies manufacturing overhead to individual projects using predetermined overhead rates. In the Installation Division, overhead is applied on the basis of direct labor hours, and in the Disposal Division
> Ford Motor Company uses FIFO and LIFO to account for different segments of its inventories. A note to the company’s recent financial statements indicated that if FIFO had been used for the entire inventory, the total amount of inventory would have been a
> You are a staff accountant for Pearce, Pearce, and Smith, CPAs, and have worked for several years on the audit of a major client of the firm, Flexor, Inc. Flexor sells its products in a highlycompetitive market and relies heavily on the careful managemen
> Bailey’s materials quantity variance for the current month was exactly one-half of its materials price variance. Both variances were unfavorable. The company’s cost accountant has supplied the following standard cost i
> The U.S. government maintains an Internet site containing information on various countries called The World Factbook. The site includes a database under the “countries and regions” tab. Use the data or other publicly available data to answer the followin
> Starlight, a Broadway media firm, uses the balance sheet approach to estimate uncollectible accounts expense. At year-end an aging of the accounts receivable produced the following five groupings. On the basis of past experience, the company estimated t
> Big Game, Inc., is a manufacturer of hunting supplies. The following is a summary of the company’s annual payroll-related costs. a. Compute Big Game’s total payroll-related costs for the year. b. Compute the net amou
> Joe Felan is the production manager at Utex Corporation. He was recently quoted as saying, “Since management reports aren’t subject to generally accepted accounting principles, and they aren’t directly used by outside investors and creditors, it’s really
> Go to the Home Depot financial statements in Appendix A at the end of this textbook. Refer to Note 1 summarizing the company’s significant accounting policies. Read the section entitled “Cost of Sales” and list what is included in the Home Depot’s cost o
> Under what circumstances do generally accepted accounting principles permit the use of an inventory cost flow assumption? Must a cost flow assumption closely parallel the physical movement of the company’s merchandise?
> Identify what is wrong with the following statement: “There are three basic kinds of cost accounting systems: job order, process, and standard.”
> Early in the year Debra Deal and several friends organized a corporation called Markup, Inc. The corporation was authorized to issue 100,000 shares of $100 par value, 5 percent cumulative preferred stock and 100,000 shares of $1 par value common stock. T
> What are restructuring charges? How are they presented in financial statements?
> Why might earnings per share be more significant to a stockholder in a large corporation than the total amount of net income?
> The only transaction recorded in the Plant Assets account of Pompeii Company in the current year was a $263,000 credit to the Land account. Assuming that this credit resulted from a cash transaction; does this entry indicate a cash receipt or a cash paym
> What does the globalization of business mean? Think of two companies with which you are familiar. How would you describe their level of globalization?
> Precision Systems manufactures CD burners and currently sells 18,500 units annually to producers of laptop computers. Jay Wilson, president of the company, anticipates a 15 percent increase in the cost per unit of direct labor on January 1 of next year.
> The Enforcement Division of the Securities and Exchange Commission (SEC) is an important aspect of the corporate governance structure in the United States that is intended to protect investors. Locate the home page of the SEC by doing a general search on
> Greenway Irrigation Systems uses job order costing and applies manufacturing overhead to individual jobs by using predetermined overhead rates. In the Fabrication Department, overhead is applied on the basis of machine-hours, and in the Installation Depa
> Chezo, Inc., is a large cheese store chain. Shown are selected items adapted from a recent Chezo, Inc., balance sheet. (Dollar amounts are in the millions.) Instructions: a. Using this information, compute the amounts of Chezo’s total
> Briefly explain what accounting benchmark studies are and why they are important for an organization’s management accounting system.
> State the balance sheet or income statement classification (asset, liability, stockholders’ equity, revenue, or expense) of each of the following accounts. a. Cash (received from the issuance of capital stock). b. Organization Costs. c. Preferred Stoc
> Shown as follows are data relating to the operations of Beach, Inc., during 2021 Instructions:a. Prepare a condensed income statement for 2021, including earnings per share statistics.Beach, Inc., had 800,000 shares of $1 par value common stock and 100,
> Explain two ways in which a company that makes purchases on account from foreign companies can protect itself against the losses that would arise from a sudden increase in the foreign exchange rate.
> Describe three basic investment applications of the concept of the time value of money
> At the end of the current year, Eastern Electric received the following information from its actuarial firm The pension plan is fully funded. Eastern Electric has funded only 40 percent of the nonperson postretirement benefits this year. a. Prepare the
> Xanic Corporation issued $8 million of 20-year, 8 percent bonds on April 1, 2021, at 102. Interest is paid on March 31 and September 30 of each year, and all of the bonds in the issue mature on March 31, 2041. Xanic’s fiscal year ends on December 31. Pre
> The accountants for Polyglaze, Inc., have developed the following information regarding the standard cost and the actual cost of a product manufactured in June. Instructions: a. Compute the materials price variance and the materials quantity variance, i
> Quarter Corporation is considering implementation of a JIT inventory system. The company’s industrial engineer recently conducted a study to determine the average number of days spent in each activity of the production process. The foll
> What is the difference between short-run business decisions and long-run strategic plans?
> Explain the term equivalent units. In a fast-moving, assembly-line operation, are the equivalent units likely to differ significantly from the number of units completed during a month? Explain.
> The accounting records of the Cedar Company include the following information relating to the current year. The company manufactures a single product; during the current year, 60,000 units were manufactured and 50,000 units were sold. Instructions: a.
> Go to the following website that features the bottling process at the Coca-Cola Company: Coca-Cola bottling process. After viewing the video, answer the following questions: a. Identify at least four direct materials that are used to create Coca-Cola.® b
> Pacific Airlines operated both an airline and several rental car operations located near airports.During the year just ended, all rental car operations were discontinued and the following operatingresults were reported. All of these amounts are before i
> Louie Optics manufactures an underwater digital camera. The company’s newest model is very popular, but it has an inventory of 5,000 old models for which there is little demand. The company is considering the following options for disposing of these old
> Oro Mining, Inc., has just discovered two new mining sites for copper. Geologists and engineers have come up with the following estimates regarding costs and copper yields if the mines are opened. Oro’s owners currently demand a return
> The following information pertains to May activity in Accessory World’s Coating Department. a. Compute how many cut mat sets were started in the Coating Department during May. b. Prepare a schedule showing: (1) the number of mat sets t
> Top-Shelf Classics uses standard costs in a process cost system. At the end of the current month, the following information is prepared by the company’s cost accountant. The total standard cost per unit of finished product is $9. Durin
> Why is it important to understand the economic system under which a company operates before entering into a business relationship?
> On January 2, 2021, Jason Corporation acquired a new machine with an estimated useful life of five years. The cost of the equipment was $40,000 with an estimated residual value of $5,000. a. Prepare a complete depreciation table under the three depreciat
> One of Turf Smart’s products is a small lawnmower. Two processing departments are involved in the mower’s production. The deck is assembled in one department, and a second department assembles and installs the engine.
> Assume that Congress announces its intention to limit the prices and profits of pharmaceutical companies as part of an effort to control health care costs. What effect would you expect this announcement to have on the p/e ratios and stock prices of pharm
> What amounts are debited to the Direct Labor account during the year? What amounts are credited to this account? What type of balance (debit or credit) is this account likely to have at year-end? Explain.
> The following events were reported in the financial statements of large, publicly owned corporations. a. Atlantic Richfield Company (ARCO), previously a separate company that is now owned by BP America, sold or abandoned the entire nonoil minerals segmen
> Roy’s Toys is a manufacturer of toys and other children’s products. The following are selected items appearing in a recent balance sheet (dollar amounts are in millions). a. Using the information given, compute the am
> Toll House makes chocolate chip cookies. The cookies pass through three production processes: mixing the cookie dough, baking, and packaging. Toll House uses process costing. The following are data concerning the costs incurred in each process during May
> Mary’s TV uses a perpetual inventory system. The following are three recent merchandising transactions. Instructions: a. Prepare journal entries to record these transactions assuming that Mary’s records purchases of
> Stop-n-Shop operates a downtown parking lot containing 800 parking spaces. The lot is open 2,500 hours per year. The parking charge per car is 50 cents per hour; the average customer parks two hours. Stop-n-Shop rents the lot from a development company f
> Sven Enterprises is a large producer of gourmet pet food. During April, it produced 147 batches of puppy meal. Each batch weighs 1,000 pounds. To produce this quantity of output, the company purchased and used 148,450 pounds of direct materials at a cost
> As of December 31 of the current year, Alexander Company has prepared the following information regarding its liabilities and other obligations. Instructions a. Prepare a listing of Alexander’s current and long-term liabilities as th
> Discuss how managers use information they obtain from process costing.
> Listed as follows are eight technical accounting terms introduced or emphasized in this chapter. Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the accounting term described, or answ
> Jan Franks is the manager of one location of the Save Some Inc. chain. Franks’s location is currently earning an ROI of 15 percent on existing average capital of $800,000. The minimum required return for Save Some Inc. is 12 percent. Fr
> Lavalear Corporation uses a process costing system and traces costs through several processing departments, starting with the Bonding Department. The following is information taken from the Bonding Department’s September production cost
> Whitaker Video is the producer of popular video games. Recently, an investment service published the following per-share amounts relating to the company’s only class of stock. Instructions; a. Without reference to dollar amounts, expl
> Kitchen Electrics uses a perpetual inventory system. The following are three recent merchandising transactions. Instructions: a. Prepare journal entries to record these transactions assuming that Kitchen Electrics records purchases of merchandise at:
> At December 31, year 1, Charter Holding Co. owned the following marketable securities in capital stock of publicly traded companies. In year 2, Charter engaged in the following two transactions. Apr. 10 Sold 1,000 shares of its investment in L Brands, I
> Taylor & Malone is a law firm. Would the concepts of job order or process costing be more appropriate for this type of service business? Explain.
> It is late summer and General Wheels, Inc., an auto manufacturer, is facing a financial crisis. A large issue of bonds payable will mature next March, and the company must issue stock or new bonds to raise the money to retire this debt. Unfortunately, pr
> Matt’s materials quantity variance for the current month was exactly one-half of its materials price variance. Both variances were unfavorable. The company’s cost accountant has supplied the following standard cost inf
> Explain why the present value of a future amount is always less than the future amount
> Rothschild Furnishings, Inc., has three partners—Axle, Brandt, and Conrad. At the beginning of the current year their capital balances were: Axle, $180,000; Brandt, $140,000; and Conrad, $80,000. The partnership agreement provides that partners shall rec
> Why is it important to consider the relationships among cost, quality, and selling prices when establishing standards for direct materials?
> Individuals generally do not prepare statements of cash flows concerning their personal activities. But they do engage in cash budgeting—if not on paper, then at least in their heads.Assume it is December 29—a Monday.
