Electron Inc. is a semiconductor company based in Winnipeg. In 2015, it produced a new router system for its corporate clients. The average wholesale selling price of the system is $1,200 each. For 2015, Electron estimates that it will sell 10,000 router systems and so produces 10,000 units. Actual 2015 sales are 8,960 units. Electron’s actual 2015 costs are: Variable costs per unit: Manufacturing cost per unit produced Direct materials ………………………………………………………………$ 55 Direct manufacturing labour………………………………………………. 45 Manufacturing overhead ……………………………………………………120 Marketing cost per unit sold …………………………………………………75 Fixed costs: Manufacturing costs ………………………………………………….1,471,680 R&D …………………………………………………………………………….981,120 Marketing ………………………………………………………………….3,124,480 Required: 1. Calculate the operating income under variable costing. 2. Each router unit produced is allocated $165 in fixed manufacturing costs. If the production-volume variance is written off to cost of goods sold, and there are no price, rate, or efficiency variances, calculate the operating income under absorption costing. 3. Explain the differences in operating incomes obtained in requirement 1 and requirement 2. 4. Electron’s management is considering implementing a bonus for the supervisors based on gross margin under absorption costing. What incentives will this create for the supervisors? Do you think this new bonus plan is a good idea? Explain briefly.
> What is the goal of an ordinary least squares (OLS) linear regression?
> All independent variables in a cost function estimated with regression analysis are cost drivers.” Do you agree?
> The difference between practical capacity and master-budget capacity utilization is the best measure of management’s ability to balance the costs of having too much capacity and having too little capacity.” Do you agree? Explain.
> Which denominator-level concepts emphasize what a plant can supply? Which denominator-level concepts emphasize what customers demand for products produced by a plant?
> Explain how four-variance analysis differs from one-, two-, and three-variance analysis.
> Select the graph that matches the numbered manufacturing cost data. Indicate by letter which of the graphs best fits each of the situations or items described. The vertical axes of the graphs represent total dollars of cost, and the horizontal axes repre
> Explain how the analysis of fixed overhead costs differs for (a) planning and control on the one hand and (b) inventory costing for financial reporting on the other.
> The rate variance for variable manufacturing overhead is affected by several factors. Explain.
> The main trouble with variable costing is that it ignores the increasing importance of fixed costs in modern manufacturing.” Do you agree? Why?
> Do companies in either the service sector or the merchandising sector make choices about absorption costing versus variable costing?
> Define relevant cost. Why are historical costs irrelevant?
> I am going to focus on the customers of my business and leave cost allocation issues to my accountant.” Do you agree with this comment by a division president?
> Match each of the following numbered items with one or more of the denominator-level capacity concepts by putting the appropriate letter(s) by each item: a. Theoretical capacity b. Practical capacity c. Normal capacity utilization d. Master-budget capaci
> Distinguish job-costing systems using sequential tracking from backflush costing.
> What are the main features in a JIT production system?
> What are some obstacles to companies adopting a supply-chain approach?
> The controller of the Ijiri Company wants you to estimate a cost function from the following two observations in a general ledger account called Maintenance: Required: 1. Estimate the cost function for maintenance. 2. Can the constant in the cost funct
> What is supply-chain analysis and how can it benefit manufacturers and retailers?
> Why might goal-congruence issues arise when an EOQ model is used to guide decisions on how much to order?
> What five assumptions are made when using the simplest version of the economic order quantity (EOQ) decision model?
> In job costing, the costs of normal spoilage that occur while a specific job is being done are charged to the specific job.” Do you agree? Explain.
> Distinguish among spoilage, reworked units, and scrap.
> Why should the accountant distinguish between transferred-in costs and additional direct materials costs for each subsequent department in a process-costing system?
> Standard-cost procedures are particularly applicable to process-costing situations.” Do you agree? Why?
> Describe the distinctive characteristic of FIFO computations in assigning costs to units completed and ending work in process.
> Give an example of three types of different levels of costs in a customer cost hierarchy.
> A customer profitability profile highlights those customers that should be dropped to improve profitability.” Do you agree? Explain.
> Avery, Inc., manufactures two component parts for the television industry: â– Tvez: Annual production and sales of 50,000 units at a selling price of $48.72 per unit. â– Premia: Annual production and sales of 25,000 unit
> Distinguish between a market-size variance and a market-share variance.
> Distinguish between the stand-alone revenue-allocation method and the incremental revenue allocation method.
> Give two limitations of the physical measure method of joint cost allocation.
> Distinguish between the sales value at split off method and the estimated NRV method.
> Why might the number of products in a joint cost setting differ from the number of outputs? Give an example.
> Distinguish between two methods of allocating common costs.
> Specify the strengths and weaknesses among the three methods of allocating the costs of service divisions to production divisions.
> Why might a manager prefer that budgeted rather than actual indirect cost allocation rates be used for costs being allocated to her division from another division?
> Give examples of bases used to allocate corporate cost pools to the operating divisions of an organization
> How do cost–benefit considerations affect choices by a company about the allocation of indirect criteria?
> The Zwatch Company manufactures trendy, high-quality moderately priced watches. As Zwatch’s senior financial analyst, you are asked to recommend a method of inventory costing. The CFO will use your recommendation to prepare Zwatchâ
> What criteria might be used to justify cost allocation decisions? Which are the dominant criteria?
> Describe three key components of a strategic analysis of operating income.
> Give two examples where the difference in the costs of two products or services is much smaller than the difference in their prices.
> How does collusive pricing differ from predatory pricing?
> What does product life cycle mean?
> Describe two alternative approaches to long-run pricing decisions.
> When might a company price below full cost?
> Describe the four key steps in managing bottleneck resources.
> Distinguish between quantitative and qualitative factors in decision making.
> Provide examples of interdependencies and relate them to the decision framework.
> What is the difference between the coefficient of determination, r 2 , and the goodness of fit?
> When using the high–low method, should you base the high and low observations on the outcome variable or on the predictor variable?
> Discuss the conference method for estimating a cost function. What are advantages of this method?
> What is a discontinuous linear cost function? What types of analyses can be done to improve cost control when the data sets indicate a discontinuous linear cost function?
> What is a linear cost function? Describe three alternative linear cost functions.
> The Singapore division of a Canadian telecommunications company uses a standard cost system for its machine-based production of telephone equipment. Data regarding production during June are as follows: Variable manufacturing overhead costs incurred &ac
> An analysis of La Flamme’s operating income changes between 2015 and 2016 shows the following: Operating income for 2016 ………………………………$1,700,000 Add growth component …………………………………………70,000 Deduct price-recovery component ………………………(60,000) Add productivi
> Ring Delights is a new company that manufactures custom jewellery. Ring Delights currently has six customers referenced by customer number: 01, 02, 03, 04, 05, and 06. Besides the costs of making the jewellery, the company has the following activities: 1
> Patterson Corporation has four operating divisions. During the first quarter of 2015, the company reported total income from operations of $55,000 and the following results for each division: Further analysis of costs reveals the following percentages
> Orca Company is a large manufacturer of optical storage systems based in British Columbia. Its practical annual capacity is 7,500 units, and, for the past few years, its budgeted and actual sales and production volume have been 7,500 units per year. Orca
> Worldwide Cell Phones (WCP) has developed a cell phone that can be used anywhere in the world (even in countries such as Japan that have a relatively unique cell phone system). WCP has been receiving complaints about the phone. For the past two years, WC
> Industrial Fluids Ltd. (IFL) manufactures and sells fluids used by metal-cutting plants. These fluids enable metal-cutting to be done more accurately and more safely. IFL has more than 1,000 customers. It is currently undertaking a customer profitability
> Copeland Sporting Goods is evaluating two suppliers of footballs: Big Red and Quality Sports. Pertinent information about each potential supplier follows: Required: Calculate the relevant costs of purchasing (1) from Big Red and (2) from Quality Sports
> The Ronowski Company produces telephones. For June, there were no beginning inventories of raw materials and no beginning and ending work in process. Ronowski uses a JIT production system and backflush costing with three trigger points for making entries
> Ralph Menard is the owner of a truck repair shop. He uses an EOQ model for each of his truck parts. He initially predicts the annual demand for heavy-duty tires to be 2,000. Each tire has a purchase price of $60. The incremental ordering costs per purcha
> LockTite (LT) has introduced a just-in-time production process and is considering the adoption of lean accounting principles to support its new production philosophy. The company has two product lines: mechanical devices and electronic devices. Two indiv
> Assume the same facts as in Problem 19-33 except now there are only two trigger points: the completion of good finished units of product and the sale of finished goods. Required: 1. Prepare summary journal entries for August, including the disposition o
> Assume that the second trigger point for Acton Corporation is the sale—rather than the completion—of finished goods. Also, the inventory account is confined solely to direct materials, whether these materials are in a storeroom, in work in process, or in
> Cow Spot Computer Co. outsources the production of motherboards for its computers. It has narrowed down its choice of suppliers to two companies: Maji and Induk. Maji is an older company with a good reputation, while Induk is a newer company with cheaper
> The Margro Corporation is an automotive supplier that uses automatic turning machines to manufacture precision parts from steel bars. Margro’s inventory of raw steel averages $600,000. John Oates, president of Margro, and Helen Gorman,
> IMBest Computers supplies computers to Online C. Terry Moore, the president of IMBest, is pleased to hear that Online C will be ordering 500,000 computers. Moore has asked his accounting and production departments to team up and determine the best produc
> Instructions Form groups of two or more students to complete the following requirements: Required: 1. Given your findings in Problem 10-32, should Hanks use multiple regression analysis to better understand the cost drivers of overhead costs? Explain yo
> Online C is an online company that sells computers to individual consumers. The annual demand for one model that will be shipped from the northeast distribution centre is estimated to be 500,000 computers. The ordering cost is $800 per order. The cost of
> MacroHard Corp. produces J-Pods, music players that can download thousands of songs. MacroHard forecasts that demand in 2017 will be 48,000 J-Pods. The variable production cost of each J-Pod is $50. Due to the large $50,000 cost per setup, MacroHard plan
> Clarkson Shoe Co. produces and sells excellent quality walking shoes. After production, the shoes are distributed to 20 warehouses around the country. Each warehouse services approximately 100 stores in its region. Clarkson uses an EOQ model to determine
> Koala Blue, a retailer of bed and bath linen, sells 234,000 packages of Mona Lisa designer sheets each year. Koala Blue incurs an ordering cost of $81 per purchase order placed with Mona Lisa Enterprises and an annual carrying cost of $11.70 per package.
> Buckwold Corporation makes two different types of hubcaps for cars–HM3 and JB4. Circular pieces of metal are stamped out of steel sheets (leaving the edges as scrap), formed, and finished. The stamping operation is identical for both ty
> Normal spoilage is 7% of the good units passing inspection in a forging process. In March, a total of 12,000 units were spoiled. Other data include units started during March, 129,000; work-in-process, beginning, 16,000 units (20% completed for conversio
> Richmond Company manufactures products that often require specification changes or modifications to meet customers’ needs. Still, Richmond has been able to establish a normal spoilage rate of 2.5% of normal input. Normal spoilage is recognized during the
> Blue Titanium (BT)Corporation is a manufacturer of computer chips based in Nepean. It manufactures two types of computer chips, CS1 and CS2. The costs of manufacturing each CS1 chip, excluding rework costs, are direct materials, $60; direct manufacturing
> Assume that Job #10 of Tee Time Machine Shop generates normal scrap with a total sales value of $300 (it is assumed that the scrap returned to the storeroom is sold quickly). Required: Prepare the journal entries for the recognition of scrap, assuming:
> Assume that the five spoiled units of Tee Time Machine Shop’s Job #10 can be reworked for a total cost of $1,800. A total cost of $5,000 associated with these units has already been assigned to Job #10 before the rework. Required: Prepare the journal en
> Kathy Hanks, executive assistant to the president of Eastern University, is concerned about the overhead costs at her university. Cost pressures are severe, so controlling and reducing overhead is very important. Hanks believes overhead costs incurred ar
> Tee Time Machine Shop is a manufacturer of motorized carts for vacation resorts. Pat Cruz, the plant manager of Tee Time, obtains the following information for Job #10 in August 2015. A total of 40 units were started, and 5 spoiled units were detected an
> Ottawa Manufacturing is a furniture manufacturer with two departments: moulding and finishing. The company uses the weighted-average method of process costing. In August, the following data were recorded for the finishing department: Units of beginning
> Normal spoilage is 6% of the good units passing inspection in a forging process. In March, a total of 10,000 units were spoiled. Other data include units started during March, 120,000; work-in-process, beginning, 14,000 units (20% completed for conversio
> Refer to the information in Problem 18-35. Suppose Rounder determines standard costs of $246 per (equivalent) unit for direct materials and $96 per (equivalent) unit for conversion costs for both beginning work-in-process and work done in the current per
> Refer to the information in Problem 18-35. Required: Repeat question 1 from Problem 18-35 using the FIFO method of process costing. Data from Problem 18-35: Rounder specializes in the manufacture of ball bearings for aircraft. Direct materials are add
> Rounder specializes in the manufacture of ball bearings for aircraft. Direct materials are added at the start of the production process. Conversion costs are added evenly during the process. Some units of this product are spoiled as a result of defects n
> Hamilton Metal Fabricators Inc. has a large job, No. 2734, that calls for producing various ore bins, chutes, and metal boxes for enlarging a copper concentrator. The following charges were made to the job in November 2015: Direct materials ………………………………
> Refer to the information in Problem 18-32 except for the transferred-in costs for May, which equal the total cost of good units completed and transferred out in May from the cleaning department, which were calculated in Problem 18-31 using the FIFO metho
> In Red Deer Company’s packaging department, conversion costs are added evenly during the process, and direct materials are added at the end of the process. Spoiled units are detected upon inspection at the end of the process and are dis
> Refer to the information in Problem 18-30. Required: Do Problem 18-30 using the FIFO method of process costing. (Problem 18-33 explores additional facets of this problem.) Data from Problem 18-30: The Red Deer Company is a food-processing company b
> Two graduates of the university run M&S Java, and they have just opened their take-out coffee and snack bar on the university campus. At the end of their first month of operations they want to understand which cost driver to choose of two available t
> The Red Deer Company is a food-processing company based in Alberta. It operates under the weighted-average method of process costing and has two departments: cleaning and packaging. For the cleaning department, conversion costs are added evenly during th
> Plastco Industries manufactures a variety of plastic products, including a series of moulded chairs. The three models of moulded chairs, which are all variations of the same design, are standard (can be stacked), deluxe (with arms), and executive (with a
> Two styles of men’s shoes are manufactured by the Comfort Fit Shoe Company: designer and regular. Designer style is made from leather, and regular style uses synthetic materials. Three operations—cutting, sewing, and p
> Paquita’s Pearls Company (PPC) is a manufacturer of knock-off jewellery. Paquita attends Fashion Week in New York City every September and February to gauge the latest fashion trends in jewellery. She then makes trendy jewellery at a fr
> Frito-Lay Inc. manufactures convenience foods, including potato chips and corn chips. Production of corn chips occurs in four departments: cleaning, mixing, cooking, and drying and packaging. Consider the drying and packaging department, where direct mat
> Refer to the information in Problem 17-39. Suppose that Publish Inc. uses the FIFO method instead of the weighted-average method in all of its departments. The only changes to Problem 17-39 under the FIFO method are that total transferred-in costs of beg
> Publish Inc. has two departments: printing and binding. Each department has one direct cost category (direct materials) and one indirect cost category (conversion costs). This problem focuses on the binding department. Books that have undergone the print
