Question: Luke Corporation produces a variety of products,

> Eugene Ables ran an excavation company. He borrowed $500,000 from the Highland Park State Bank. Ables signed a note promising to repay the money and an agreement giving Highland a security interest in all of his equipment, including after-acquired equipm

> Dupont Feed bought and sold agricultural products. Dupont borrowed $300,000 from Wells Fargo Bank and gave Wells Fargo a security interest in all inventory, including after-acquired inventory. Wells Fargo perfected its interest by filing on June 17, 1982

> The state of Kentucky filed a tax lien against Panbowl Energy, claiming unpaid taxes. Six months later, Panbowl bought a powerful drill from Whayne Supply, making a down payment of $11,500 and signing a security agreement for the remaining debt of $220,0

> Sears sold a lawn tractor to Cosmo Fiscante for $1,481. Fiscante paid with his personal credit card. Sears kept a valid security interest in the lawnmower but did not perfect. Fiscante had the machine delivered to his business, Trackers Raceway Park, the

> The Copper King Inn, Inc. had money problems. It borrowed $62,500 from two of its officers, Noonan and Patterson, but that did not suffice to keep the inn going. So Noonan, on behalf of Copper King, arranged for the inn to borrow $100,000 from Northwest

> Laura and Bruce Trethewey hired Basement Waterproofing Nationwide, Inc., to waterproof the walls in their basement for a fee of $2,500. BWNI’s contract stated: “BWNI will service any seepage in the areas waterproofed at no additional cost to the customer

> Under the terms of a long-term supply contract, Linde supplied United Aluminum Corporation (UAC) with nitrogen at $0.23 per unit. Upon expiration, that contract gave UAC the sole option to renew the agreement for five additional years at the same price.

> Craig Newmark and Jim Buckmaster founded craigslist, the most popular website in the country for classified ads. Rather than maximizing its profits, craigslist instead focused on developing a community among its users. It was a place to find an apartme

> Lewis River Golf, Inc., grew and sold sod. It bought seed from defendant, O. M. Scott & Sons, under an express warranty. But the sod grown from the Scott seeds developed weeds, a breach of Scott’s warranty. Several of Lewis River’s customers sued, unhapp

> Mastercraft Boat manufactured boats and often used instrument panels and electrical systems assembled and/or manufactured by Ace Industries. Typically, Ace would order electrical instruments and other parts and assemble them to specifications that Master

> Clark Oil agreed to sell Amerada Hess several hundred thousand barrels of oil at $24 each by January 31, with the sulfur content not to exceed 1 percent. On January 26, Clark tendered oil from various ships. Most of the oil met specifications, but a smal

> The AM/PM Franchise association was a group of 150 owners of ARCO Mini-Market franchises in Pennsylvania and New York. Each owner had an agreement to operate a gas station and mini-market, obtaining all gasoline, food, and other products, from ARCO. The

> In March, Amy contracted for Gino Fashion Tuxedo to outfit her groom on their wedding day. The contract provided that any cancellation would automatically result in forfeiture of the deposit. Weeks later, the couple broke up and Amy notified Gino that th

> Round Tire Co. sells 1,000 tires to Green Rent-a-Car for use on Green’s fleet. The same day, it sells one new tire to Betty Blue for use on her car. For both sales, Round uses a sales agreement that includes: “LIMITATION OF REMEDIES. Round agrees to repa

> Franklin Miller operated Miller Seed Co. in Pea Ridge, Arkansas. He bought, processed, and sold fescue seed, which is used for growing pasture and fodder grass. Farmers brought seed to Miller who would normally clean, bag, and store it. In some cases th

> Boboli Co. wanted to promote its “California style” pizza, which it sold in supermarkets. The company contracted with Highland Group, Inc., to produce two million recipe brochures, which would be inserted in the carton when the freshly baked pizza was st

> Leighton Industries needed steel pipe to build furnaces for a customer. Leighton sent Callier Steel an order for a certain quantity of “A 106 Grade B” steel. Callier confirmed the order and created a contract by sending an invoice to Leighton, stating th

> Universal Consolidated Cos. contracted with China Metallurgical Import and Export Corp. (CMIEC) to provide CMIEC with new and used equipment for a cold rolling steel mill. Universal then contracted with Pittsburgh Industrial Furnace Co. (Pifcom) to engin

> Federal antitrust statutes are complex, but the basic goal is straightforward: to prevent a major industry from being so dominated by a small group of corporations that they destroy competition and injure consumers. Does Major League Baseball violate t

> John C. Clark, using an alias, rented a Lexus from Alamo Rent-A-Car in San Diego, California. Clark never returned the car to Alamo and obtained a California “quick title” using forged signatures. He then advertised in the Las Vegas Review Journal newspa

> Construction Helicopters paid Heli-Dyne Systems $315,000 for three helicopters that were in Argentina. Two were ready to fly, and one was disassembled for routine maintenance. The contract said nothing about risk of loss (the parties could have saved a l

> United Technologies advertised a used Beechcraft Baron airplane for sale in an aviation journal. Attorney Thompson Comerford was interested and spoke with a United agent who described the plane as “excellently maintained” and said it had been operated “u

> The Massachusetts Bay Transit Authority (MBTA) awarded the Perini Corp. a large contract to rehabilitate a section of railroad tracks. The work involved undercutting the existing track, removing the ballast and foundation, rebuilding the track, and dispo

> Brewster manufactured plastic bottles. Dial made personal care products at many plants around the country, including one in Salem, Virginia. The companies agreed that Dial would purchase from Brewster all of the plastic bottles it needed for its Salem fa

> The Brugger Corp. owned a farm, operated by Jason Weimer, who acted as the company’s business agent. Tri-Circle, Inc. was a farm equipment company. On behalf of Brugger, Weimer offered to buy from Tri-Circle certain equipment for use on the farm. Tri-Cir

> Nina owns a used car lot. She signs and sends a fax to Seth, a used car wholesaler who has a huge lot of cars in the same city. The fax says, “Confirming our agrmt—I pick any 15 cars fr yr lot—30% below blue book.” Seth reads the fax, laughs, and throws

> What are the advantages and disadvantages of hiring a lawyer to draft or review a contract?

> Blair Co.’s top officers approached an investment bank to find a buyer for the company. The Bank sent an engagement letter to Blair with the following language: ‘If, within 24 months after the termination of this agreement, Blair is bought by anyone with

> What are the penalties if Artist breaches the movie contract? Are these reasonable? Too heavy? Too light?

> The United Kingdom has not signed the CISG. Until recently, major world traders like Japan and Brazil had refused to sign. Imagine that you are a legislator from one of these countries. What might your objections be to ratifying a treaty on sales law?

> List three types of contracts that should definitely be in writing, and one that probably does not need to be.

> List three provisions in a contract that would be material, and three that would not be.

> Chip bought an insurance policy on his house from Insurance Co. The policy covered damage from fire but explicitly excluded coverage for harm caused “by or through an earthquake.” When an earthquake struck, Chip’s house suffered no fire damage but the ea

> Slimline and Distributor signed a contract which provided that Distributor would use reasonable efforts to promote and sell Slimline’s diet drink. Slimline was already being sold in Warehouse Club. After the contract was signed, Distributor stopped condu

> Walgreens operated a pharmacy in the Sara Creek mall. As part of this long-term lease, Sara Creek agreed not to lease mall space to another pharmacy. During an economic recession, Sara Creek’s largest tenant left and the landlord informed Walgreens tha

> PepsiCo entered into a contract to sell its corporate jet to Klein for $4.6 million. Before the deal closed, the plane was sent to pick up PepsiCo’s chairman of the board, who was stranded at Dulles airport. The chairman then decided that the company s

> John and Susan Verba sold a Vermont lakeshore lot to Shane and Deborah Rancourt for $115,000. The Rancourts intended to build a house on the property, but after preparing the land for construction, they learned that a wetland protection law prevented bu

> Parkinson was injured in an auto accident by a driver who had no insurance. Parkinson filed a claim with her insurer, Liberty Mutual, for $2,000 under her “uninsured motorist” coverage. Liberty Mutual told her that if she sought that money, her premium

> Racicky was in the process of buying 320 acres of ranch land. While that sale was being negotiated, Racicky signed a contract to sell the land to Simon. Simon paid $144,000, the full price of the land. But Racicky then went bankrupt, before he could c

> Lewis signed a contract for the rights to all timber located on Nine Mile Mine. He agreed to pay $70 per thousand board feet ($70/mbf). As he began work, Nine Mile became convinced that Lewis lacked sufficient equipment to do the job well and forbade h

> Many European nations fear the effects of genetically modified foods, so they choose to restrict their importation. The EU banned the entry of these foods and subjected them to strict labeling requirements. Does this policy contravene the principles of

> While waiting in line in a supermarket, you observe a woman trying to pay with food stamps. Under the law, food stamps cannot be used to pay for prepared items so the register would not accept the stamps in payment for a $6 container of chicken noodle s

> Mega Contractors sells to government agencies using a cost-plus contract and to private firms using fixed price contracts. What choices does Mega have in the design of its job costing system that affect the cost of the government jobs?

> When preparing cost estimates for account analysis purposes, should the costs be extracted from the historical accounting records?

> The following costs are labeled fixed or variable according to a typical designation in accounting. Under which circumstances would any of these costs behave in a manner opposite to that listed? a. Direct labor—variable. b. Equipment depreciation—fixed.

> When using cost estimation methods based on past data, what are the trade-offs between gathering more data and gathering less?

> Why is it important to incorporate learning into cost estimates?

> If one wishes simply to prepare a cost estimate using regression analysis and enters data into a program to compute regression estimates, what problems might be encountered?

> Under what conditions is the engineering estimates technique preferred to other estimation techniques?

> Action Games has developed a new computer game that it plans to sell for $32. The variable costs associated with each game (for materials, shipping, and packaging) amount to $7. The fixed costs associated with the game amount to $75,000 per year. Requir

> Why does it matter what allocation base is used to determine the predetermined rate?

> Hill Street Electronics has provided the following information for last year: Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,000,000 Store rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

> Krylon Company purchases eight special tools annually from CO., Inc. The price of these tools has increased each year, reaching $100,000 per unit last year. Because the purchase price has increased significantly, Krylon management has asked for a cost es

> Pick a unit of a hospital (for example, intensive care or maternity). Name one example of a direct materials cost, one example of a direct labor cost, and one example of an indirect cost.

> Refer to the example in Appendix B. Assume that the company now finds that the learning rate is 90 percent, instead of 80 percent. The 90 percent learning rate coefficient is −0.152004; that is b = −0.152004 in the for

> How is job costing in service organizations (for example, consulting firms) different from job costing in manufacturing organizations?

> The following information on maintenance and repair costs and revenues for the last two years is available from the accounting records at Arnie’s Arcade & Video Palace. Arnie has asked you to help him understand the relation between

> Lerner, Inc., is accumulating data to prepare its annual profit plan for the coming year. The behavior pattern of the maintenance costs must be determined. The accounting staff has suggested using regression to derive an equation in the form of y = a + b

> Your company provides a variety of delivery services. Management wants to know the volume of a particular delivery that would generate $10,000 per month in operating profits before taxes. The company charges $20 per delivery. The controllerâ€&

> The Business School at Eastern College is collecting data as a first step in the preparation of next year’s budget. One cost that is being looked at closely is administrative staff as a function of student credit hours. Data on administ

> Why are accurate cost estimates important?

> Your company is preparing an estimate of its production costs for the coming period. The controller estimates that direct materials costs are $45 per unit and that direct labor costs are $21 per hour. Estimating overhead, which is applied on the basis of

> Provide a business example illustrating opportunity costs.

> Cost allocation bases are ideally based on a cause-and-effect basis, but they are used to allocate fixed overhead. Is this inconsistent?

> Brodie Company’s advertising manager wants to know whether the company’s advertising program is successful. The manager used a spreadsheet program to estimate the relation between advertising expenditures (the independent variable) and sales dollars. Mon

> LM Enterprises produces a single part for sale. The part sells for $12 per unit. Fixed costs are $1,700,000 annually. Production and sales of 540,000 units annually results in profit before taxes of $1,000,000. Required What is the unit variable cost?

> Refer to the data for Balance, Inc., in Exercise 3-27. Assume that the company plans to sell 600,000 units per month. Consider requirements (b), (c), and (d) independently of each other. In Exercise 3-27 Balance, Inc., is considering the introduction of

> Balance, Inc., is considering the introduction of a new energy snack with the following price and cost characteristics: Sales price . . . . . . . . . . . . . . . $ 1.00 per unit Variable costs . . . . . . . . . . . . . . 0.20 per unit Fixed costs . . . .

> Refer to the data for Cambridge, Inc. in Exercise 3-25. Assume that the projected number of units sold for the year is 7,000. Consider requirements (b ), (c) , and (d ) independently of each other. In Exercise 3-25 Cambridge, Inc., is considering the in

> Oak Island Amusements Center provides the following data on the costs of maintenance and the number of visitors for the last three years: Number of Visitors _____________Maintenance per Year: (thousands) ___________Costs ($000) 1,825 . . . . . . . . . .

> Cambridge, Inc., is considering the introduction of a new calculator with the following price and cost characteristics: Sales price . . . . . . . . . . . . . . . . . . . . $ 27 per unit Variable costs . . . . . . . . . . . . . . . . . . . 15 per unit Fix

> Mark Ting desperately wants his proposed new product, DNA-diamond, to be accepted by top management. DNA-diamond is a piece of jewelry that contains the DNA of a boy or girl friend, spouse, or other loved one. Top management will not approve this product

> The manager of Kima’s Food Mart estimates operating costs for the year will include $900,000 in fixed costs. Required a. Find the break-even point in sales dollars with a contribution margin ratio of 40 percent. b. Find the break-even point in sales dol

> The cost accountant for Angie’s Apparel has compiled the following information for last month’s operations: Administrative costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,000 Merchandise inventory, July 1 . . . . . . . . . . . .

> Anu’s Amusement Center has collected the following data for operations for the year: Total revenues . . . . . . . . . . . . . . . . . $1,600,000 Total fixed costs . . . . . . . . . . . . . . . . . $ 437,500 Total variable costs . . . . . . . . . . . . .

> Assume that you have been asked to paint the inside walls of an apartment. State specifically how you would estimate the cost of that job. Include payment for your own labor.

> Identify the letter of each profit equation component on the graph that follows. Line d Area e g Area f Volume %24

> Lomas Electronics manufactures a portable testing device for use in oil exploration. The product’s price and cost characteristics are: Selling price per unit . . . . . . . . . . . . . . $ 260 Variable cost per unit . . . . . . . . . . . . . . . 140 Fixed

> A local restaurant, Fred’s Fish Fry, is estimating nonfood kitchen costs (labor, supervision, utilities, etc.) based on food cost. Data were gathered for the past 24 months and analyzed using a spreadsheet program. The following output was generated: Equ

> Identify each of the following profit equation components on the graph presented below: a. The total cost line. b. The total revenue line. c. The total variable costs area. d. Variable cost per unit. e. The fixed costs area. f. The break-even point. g.

> What is the difference between gross margin and contribution margin.

> A January 1, 2009, news report on msn.com included the following sentence: “A report put out by brokerage house CLSA about Jet Airways said that the fall in ATF [fuel] prices has brought down the load factors (flight occupancy) required for the airline t

> A manager of a retailing firm says that he can lower his operating leverage by renting his stores rather than buying. Would you recommend this? Explain.

> How does the accountant know what to record for direct materials for a job or a client? For direct labor cost?

> Accounting records for NIC Enterprises (NICE) for September show the following (each entry is the total of the actual entries for the account for the month): Note a: This entry does not include any over- or underapplied overhead. Over- or underapplied

> Frightproof Commuter Airlines is considering adding a new flight to its current schedule from Metro to Hicksville. This route has the following prices and costs: Selling price per passenger per flight . . . . . . . . . . . . . $ 80 Variable cost per pass

> Odd Wallow Drinks is considering adding a new line of fruit juices to its merchandise products. This line of juices has the following prices and costs: Selling price per case (24 bottles) of juice . . . . . . . . . . . . . . . . . . . $ 75 Variable cost

> A consulting firm’s accounting records show the following costs for year 1: Direct materials supplies . . . . . . . . . . . . . . $ 540,000 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . 3,870,000 Total overhead . . . . . . . . . . . . .

> What are the similarities between the Direct Materials Inventory account of the manufacturer and the Merchandise Inventory account of the merchandiser? Are there any differences between the two accounts? If so, what are they?

> Cesar’s Bottlers bottles soft drinks in a factory that can operate either one shift, two shifts, or three shifts per day. Each shift is eight hours long. The factory is closed on weekends. The sales price of $2 per case bottled and the

> Sam’s Sushi serves only a fixed-price lunch. The price of $10 and the variable cost of $4 per meal remain constant regardless of volume. Sam can increase lunch volume by opening and staffing additional check-out lanes. Sam has three cho

> Suburban Bus Lines operates as a not-for-profit organization providing local transit service. As a not-for-profit, it refers to an excess of revenues over costs as a “surplus” and an excess of costs over revenues as a “deficit.” Suburban charges $1.00 pe

> Consider a class in a business school where volume is measured by the number of students in the class. Would you say the operating leverage is high or low? Why?

> Durant Manufacturers has performed extensive studies on its costs and production and estimates the following annual costs based on 150,000 units (produced and sold): _________________________Total Annual Costs __________________________(150,000 units) D

> Scholes Systems supplies a particular type of office chair to large retailers such as Target, Costco, and Office Max. Scholes is concerned about the possible effects of inflation on its operations. Presently, the company sells 80,000 units for $60 per un

> The following data refers to one month. Fill in the blanks. A C 1 Direct materials inventory, March 1 2 Direct materials inventory, March 31 3 Work-in-process inventory, March 1 4 Work-in-process inventory, March 31 5 Finished goods inventory, March

> BS&T Partners has developed a new hubcap with the model name Spinnin’ Wheel. Production and sales started August 3. As of August 2, there were no direct materials in inventory. Data for the month of August include the following: Direct labor cost per uni

> Cortez Company is planning to introduce a new product that will sell for $96 a unit. The following manufacturing cost estimates have been made on 20,000 units to be produced the first year: Direct materials . . . . . . . . . . . . . . . . . . . . . . . .

> Global Partners is a manufacturing company that produces parts both for inventory and to custom specifications. Parts produced for inventory are sold at prices determined in the market. Custom parts are sold at a price equal to production cost plus a pro

> What criteria are important in determining the choice of an allocation base?