How can an activity-based costing system alleviate the problems Patio Grill Company’s management was having under its traditional, volume-based product-costing system?
> Evaluate the following statement: “If a resource has unused capacity, that capacity is lost forever.”
> What does the term sales mix mean? How is a weighted-average unit contribution margin computed?
> List three direct costs of the food and beverage department in a hotel. List three indirect costs of the department.
> Define the following terms, and explain the relationship between them: (a) cost estimation, (b) cost behavior, and (c) cost prediction.
> Refer to Exhibit 2–3, and answer the following questions. Required: 1. List the major differences between the income statements shown for Caterpillar, Walmart, and Southwest Airlines. 2. Explain how cost-accounting data were used to pr
> Explain the following terms: practical capacity, cost of resources supplied, cost of resources used, and cost of resources unused.
> Would each of the following characteristics be a volume-based or an operations-based cost driver in a college: a. Number of students b. Number of disciplines offered for study c. Urban versus rural location?
> Nantucket Tee manufactures T-shirts and decorates them with custom designs for retail sale on the premises. Several costs incurred by the company are listed below. For each cost, indicate which of the following classifications best describe the cost. Mor
> What is the chief difference between manufacturing and service industry firms?
> Distinguish between volume-based and operations based cost drivers in the airline industry.
> Air Frame Technology, Inc. incurs a variable cost of $16 per kilogram for raw material to produce a special alloy used in manufacturing aircraft. Required: 1. Draw a graph of the firm’s raw material cost, showing the total cost at the following product
> What is meant by the following statement? “Managerial accounting often serves an attention-directing role.”
> How does the variable cost per unit change as the level of activity (or cost driver) increases? Why?
> What is the difference between a manufacturing company’s gross margin and its total contribution margin?
> Describe the importance of cost behavior patterns in planning, control, and decision making.
> The following selected data were taken from the accounting records of Manitoba Manufacturing Company. The company uses direct-labor hours as its cost driver for overhead costs. June’s costs consisted of machine supplies ($153,000), depr
> Lone Mountain Extraction, which mines ore in Idaho, uses a calendar year for both financial-reporting and tax purposes. The following selected costs were incurred in December, the low point of activity, when 1,400 tons of ore were extracted: Peak activit
> Liberty Bell Fitness, Inc. operates a chain of fitness centers in Philadelphia. The firm’s controller is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the firmâ&
> The Piedmont School of Music has hired you as a consultant to help in analyzing the behavior of the school’s costs. Use the account-classification method of cost estimation to classify each of the following costs as variable, fixed, or semivariable. Befo
> For each of the following cost items (1 through 11), choose the graph (a through l) that best represents it. 1. The cost of utilities at a university. For low student enrollments, utility costs increase with enrollment, but at a decreasing rate. For larg
> Working in a group, use the Internet to identify a company that has been the subject of significant public discussion due to one or more ethical lapses in the last decade. Required: As a group, research what happened and then make a presentation to the
> Jefferson County Airport handles several daily commuter flights and many private flights. The county budget officer has compiled the following data regarding airport costs and activity over the past year. /\ Required: 1. Draw a scatter diagram of the ai
> Randolph Dana owns a catering company that prepares banquets and parties for business functions throughout the year. Dana’s business is seasonal, with a heavy schedule during the summer months and the year-end holidays. During peak peri
> Shortly after being hired as a cost analyst with Florida International Airlines, Kim Williams was asked to prepare a report that focused on passenger ticketing cost. The airline writes most of its own tickets, makes little use of travel agents, and has s
> The controller of Saratoga Auto Cylinder Company believes that the identification of the variable and fixed components of the firm’s costs will enable the firm to make better planning and control decisions. Among the costs the controlle
> Shenandoah Valley Golf Association is a nonprofit, private organization that operates three 18-hole golf courses in Virginia. The organization’s financial director has just analyzed the course maintenance costs incurred by the golf asso
> Refer to the data and accompanying information in the preceding case. Required: 1. Use the high-low method to estimate the cost behavior for the clinic’s administrative costs. Express the cost behavior in formula form (Y 5 a 1 bX). What is the variable
> “I don’t understand this cost report at all,” exclaimed Jeff Mahoney, the newly appointed administrator of Valley General Hospital. “Our administrative costs in the new pediatrics c
> Outside Environment, Inc. provides commercial landscaping services in San Diego. Sasha Cairns, the firm’s owner, wants to develop cost estimates that she can use to prepare bids on jobs. After analyzing the firm’s cost
> Give an example of a customer-value-added activity and a business-value-added activity in a hotel.
> What is a customer profitability profile?
> Why are product costs also called inventoriable costs?
> Explain the relationship between customer profitability analysis and activity-based costing.
> How could the administration at Delaware Medical Center’s Primary Care Unit use the activity-based costing information developed by the ABC project team?
> What is the role of activity dictionary in an ABC project?
> Explain the concept of a pool rate in activity-based costing. (Refer to Exhibit 5–6 .) Exhibit 5-6: INFORMATION SUPPLIED BY ABC PROJECT TEAM Activity Cost driver quantity for each product line; drivers add column G to get total in
> Distinguish between an activity’s trigger and its root cause. Give an example of each.
> What is meant by the term activity analysis? Give three criteria for determining whether an activity adds value.
> Explain the concept of two-dimensional ABC. Support your explanation with a diagram.
> Explain a key difference in the interpretation of the ABC data in Exhibit 5–7 (Patio Grill Company) and Exhibit 5–16 (Delaware Medical Center). Exhibit 5-7: Exhibit 5-16: E Microsoft Excel - Activity-Based Costing
> Explain why the maintenance of the medical-services provider network is treated as a product-sustaining level activity by Pennsylvania Blue Shield.
> Are activity-based costing systems appropriate for the service industry? Explain.
> Kaleidoscope Cutlery manufactures kitchen knives. One of the employees, whose job is to cut out wooden knife handles, worked 49 hours during a week in January. The employee earns $14 per hour for a 40-hour week. For additional hours the employee is paid
> Explain why a manufacturer with diverse product lines may benefit from an ABC system.
> Explain why a new product-costing system may be needed when line managers suggest that an apparently profitable product be dropped.
> List three factors that are important in selecting cost drivers for an ABC system.
> Briefly explain two factors that tend to result in product cost distortion under traditional, volume-based product costing systems.
> How is the distinction between direct and indirect costs handled differently under volume-based versus activity based costing systems?
> Why do product-costing systems based on a single, volume-based cost driver tend to overcost high-volume products? What undesirable strategic effects can such distortion of product costs have?
> List and briefly describe the four broad categories of activities identified in stage one of an activity-based costing system.
> What are cost drivers? What is their role in an activity-based costing system?
> Explain how an activity-based costing system operates.
> Pinellas Printer Company manufactures printers for use with home computing systems. The firm currently manufactures both the electronic components for its printers and the plastic cases in which the devices are enclosed. Jim Cassanitti, the production ma
> Why was Patio Grill Company’s management being misled by the traditional product-costing system? What mistakes were being made?
> Briefly explain how a traditional, volume-based product-costing system operates.
> What is meant by customer-profitability analysis? Give an example of an activity that might be performed more commonly for one customer than for another.
> FiberCom, Inc., manufactures fiber optic cables for the computer and telecommunications industries. At the request of the company vice president of marketing, the cost management staff has recently completed a customer-profitability study. The following
> Contemporary Kitchen Furnishings, Inc. (CKF) manufactures a variety of housewares for the consumer market in the midwest. The company’s three major product lines are cooking utensils, tableware, and flatware. CKF implemented activity-based costing four y
> Refer to the information given in the preceding problem for Bodacious Bagels, Inc. Data from Bodacious Bagels, Inc.: Bodacious Bagels, Inc., manufactures a variety of bagels, which are frozen and sold in grocery stores. The production process consists o
> Bodacious Bagels, Inc., manufactures a variety of bagels, which are frozen and sold in grocery stores. The production process consists of the following steps. 1. Ingredients, such as flour and raisins, are received and inspected. Then they are stored unt
> Refer to the product costs developed in requirement (5) of Problem 5–60. Prepare a table showing how Gigabyte’s traditional, volume-based product-costing system distorts the product costs of gismos, thingamajigs, and w
> Refer to the new target prices calculated in the preceding problem for Gigabyte’s three products, based on the new activity-based costing system. Data from previous problem: Required: Write a memo to the company president commenting
> Gigabyte, Inc., manufactures three products for the computer industry: Gismos (product G): annual sales, 8,000 units Thingamajigs (product T): annual sales, 15,000 units Whatchamacallits (product W): annual sales, 4,000 units The company uses a tradition
> List two plausible goals for each of these organizations: Amazon.com, American Red Cross, General Motors, Walmart, the City of Seattle, and Hertz.
> Scott Manufacturing produces two items in its Virginia Beach plant: Tuff Stuff and Ruff Stuff. Since inception, Scott has used only one manufacturing-overhead cost pool to accumulate costs. Overhead has been allocated to products based on direct-labor ho
> Ultratech, Inc., manufactures several different types of printed circuit boards; however, two of the boards account for the majority of the company’s sales. The first of these boards, a television circuit board, has been a standard in t
> Queensland Electronics Company manufactures two large-screen television models, the Novelle, which has been produced for 10 years and sells for $910, and the Zodiac, a new model introduced in early 20x3, which sells for $1,160. Based on the following inc
> Pensacola Air Industries (PAI) manufactures aircraft parts for small aircraft. Over the past decade, PAI’s management has met its goal of reducing its reliance on government contract work to 50 percent of total sales. Thus, PAI’s sales are now roughly ev
> Gourmet Specialty Coffee Company (GSCC) is a distributor and processor of different blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. GSCC currently has 12 different coffees that it of
> Knickknack, Inc., manufactures two products: odds and ends. The firm uses a single, plantwide overhead rate based on direct-labor hours. Production and product-costing data are as follows: Manufacturing overhead budget: Machine-related costs. .........
> Refer to the original data given in the preceding problem for Rapid City Technology, Inc. Data from Rapid City Technology, Inc: An order for 1,000 boxes of a chemical product designated JLRP has the following production requirements. Machine setups....
> Rapid City Technology, Inc. manufactures chemicals used in agricultural pest control. The controller has established the following activity cost pools and cost drivers. An order for 1,000 boxes of a chemical product designated JLRP has the following pro
> John Patrick has recently been hired as controller of Valdosta Vinyl Company (VVC), a manufacturer of vinyl siding used in residential construction. VVC has been in the vinyl siding business for many years and is currently investigating ways to modernize
> Meditech, Inc. manufactures two types of medical devices, Medform and Procel, and applies overhead on the basis of direct-labor hours. Anticipated overhead and direct-labor time for the upcoming accounting period are $710,000 and 20,000 hours, respective
> Jay Maxey retired a few years ago at age 48, courtesy of the numerous stock options he had been granted while president of e-shops.com, an Internet start-up company. He soon moved to Montana to follow his dream of living in the mountains and Big-Sky coun
> Digital Light Corporation has just completed a major change in its quality control (QC) process. Previously, products had been reviewed by QC inspectors at the end of each major process, and the company’s 10 QC inspectors were charged a
> Wilmington Office Equipment Corporation manufactures two types of filing cabinets—Deluxe and Executive—and applies manufacturing overhead to all units at the rate of $80 per machine hour. Production information follows
> Refer to your solution to requirement (2) of the preceding problem. Exhibit 5-6: Required: Prepare an exhibit similar to Exhibit 5–6 in the text to explain the ABC calculations for the material-handling activity. Use your exhibit to e
> Kitchen King’s Toledo plant manufactures three product lines, all multi-burner, ceramic cook tops. The plant’s three product models are the Regular (REG), the Advanced (ADV), and the Gourmet (GMT). Until recently, the
> Clark and Shiffer LLP perform activities related to e-commerce consulting and information systems in Vancouver, British Columbia. The firm, which bills $140 per hour for services performed, is in a very tight local labor market and is having difficulty f
> Refer to the information given in the preceding problem for FiberCom, Inc., and two of its customers, Caltex Computer and Trace Telecom. Additional information for six of FiberCom’s other customers for the most recent year follows: Cust
> Since you have always wanted to be an industrial baron, invent your own product and describe at least five steps used in its production. Required: Explain how you would go about identifying non-value-added costs in the production process.
> Visit the website of a city, state, or Canadian province of your choosing (e.g., the City of Charlotte, www.charmeck.org ). Required: Read about the services offered to the public by this governmental unit. Then discuss how activity-based costing could
> Refer to the information given in the preceding exercise. For each of the activity cost pools identified, indicate whether it represents a unit-level, batch-level, product-sustaining-level, or facility-level activity. Information from previous exercise:
> Windy City Design Company specializes in designing commercial office space in Chicago. The firm’s president recently reviewed the following income statement and noticed that operating profits were below her expectations. She had a hunch
> Give an example of managerial accounting information that could help a manager make each of the following decisions. 1. The production manager in an automobile plant is deciding whether to have routine maintenance performed on a machine weekly or biweekl
> The customer-profitability analysis for Patio Grill Company, which is displayed in Exhibit 5–14 , ranks customers by operating income. An alternative, often-used approach is to rank customers by sales revenue. Exhibit 5-14: Exhibit
> Visit a restaurant for a meal or think carefully about a recent visit to a restaurant. List as many a activities as you can think of that would be performed by the restaurant’s employees for its customers. Required: For each activity on your list, indi
> List five activities performed by the employees of an airline on the ground. Required: For each of these activities, suggest a performance measure that could be used in activitybased management.
> Non-value-added costs occur in nonmanufacturing organizations, just as they do in manufacturing firms. Required: Identify four potential non-value-added costs in (1) an airline, (2) a bank, and (3) a hotel.
> United Technologies Corporation is using activity-based costing in two of its subsidiaries: Otis Elevator Company and Carrier Corporation. The following table shows 27 activities and eight accounts identified at Carrier, along with the classification det
> Zodiac Model Rocketry Company sells model rocketry kits and supplies to retail outlets and through its catalog. Some of the items are manufactured by Zodiac, while others are purchased for resale. For the products it manufactures, the company currently b
> Seneca Falls Winery is a small, family-run operation in upstate New York. The winery produces two varieties of wine: riesling and chardonnay. Among the activities engaged in by the winery are the following: 1. Trimming: At the end of a growing seas
> Refer to the description given for Wheelco, Inc., in the preceding exercise. Suppose the firm’s president has decided to implement an activity-based costing system. Description for Wheelco, Inc.: Wheelco, Inc. manufactures automobile and truck wheels.
> Wheelco, Inc. manufactures automobile and truck wheels. The company produces four basic, h ighvolume wheels used by each of the large automobile and pickup truck manufacturers. Wheelco also has two specialty wheel lines. These are fancy, complicated whee
> Rainbow Spray Paints, Inc. has used a traditional cost accounting system to apply quality-control costs uniformly to all products at a rate of 16 percent of direct-labor cost. Monthly direct-labor cost for the enamel paint line is $98,000. In an attempt
> SofTech, Inc., a developer and distributor of business applications software, has been in business for five years. SofTech’s sales have increased steadily to the current level of $25 million per year. The company has 250 employees. Jennifer Nolan joined
> What will happen to a company’s break-even point if the sales price and unit variable cost of its only product increase by the same dollar amount?
> Digitech, Ltd. manufactures various computer components in its Tokyo plant. The following costs are budgeted for January. (Yen is the Japanese monetary unit.) Insurance, plant ................................................................. 780,000 yen
> Precision Lens Company manufactures sophisticated lenses and mirrors used in large optical telescopes. The company is now preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the
