Ludmilla Quagg owns a fitness center and is thinking of replacing the old Fit-O-Matic machine with a brand new Flab-Buster 3000. The old Fit-O-Matic has a historical cost of $50,000 and accumulated depreciation of $46,000, but has a trade-in value of $5,000. It currently costs $1,200 per month in utilities and another $10,000 a year in maintenance to run the Fit-O-Matic. Ludmilla feels that the Fit-O-Matic can be used for another 10 years, after which it would have no salvage value. The Flab-Buster 3000 would reduce the utilities costs by 30% and cut the maintenance cost in half. The Flab-Buster 3000 costs $98,000, has a 10-year life, and an expected disposal value of $10,000 at the end of its useful life. Ludmilla charges customers $10 per hour to use the fitness center. Replacing the fitness machine will not affect the price of service or the number of customers she can serve. Required: 1. Ludmilla wants to evaluate the Flab-Buster 3000 project using capital budgeting techniques, but does not know how to begin. To help her, read through the problem and separate the cash flows into four groups: (1) net initial investment cash flows, (2) cash flow savings from operations, (3) cash flows from terminal disposal of investment, and (4) cash flows not relevant to the capital budgeting problem. 2. Assuming a tax rate of 40%, a required rate of return of 8%, and straight-line depreciation over remaining useful life of machines, should Ludmilla buy the Flab-Buster 3000?
> Automotive Products (AP) designs and produces automotive parts. In 2011, actual variable manufacturing overhead is $308,600. AP’s simple costing system allocates variable manufacturing overhead to its three customers based on machine-ho
> The Walliston Group (WG) provides tax advice to multinational firms. WG charges clients for (a) direct professional time (at an hourly rate) and (b) support services (at 30% of the direct professional costs billed). The three professionals in WG and thei
> Describe two ways in which a house construction company may use job-cost information.
> Hamilton, Inc., manufactures boom boxes (music systems with radio, cassette, and compact disc players) for several well-known companies. The boom boxes differ significantly in their complexity and their manufacturing batch sizes. The following costs were
> The Ride-On-Wave Company (ROW) produces a line of non-motorized boats. ROW uses a normal-costing system and allocates manufacturing overhead using direct manufacturing labor cost. The following data are for 2011: Inventory balances on December 31, 2011
> Braden Brothers, Inc., is an architecture firm specializing in high-rise buildings. Its job-costing system has a single direct-cost category (architectural labor) and a single indirect-cost pool, which contains all costs of supporting the office. Support
> Job costing; actual, normal, and variation from normal costing. Chico & Partners, a Quebec-based public accounting partnership, specializes in audit services. Its job-costing system has a single direct-cost category (professional labor) and a single
> Rafael Company produces pipes for concert quality organs. Each job is unique. In April 2011, it completed all outstanding orders, and then, in May 2011, it worked on only two jobs, M1 and M2: Direct manufacturing labor is paid at the rate of $26 per ho
> Donnell Transport assembles prestige manufactured homes. Its job costing system has two direct-cost categories (direct materials and direct manufacturing labor) and one indirect-cost pool (manufacturing overhead allocated at a budgeted $30 per machine-ho
> What is broad averaging and what consequences can it have on costs?
> Define cost pool, cost tracing, cost allocation, and cost-allocation base.
> Management accounting should not fit the straitjacket of financial accounting.” Explain and give an example.
> How does management accounting differ from financial accounting?
> Match each of the following 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 capacity utiliz
> Name the four areas in which standards of ethical conduct exist for management accountants in the United States. What organization sets forth these standards?
> ABC systems only apply to manufacturing companies.” Do you agree? Explain
> How can the extent of price discounting be tracked on a customer-by-customer basis?
> Explain how the direct materials mix and yield variances provide additional information about the direct materials efficiency variance.
> How can the sales-quantity variance be decomposed further?
> The University of Chicago Press is wholly owned by the university. It performs the bulk of its work for other university departments, which pay as though the press were an outside business enterprise. The press also publishes and maintains a stock of boo
> How can the sales-volume variance be decomposed further to obtain useful information?
> Eric Johnson was recently promoted to Controller of Research and Development (R&D) for Pharma Cor, a Fortune 500 pharmaceutical company, which manufactures prescription drugs and nutritional supplements. The company’s total R&D cost for 2012 was expected
> George Perez is the controller at Allied Electronics, a manufacturer of devices for the computer industry. He is being considered for a promotion to chief financial officer. Required: 1. In this table, indicate which executive is primarily responsible f
> Burst, Inc., cans peaches for sale to food distributors. All costs are classified as either manufacturing or marketing. Burst prepares monthly budgets. The March 2012 budgeted absorption-costing income statement is as follows: Monthly costs are classif
> A series of independent situations in which a firm is about to make a strategic decision follow. Decisions: a. Roger Phones is about to decide whether to launch production and sale of a cell phone with standard features. b. Computer Magic is trying to de
> WebNews.com offers its subscribers several services, such as an annotated TV guide and local-area information on weather, restaurants, and movie theaters. Its main revenue sources are fees for banner advertisements and fees from subscribers. Recent data
> Monroe Moulding is a large manufacturer of wood picture frame moulding. The company operates distribution centers in Dallas and Philadelphia. The distribution centers cut frames to size (called “chops”) and ship them to custom picture framers. Because of
> Hamilton Semiconductors manufactures specialized chips that sell for $25 each. Hamilton’s manufacturing costs consist of variable cost of $3 per chip and fixed costs of $8,000,000. Hamilton also incurs $900,000 in fixed marketing costs each year. Hamilto
> Community Bank recently introduced a new bonus plan for its business unit executives. The company believes that current profitability and customer satisfaction levels are equally important to the bank’s long-term success. As a result, t
> Chris Moreno seeks your advice on revising the existing bonus plan for division managers of Global Event Group. Assume division managers do not like bearing risk. Moreno is considering three ideas: Make each division manager’s compensation depend on divi
> An auditor for the Internal Revenue Service is trying to reconstruct some partially destroyed records of two taxpayers. For each of the cases in the accompanying list, find the unknowns designated by the letters A through D. Case 1 Case 2 (in thousa
> Global Event Group has two major divisions: print and Internet. Summary financial data (in millions) for 2011 and 2012 are as follows: The two division managers’ annual bonuses are based on division ROI (defined as operating income di
> Zynga Multinational, Inc., has divisions in the United States, Germany, and New Zealand. The U.S. division is the oldest and most established of the three, and has a cost of capital of 8%. The German division was started three years ago when the exchange
> Konekopf Corporation has a division in the United States, and another in France. The investment in the French assets was made when the exchange rate was $1.30 per euro. The average exchange rate for the year was $1.40 per euro. The exchange rate at the e
> P. F. Skidaddle’s operates casual dining restaurants in three regions: Denver, Seattle, and Sacramento. Each geographic market is considered a separate division. The Denver division is made up of four restaurants, each built in early 20
> Nature’s Elixir Corporation operates three divisions that process and bottle natural fruit juices. The historical-cost accounting system reports the following information for 2011: Nature’s Elixir estimates the usefu
> Doorchime Company makes doorbells. It has a weighted average cost of capital of 9%, and total assets of $5,550,000. Doorchime has current liabilities of $800,000. Its operating income for the year was $630,000. Doorchime does not have to pay any income t
> Jeremiah Industries manufactures high-grade aluminum luggage made from recycled metal. The company operates two divisions: metal recycling and luggage fabrication. Each division operates as a decentralized entity. The metal recycling division is free to
> The Bosh Corporation makes and sells 20,000 multisystem music players each year. Its assembly division purchases components from other divisions of Bosh or from external suppliers and assembles the multisystem music players. In particular, the assembly d
> Argone division of Gemini Corporation is located in the United States. Its effective income tax rate is 30%. Another division of Gemini, Calcia, is located in Canada, where the income tax rate is 42%. Calcia manufactures, among other things, an intermedi
> Industrial Diamonds, Inc., based in Los Angeles, has two divisions: South African mining division, which mines a rich diamond vein in South Africa U.S. processing division, which polishes raw diamonds for use in industrial cutting tools The processing di
> Cam Cody schedules book signings for science fiction authors and creates e-books and books on CD to sell at each signing. Cody uses a normal-costing system with two direct cost pools, labor and materials, and one indirect cost pool, general overhead. Gen
> Assume that Pat Borges, CEO of Crango, had mandated a transfer price equal to 200% of full cost. Now he decides to decentralize some management decisions and sends around a memo that states the following: “Effective immediately, each division of Crango i
> Crango Products is a cranberry cooperative that operates two divisions, a harvesting division and a processing division. Currently, all of harvesting’s output is converted into cranberry juice by the processing division, and the juice i
> Refer to Problem 22-28. Required: 1. Suppose the manager of division A has the option of (a) cutting the external price to $195, with the certainty that sales will rise to 1,000 units or (b) maintaining the external price of $200 for the 800 units and t
> Europa, Inc., has two divisions, A and B, that manufacture expensive bicycles. Division A produces the bicycle frame, and division B assembles the rest of the bicycle onto the frame. There is a market for both the subassembly and the final product. Each
> Sally wants to purchase a Burgers-N-Fries franchise. She can buy one for $500,000. Burgers-N-Fries headquarters provides the following information: Sally will also have to pay Burgers-N-Fries a franchise fee of 10% of her revenues each year. Sally want
> Best-Cost Foods is considering replacing all 10 of its old cash registers with new ones. The old registers are fully depreciated and have no disposal value. The new registers cost $749,700 (in total). Because the new registers are more efficient than the
> Unbreakable Manufacturing manufactures over 20,000 different products made from metal, including building materials, tools, and furniture parts. The manager of the furniture parts division has proposed that his division expand into bicycle parts as well.
> Jack Garrett, a manager of the plate division for the Marble Top Manufacturing company, has the opportunity to expand the division by investing in additional machinery costing $420,000. He would depreciate the equipment using the straight-line method, an
> The Smacker Company is a family-owned business that produces fruit jam. The company has a grinding machine that has been in use for three years. On January 1, 2011, Smacker is considering the purchase of a new grinding machine. Smacker has two options: (
> Halsey Company sells women’s clothing. Halsey’s strategy is to offer a wide selection of clothes and excellent customer service and to charge a premium price. Halsey presents the following data for 2010 and 2011. For s
> Define cost-volume-profit analysis.
> You have the opportunity to expand your business by purchasing new equipment for $159,000. The equipment has a useful life of nine years. You expect to incur cash fixed costs of $96,000 per year to use this new equipment, and you expect to incur cash var
> Crumbly Cookie Company is considering expanding by buying a new (additional) machine that costs $62,000, has zero terminal disposal value, and has a 10-year useful life. It expects the annual increase in cash revenues from the expansion to be $28,000 per
> Whimsical Corporation is an international manufacturer of fragrances for women. Management at Whimsical is considering expanding the product line to men’s fragrances. From the best estimates of the marketing and production managers, annual sales (all for
> Assume the same facts as in Problem 21-27, except that the plant is located in Austin, Texas. Pro Chips has no special waiver on income taxes. It pays a 30% tax rate on all income. Proceeds from sales of equipment above book value are taxed at the same 3
> Pro Chips is a manufacturer of prototype chips based in Dublin, Ireland. Next year, in 2012, Pro Chips expects to deliver 552 prototype chips at an average price of $80,000. Pro Chips’ marketing vice president forecasts growth of 60 pro
> Flexible Security Devices (FSD) 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
> Assume the same facts as in Problem 20-32 except now there are only two trigger points: Completion of good finished units of product and Sale of finished goods. Required: 1. Prepare summary journal entries for August, including the disposition of under-
> Assume that the second trigger point for Rippel 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 i
> The Rippel Corporation manufactures electrical meters. For August, there were no beginning inventories of direct materials and no beginning or ending work in process. Rippel uses a JIT production system and backflush costing with three trigger points for
> 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,
> The Domestic Engines Co. produces the same power generators in two Illinois plants, a new plant in Peoria and an older plant in Moline. The following data are available for the two plants: All fixed costs per unit are calculated based on a normal capac
> Computers 4 U purchases one model of computer at a wholesale cost of $200 per unit and resells it to end consumers. The annual demand for the company’s product is 500,000 units. Ordering costs are $800 per order and carrying costs are $50 per computer, i
> Global Tunes Corp. produces J-Pods, music players that can download thousands of songs. Global Tunes forecasts that demand in 2011 will be 48,000 J-Pods. The variable production cost of each J-Pod is $54. Due to the large $10,000 cost per setup, Global T
> Chadwick Shoe Co. produces and sells an excellent quality walking shoe. After production, the shoes are distributed to 20 warehouses around the country. Each warehouse services approximately 100 stores in its region. Chadwick uses an EOQ model to determi
> Soothing Meadow, a retailer of bed and bath linen, sells 380,000 packages of Mona Lisa designer sheets each year. Soothing Meadow incurs an ordering cost of $57 per purchase order placed with Mona Lisa Enterprises and an annual carrying cost of $12.00 pe
> Wainwright Corporation manufactures auto parts for two leading Japanese automakers. Nancy Evans is the management accountant for one of Wainwright’s largest manufacturing plants. The plant’s General Manager, Chris Shel
> Pauli’s Pizza has recently begun collecting data on the quality of its customer order processing and delivery. Pauli’s made 1,800 deliveries during the first quarter of 2012. The following quality data pertains to firs
> Fun Time Toys (FTT) produces dolls in two processes: molding and assembly. FTT is currently producing two models: Chatty Chelsey and Talking Tanya. Production in the molding department is limited by the amount of materials available. Production in the as
> Aardee Industries manufactures pharmaceutical products in two departments: mixing and tablet making. Additional information on the two departments follows. Each tablet contains 0.5 gram of direct materials. The mixing department makes 200,000 grams of
> The Brandt Corporation makes wire harnesses for the aircraft industry only upon receiving firm orders form its customers. Brandt has recently purchased a new machine to make two types of wire harnesses, one for Boeing airplanes (B7) and the other for Air
> Seawall is still debating whether it should introduce Y28. The following table provides information on selling prices, variable costs, and inventory carrying costs for Z39 and Y28: Required: 1. Using the average manufacturing cycle times calculated in
> Mile-High Foods, Inc., was formed in March 2011 to provide prepackaged snack boxes for a new low cost regional airline beginning on April 1. The company has just leased warehouse space central to the two airports to store materials. To move packaged mate
> The Seawall Corporation uses an injection molding machine to make a plastic product, Z39, after receiving firm orders from its customers. Seawall estimates that it will receive 50 orders for Z39 during the coming year. Each order of Z39 will take 80 hour
> East Coast Healthcare operates two medical groups, one in Philadelphia and one in Baltimore. The semi-annual bonus plan for each medical group’s president has three components: a. Profitability performance. Add 0.75% of operating income
> The Tan Corporation uses multicolor molding to make plastic lamps. The molding operation has a capacity of 200,000 units per year. The demand for lamps is very strong. Tan will be able to sell whatever output quantities it can produce at $40 per lamp. Ta
> The Thomas Corporation sells 300,000 V262 valves to the automobile and truck industry. Thomas has a capacity of 110,000 machine-hours and can produce 3 valves per machine-hour. V262’s contribution margin per unit is $8. Thomas sells only 300,000 valves b
> Riposte Corporation manufactures a computer chip called XD1. Manufacturing costs of one XD1 chip, excluding rework costs, are direct materials, $60; direct manufacturing labor, $12; and manufacturing overhead, $38. At the inspection point, defective unit
> The Kim Company is a furniture manufacturer with two departments: molding and finishing. The company uses the weighted-average method of process costing. In August, the following data were recorded for the finishing department: Conversion costs are add
> Fantastic Furniture manufactures plastic lawn furniture in a continuous process. The company pours molten plastic into molds and then cools the plastic. Materials are added at the beginning of the process, and conversion is considered uniform through the
> Assume that Job #10 of Crystal Clear Machine Shop generates normal scrap with a total sales value of $650 (it is assumed that the scrap returned to the storeroom is sold quickly). Required: Prepare the journal entries for the recognition of scrap, assum
> Assume that the 7 spoiled units of Whitefish Machine Shop’s Job #10 can be reworked for a total cost of $1,700. A total cost of $10,150 associated with these units has already been assigned to Job #10 before the rework. Required: Prepare the journal ent
> Zeller Company uses standard costing. The company has two manufacturing plants, one in Nevada and the other in Ohio. For the Nevada plant, Zeller has budgeted annual output of 4,000,000 units. Standard labor hours per unit are 0.25, and the variable over
> Crystal Clear Machine Shop is a manufacturer of motorized carts for vacation resorts. Peter Cruz, the plant manager of Crystal Clear, obtains the following information for Job #10 in August 2010. A total of 32 units were started, and 7 spoiled units were
> Metal Works, Inc., manufactures various metal parts in batches as ordered by customers, and accounts for them using job costing. Job 2346-8, a large job for customer X, incurred $240,000 of direct materials costs and $620,000 of direct labor costs. Metal
> 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 Boston 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 dispo
> 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 Boston Company is a food-processing company based
> The Boston Company is a food-processing company based in San Francisco. 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 durin
> Penelope’s Pearls Company (PPC) is a manufacturer of knock off jewelry. Penelope attends Fashion Week in New York City every September and February to gauge the latest fashion trends in jewelry. She then makes trendy jewelry at a fracti
> 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 m
> Refer to the information in Problem 17-38. Suppose that Bookworm, Inc., uses the FIFO method instead of the weighted-average method in all of its departments. The only changes to Problem 17-38 under the FIFO method are that total transferred-in costs of
> Bookworm, 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 pr
> Sol Electronics, a fast-growing electronic device producer, uses a standard costing system, with standards set at the beginning of each year. In the second quarter of 2011, Sol faced two challenges: It had to negotiate and sign a new short-term labor agr
> Required: Do Problem 17-35 using the FIFO method of process costing. If you did Problem 17-35, explain any difference between the cost of work completed and transferred out and the cost of ending work in process in the assembly department under the weigh
> Required: Prepare a set of summarized journal entries for all April transactions affecting Work in Process—Assembly. Set up a T-account for Work in Process—Assembly and post your entries to it.
> Ashworth Handcraft is a manufacturer of picture frames for large retailers. Every picture frame passes through two departments: the assembly department and the finishing department. This problem focuses on the assembly department. The process-costing sys
> Refer to the information in Problem 17-33. Suppose that Larsen Company uses the FIFO method instead of the weighted-average method in all of its departments. The only changes to Problem 17-33 under the FIFO method are that total transferred-in costs of b
