Janice Black, manager of the Produce Department at Spanky’s Grocery, has a monthly responsibility margin of $4,000. The store manager has decided to allocate storewide common costs to each department. After the allocation, Ms. Black’s responsibility margin is a negative $1,200 per month. Identify the disadvantages of allocating common costs to responsibility centers.
> Assume that the required rate of return for capital investments at Knorr Foods is 12 percent. The Produce Department has proposed an investment in refrigeration equipment with a 10-year life. The present value of its expected annual cash flows is $84,000
> Suppose you are interested in opening up a new restaurant in your area. What specific activities would you undertake in the research and development and design stage of the value chain for the restaurant?
> Some types of capital investments have associated cash flows that are very difficult to estimate, while other types of capital investments have associated cash flows that are very easy to estimate. Name two capital investments, one that has associated ca
> Pete Nunn is trying to decide whether to go ahead with an investment opportunity that costs $60,000. The expected incremental cash inflows are $32,000, while the expected incremental cash outflows are $17,000. What is the payback period?
> An analysis of the Marketable Securities control account of Fancier Products, Inc., shows the following entries during the year. In addition, the company’s income statement includes a $25,000 loss on sales of marketable securities. Non
> Hawkins Poultry Farms is considering the purchase of feeding equipment that costs $139,000 and will produce annual cash flows of approximately $36,000 for five years. The equipment is expected to be sold at the end of five years for $40,000. What is the
> Rommel Fabrics is considering an investment proposal with a negative net present value of $50 when a discount rate of 9 percent is used. The same proposal has a positive net present value of $400 when a discount rate of 8 percent is used. What conclusion
> Bramblett Recording Studio is considering two investment proposals (1 and 2). Data for the two proposals are presented here. Calculate the return on average investment for both proposals.
> Sam’s Gardening Centers has multiple stores in the northeastern United States. Sam’s is considering investing in an online store. In addition to the identifiable cash flows such as increased sales and the initial costs to invest in software and personnel
> Rico Petricelli Industries invests $960,000 in plant assets with an estimated 10-year service life and no salvage value. These assets contribute $64,000 to annual net income when depreciation is computed on a straight-line basis. Compute the payback peri
> Compensation for top executives (e.g., CEOs and CFOs) has become more variable over time. For example, recent data show that in large corporations only 20 percent of CFO pay is fixed and 80 percent is variable, based on companywide performance. Explain w
> In June, current year, Wendy Winger organized a corporation to provide aerial photography services. The company, called Aerial Views, began operations immediately. Transactions during the month of June were as follows. The account titles used by Aerial
> The weighted-average cost of capital of Eagle Ridge is 8 percent. Last year, one of Eagle Ridge’s divisions generated an EVA of $3,200,000, while the division’s assets less its current liabilities were $24, 00,000. How much after-tax operating income did
> Welling house Industries has established a 10 percent target ROI for its divisions. The following data have been gathered for the Ionia Division’s operations for the previous year: Revenues = $30,000,000; Expenses = $28,000,000; Invested capital = $11,20
> What is the effect of an increase in activity on the following items? a. Total variable costs. b. Variable costs per unit of activity. c. Total fixed costs. d. Fixed costs per unit of activity.
> Auto Supply Company’s 2021 statement of cash flows appears in Exhibit 13–8. Study the statement and respond to the following questions. a. What was the company’s free cash flow in 2021? b. What were
> Consider the information in Brief Exercise 25.5. Assume that the manager of division 2 has the opportunity to purchase a new piece of equipment for $3,000,000 that would increase earnings by $300,000 per year. Show the impact of this purchase on division
> Saxwell Corporation has many divisions and evaluates them using ROI. The corporation’s expected ROI for each division is 14 percent or above. Compute the ROI for divisions 1 and 2. Are the divisions meeting the expected ROI? What other
> Ricoh Company Ltd., a leading supplier of office automation equipment and electronics, has implemented a balanced scorecard. Match each of the performance indicators from their scorecard that follows to the four balanced scorecard perspectives (Financial
> Use the information in Brief Exercise 25.2 to compute the ROI for the Pennsylvania facility using total assets and assets net of depreciation. Now find residual income if the company expects a 30 percent return on total assets. Is the Pennsylvania facili
> Proctor Corporation has multiple facilities across the United States. Management evaluates each facility based on the capital turnover ratio using the DuPont system. The following information pertains to the facility in Pennsylvania for the past year. C
> Boris Jasper is the manager of an auto parts division for a large auto parts supplier. The division makes dampers and oil pumps. Identify three things Boris could do to increase the division’s ROI in the coming year.
> Marsha’s Pet Store employs six employees. Their duties are to sell pets, replenish the stock, keep the pets’ cages clean, feed the pets, and maintain good records. Marsha pays a fixed hourly rate and a commission on sales of pets. Lately, Marsha has been
> Weed Surveying, Inc., provides land surveying services. During September, its transactions included the following. Instructions: a. Analyze the effects that each of these transactions will have on the following six components of the companyâ€
> See Brief Exercise 24.8. Provide the journal entry for direct materials usage in the month of November for Hearts & Flowers Data from Brief Exercise 24.8: One of the products of Hearts & Flowers is a one-pound box of chocolate candy, packaged in a box b
> One of the products of Hearts & Flowers is a one-pound box of chocolate candy, packaged in a box bearing the customer’s logo (minimum order, 100 boxes). The standard cost of the chocolate candy used is $2 per pound. During November, 20,000 of these one-p
> Statements of cash flow for Home Depot, Inc., for fiscal years 2018, 2017, and 2016 are included in Appendix A of this text. a. Focus on the information for 2018 (year ending February 3, 2019). How does net earnings compare with net cash provided by or u
> See Brief Exercise 24.6. Provide the journal entry for direct labor usage for the month of September for Party-On!. Data from Brief Exercise 24.6: A popular product manufactured by Party-On! is a festively decorated punch bowl. The company’s standard co
> What are the four components of target costing? Why are each of these components important for target costing?
> A popular product manufactured by Party-On! is a festively decorated punch bowl. The company’s standard cost system calls for 0.10 hours of direct labor per bowl, at a standard wage rate of $16. During September, Party-On! produced 1,200 of these bowls a
> Compute the standard cost per finished unit for the normal or expected standards and for the ideal standards. Explain how both normal and ideal standards would be used by managers.
> Jesse is the office manager of a large firm called Law & Legal Services, Inc. At Law & Legal Services, overhead is allocated to client accounts using hours billed. Jesse found the following information related to overhead for the previous month: ∙ Spendi
> Use the information in Exhibit 24–5 to compute the expected volume variance at 780 units.
> For the month of January, Remco International’s direct labor rate variance was $16,000 unfavorable, and its direct labor efficiency variance was $11,000 favorable. Actual direct labor costs during January were $500,000. What standard direct labor amount
> Spotty Corporation applied $12,600 of manufacturing overhead to production during the month. Its actual overhead costs for the month were $14,700. The cost accountant reports that Spotty’s unfavorable spending variance for the month was $2,800. Did Spott
> Environmental Services, Inc., performs various tests on wells and septic systems. A few of the company’s business transactions occurring during August are described as follows. 1. On August 1, the company billed customers $2,500 on account for services
> The production manager at Branford Industries is investigating the cause of unfavorable materials and labor variances that occurred in the previous month. Standards are based on normal or expected production of 400 units per month at Bramford. The manage
> Electro Systems manufactures relays and currently sells 200,000 units annually to producers of electronic equipment. Mac Scott, president of the company, anticipates a 20 percent increase in the cost per unit of direct labor on January 1 of next year. He
> The president of Cold Moo Ice Cream Company, a chain of ice cream stores in the Midwest, was unhappy with the actual six-month profit figures for the company recently prepared by the CFO. The president asked the CFO for a profit breakdown, by store, of t
> For each of the following costs associated with a chain of bicycle stores, decide if the cost is common or traceable to (1) the store departments (repairs and sales), (2) each store, or (3) the company. a. $25,000 in rent paid for store space. b. Store m
> Hilgen Hotel & Spa is located in beautiful Sydney, Australia. Hilgen operates three profit centers: the hotel, a restaurant, and a spa. The complex occupies 100,000 square feet and has 250 employees. The complex’s general upkeep costs (e.g., insurance, u
> What is an activity base and why is it important in analyzing cost behavior?
> Categorize the following transfer prices as being market based, negotiated, or cost based. a. The market price of a widget is $25, the cost is $15, and the actual transfer price is $22, the market price less cost of sales commissions. b. The manager of t
> The contribution margin ratio of the Parts Department of Buffalo Valley Repair is 40 percent. Traceable fixed costs of the Parts Department average $80,000 per year, and the department’s projected revenue for the upcoming year is $300,000. What is the de
> Glide Behind Corporation manufactures and sells small cargo trailers. The Wheel Division creates parts that are both sold externally and transferred internally to the Assembly Division. Variable production costs of wheel set #102 are $80, and each set se
> Nelson Chemical consists of seven divisions. Divisions One through Five make products that are sold in the competitive market. Divisions Two and Three make their own investment and transfer pricing decisions. Twenty-five percent of Division Two’s output
> ordahl’s grocery store has a small bakery that sells a variety of baked goods. Sales from the bakery average less than 5 percent of the store’s total revenue and is considered a cost center. As a means of attracting customers, the bakery manager has deci
> Walt’s Used Cars sells late-model used cars and offers an optional 12-month service agreement. Walt’s estimates that the cost of the service agreement will be approximately 5 percent of the total sales price of the vehicle. During the month of April, Wal
> Explain why it is necessary to distinguish between cash budget estimates and operating budget estimates.
> Assume a store’s Clothing Department has a lower contribution margin ratio but a higher responsibility margin ratio than its Sporting Goods Department. If $15,000 in advertising is expected to increase the sales of either department by $45,000, in which
> The following equivalent unit figures were taken from the December production cost report of the Distillation Department of Oil City Lubricants. If the Distillation Department’s ending inventory on December 31 is comprised of 12,000 eq
> On June 1, the Grinding Department of Precision Lenses had costs carried forward from May totaling $400,000. Resources consumed to complete the beginning inventory totaled $80,000. The total cost of units started by the Grinding Department in June was $1
> Milton Corporation had 15,000 units of beginning inventory in its Cutting Department on May 1. The units were 100 percent complete with respect to direct materials requirements but only 80 percent complete with respect to conversion requirements. On May
> Why is it so important that target costing procedures focus on the customer?
> On October 1, Clifford Manufacturing had 10,000 units in its Mixing Department. These units were 75 percent complete with respect to direct materials requirements and 60 percent complete with respect to their conversion requirements. During October, the
> Dittmar Products has provided the following information pertaining to equivalent units of production in its Molding Department for the month of April. All direct materials used in the Molding Department are added at the beginning of the process. On Apri
> Faulk Corporation uses a process costing system for its two production departments: Mixing and Baking. The company provided the following manufacturing cost information for the month of June. a. Record the transfer of costs from the Mixing Department to
> For each of the four accounts listed, prepare an example of a journal entry that would cause the account to be (1) debited and (2) credited using a process costing system. Assume perpetual inventory records are maintained. Include written explanations wi
> Shepherd Industries had the following cash flows by major categories during the current year. a. Calculate the net amount of cash provided by or used for financing activities for the year. b. Briefly justify why you excluded any of these items in your c
> Healthy Times produces four types of frozen TV dinners that it sells to supermarkets and independent grocery stores. The company operates from two locations: a manufacturing plant and a refrigerated warehouse located a few blocks away. (Administrative of
> Match the business with the appropriate cost system(s) for that business using the number of the cost system where 1 = job order costing, 2 = process costing, and 3 = activity-based costing. a. Jensen, Needham, and Gruver, attorneys-at-law. b. Walmart In
> Temple Industrial’s production cost report for its Packaging Department reveals that the cost per equivalent unit started and completed in November was $165. The same report reveals that the cost per equivalent unit transferred out of the Packaging Depar
> Determine whether each of the following companies is best suited for a job order cost system, a process costing system, or both. a. C. Erickson & Sons, Inc. (a construction company with multiple job sites). b. Apple Inc. (a manufacturer of computers for
> For each of the accounts listed, prepare two summary journal entries. In the first entry, illustrate a transaction that would cause the account to be debited. In the second entry, illustrate a transaction that would cause the account to be credited. Assu
> Norton Industries purchased direct materials costing $900,000 during the current period. It actually used only $825,000 of direct materials on jobs during the period. a. Prepare the summary journal entry to record direct materials purchased during the p
> Needles Manufacturing pays its direct labor employees $20 per hour. During the current period, 500 direct labor hours were recorded on employee time cards, and the company actually paid its direct labor employees $8,500. a. Record the summary journal en
> List the assumptions that underlie cost-volume-profit analysis.
> Indicate whether job order costing is appropriate for each of the following businesses. Explain why. a. Let Them Eat Cake (a small bakery that makes wedding cakes unique to each customer). b. Baxter, Claxter, and Stone (a law firm specializing in malpr
> Morris Corporation applies manufacturing overhead to jobs at a rate of $50 per direct labor hour. During the current period, actual overhead costs totaled $240,000, and 5,000 direct labor hours were worked by the company’s employees. a. Record the journ
> Sorensen Company provides the following information related to its investing and financing activities for the current year. a. Calculate the net amount of cash provided by or used for investing activities for the year. b. What impact, if any, do the fol
> Fox Manufacturing applies manufacturing overhead at a rate of $32 per machine hour. a. When during the year was this rate computed? b. Describe briefly how this rate was computed. c. Identify the shortcomings of this rate that will cause overhead appl
> Glenn Grimes is the founder and president of Heartland Construction, a real estate development venture. The business transactions during February while the company was being organized are listed as follows. Instructions: a. Prepare journal entries to r
> Nicholes Corporation finished job no. 600 on June 1. On June 10, the company sold job no. 600 for $25,000 on account to a credit customer. Total manufacturing costs allocated to this job at the time of the sale amounted to $16,000. a. Record the transfer
> Lewis & Company applies manufacturing overhead to production using an activity-based costing system. The company’s utilities cost pool has accumulated $450,000, its maintenance cost pool has accumulated $600,000, and its set-up cost pool has accumulated
> Toole Corporation uses a job order costing system and allocates manufacturing overhead at a rate of $45 per machine hour. During the period, the company used 1,200 machine-hours and actually incurred manufacturing overhead costs of $55,000. a. Prepare a
> Star Repairs Co. does all the repair work for a medium-sized manufacturer of handheld computer games. The games are sent directly to Star, and after the games are repaired, Star bills the game manufacturer for cost plus a 20 percent markup. In the month
> The Work in Process Inventory account had a beginning balance of $16,200 on April 1. During April, the cost of direct materials used was $408,000 and direct labor cost assigned to production was $56,000. A total of $72,000 of overhead was assigned to pro
> Canterbury Pets, Inc., has three stores in the state. The owner, Ms. Perkins, is having trouble tracking inventory costs in the three pet stores. Ms. Perkins knows about your skill in tracking and understanding cost flows and asks you to find the followi
> During the current year, CF Manufacturing Co. incurred $370,000 of indirect labor costs, $15,000 of indirect materials costs, and $163,000 of other overhead costs. It also incurred $125,000 in rent costs on a warehouse for storing finished goods. What am
> Some managers believe machine performance is more important in a JIT environment than in a non-JIT environment. Do you agree or disagree? Explain your answer.
> Among the transactions of Marvel Manufacturing were the following. 1. Made payments on accounts payable to office suppliers. 2. Paid the principal amount of a mortgage to Seventh Bank. 3. Paid interest charges relating to a mortgage to Seventh Bank. 4. I
> What is the objective of activity-based management and how does it differ from activity-based costing?
> What are performance obligations, and how do performance obligations relate to the principle of revenue recognition?
> Freddy’s Furnaces, Inc., assigned $550,000 of direct labor costs to production during the current period but paid its employees only $500,000. What are the two journal entries used to record these transactions?
> Sonic, Inc., sells business software. Currently, all of its programs come on disks. Due to their complexity, some of these applications occupy as many as seven disks. Not only are the disks cumbersome for customers to load, but they are relatively expens
> Hefty-Lift, Inc., is a company that manufactures forklifts. During the year, Hefty purchased $1,250,000 of direct materials and placed $1,600,000 worth of direct materials into production. Hefty’s beginning balance in the Materials Inventory account was
> A company that assembles trucks produces 60 trucks during the current year and incurs $4.5 million of material, labor, and overhead costs. Fifty-three trucks were sold during the year and each is allocated the same amount of costs. How much of the $4.5 m
> During the current year, the cost of direct materials purchased by a manufacturing firm was $360,000, and the direct materials inventory increased by $80,000. What was the cost of direct materials used during the year?
> At the end of the year, Eskola Manufacturing had the following balances. Prepare a partial balance sheet for Eskola’s showing the given accounts.
> During the year, Newark Boat Yard has incurred manufacturing costs of $250,000 in building three large sailboats. At year-end, each boat is about 60 percent complete. How much of these manufacturing costs should be recognized as expenses in Newark Boat Y
> In 2016, Novartis AG agreed to pay the U.S. Securities and Exchange Commission $25 million as a result of its China-based subsidiaries engaging in pay-to-prescribe schemes to increase sales. Employees of these China-based subs gave money, gifts, and othe
> Bosor Corporation has a receivable denominated in British pounds and a payable in Brazilian reals resulting from imports from Brazil. Bosor recorded foreign exchange losses related to both its pound-related receivable and its real-denominated payable. Di
> Among the transactions of Salem, Inc., were the following. a. Made payments on accounts payable to merchandise suppliers. b. Paid the principal amount of a note payable to First State Bank. c. Paid interest charges relating to a note payable to First Sta
> When business transactions are conducted internationally, cultural differences must be taken into consideration. Geert Hofstede is a leading researcher on how cultural variables can affect such international arrangements. Hofstede has a website where he
> Computes is a U.S.-based multinational corporation. Foreign sales are made at prices set in U.S. dollars, but foreign purchases are often made at prices stated in foreign currencies. If the exchange rate for the U.S. dollar has risen against most foreign
> A regional airline and a furniture manufacturer each generate annual revenue of $120 million and earn net income of $10 million. Which company probably has the higher break-even point? Explain.
> Jefferson Mountain is a small ski resort located in central Pennsylvania. In recent years, the resort has experienced two major problems: (1) unusually low annual snowfalls and (2) long lift lines. To remedy these problems, management is considering two
> You are the purchasing agent for a U.S. business that purchases merchandise on account from companies in Mexico. The exchange rate for the Mexican peso has been falling against the U.S. dollar and the trend is expected to continue for at least several mo
> Explain how an increase in a foreign exchange rate will affect a U.S. company that makes: a. Credit sales to a foreign company at prices stated in the foreign currency. b. Credit purchases from a foreign company at prices stated in the foreign currency.
> A recent newspaper shows the exchange rate for the British pound at $1.4135 and the yen at $0.008843. Does this indicate that the pound is stronger than the yen? Explain.
