Managers often assume a strictly linear relationship between cost and volume. How can this practice be defended in light of the fact that many costs are curvilinear?
> What are the three common approaches for assigning overhead costs to products?
> What is meant by a product’s contribution margin ratio? How is this ratio useful in planning business operations?
> Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable costs are $8 per unit, and fixed costs total $180,000 per year. Required: Answer the following independent questions: 1. What is the product’s CM rat
> Miller Company’s most recent contribution format income statement is shown below: Required: Prepare a new contribution format income statement under each of the following conditions (consider each case independently): 1. The number of
> Whirly Corporation’s most recent income statement is shown below: Required: Prepare a new contribution format income statement under each of the following conditions (consider each case independently): 1. The sales volume increases by
> The questions in this exercise are based on JetBlue Airways Corporation. To answer the questions, you will need to download JetBlue’s Form 10-K/A for the year ended December 31, 2004 at www.sec.gov/edgar/searchedgar/companysearch.html. Once at this websi
> A business executive once stated, “Depreciation is one of our biggest sources of cash.” Do you agree that depreciation is a source of cash? Explain.
> The questions in this exercise are based on Dell, Inc. To answer the questions, you will needto download Dell’s Form 10-K for the fiscal year ended January 28, 2005 by going to www.sec.gov/edgar/searchedgar/companysearch.html. Input CIK code 826083 and h
> Java Source, Inc. (JSI), is a processor and distributor of a variety of blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. JSI offers a large variety of different coffees that it sells
> “A dollar of gross margin per briefcase? That’s ridiculous!” roared Art Dejans, president of CarryAll, Inc. “Why do we go on producing those standard briefcases when weâ€&
> Your team should visit and closely observe the operations at a fast-food restaurant. Required: Identify activities and costs at the restaurant that fall into each of the following categories: a. Unit-level activities and costs. b. Customer-level activit
> Gary Stevens and Mary James are production managers in the Consumer Electronics Division of General Electronics Company, which has several dozen plants scattered in locations throughout the world. Mary manages the plant located in Des Moines, Iowa, while
> You often provide advice to Maria Graham, a client who is interested in diversifying her company. Maria is considering the purchase of a small manufacturing company that assembles and packages its many products by hand. She plans to automate the factory
> You and your friends go to a restaurant as a group. At the end of the meal, the issue arises of how the bill for the group should be shared. One alternative is to figure out the cost of what each individual consumed and divide up the bill accordingly. An
> “I think we goofed when we hired that new assistant controller,” said Ruth Scarpino, president of Provost Industries. “Just look at this report that he prepared for last month for the Finishing Department. I can’t make heads or tails out of it.” Finishin
> How does the computation of equivalent units under the FIFO method differ from the computation of equivalent units under the weighted-average method?
> How do the direct and the indirect methods differ in their approach to computing the net cash provided by operating activities?
> What are the three major sections on a statement of cash flows, and what are the general rules that determine the transactions that should be included in each section?
> Assume that a company repays a $300,000 loan from its bank and then later in the same year borrows $500,000. What amount(s) would appear on the statement of cash flows?
> Why aren’t transactions involving accounts payable considered to be financing activities?
> If an asset is sold at a gain, why is the gain deducted from net income when computing the net cash provided by operating activities under the indirect method?
> Why is interest paid on amounts borrowed from banks and other lenders considered to be an operating activity while the amounts borrowed are financing activities?
> What is the difference between net cash provided by operating activities and free cash flow?
> Would a sale of equipment for cash be considered a financing activity or an investing activity? Why?
> If the Accounts Receivable balance increases during a period, how will this increase be recognized using the indirect method of computing the net cash provided by operating activities?
> What is the purpose of a statement of cash flows?
> What is the danger in allocating common fixed costs among product lines or other segments of an organization?
> Prentice Company is considering dropping one of its product lines. What costs of the product line would be relevant to this decision? Irrelevant?
> What are cash equivalents, and why are they included with cash on a statement of cash flows?
> “All future costs are relevant in decision making.” Do you agree? Why?
> “Sunk costs are easy to spot—they’re simply the fixed costs associated with a decision.” Do you agree? Explain.
> Are variable costs always relevant costs? Explain.
> How will relating product contribution margins to the amount of the constrained resource they consume help a company maximize its profits?
> What is a relevant cost?
> How can budgeting assist a company in planning its workforce staffing levels?
> “As a practical matter, planning and control mean exactly the same thing.” Do you agree? Explain.
> What is the contribution margin?
> What is the difference between ordinary least-squares regression analysis and multiple regression analysis?
> What happens to overhead rates based on direct labor when automated equipment replaces direct labor?
> “If a product line is generating a loss, then it should be discontinued.” Do you agree? Explain.
> Provide two reasons why overhead might be underapplied in a given year.
> What is the major disadvantage of the high-low method?
> What adjustment is made for underapplied overhead on the schedule of cost of goods sold? What adjustment is made for overapplied overhead?
> What is meant by the term least-squares regression?
> Give the general formula for a mixed cost. Which term represents the variable cost? The fixed cost?
> What account is credited when overhead cost is applied to Work in Process? Would you expect the amount applied for a period to equal the actual overhead costs of the period? Why or why not?
> Does the concept of the relevant range apply to fixed costs? Explain.
> If fixed manufacturing overhead costs are released from inventory under absorption costing, what does this tell you about the level of production in relation to the level of sales?
> If the units produced and unit sales are equal, which method would you expect to show the higher net operating income, variable costing or absorption costing? Why?
> Why is the sales forecast the starting point in budgeting?
> “Variable costs and differential costs mean the same thing.” Do you agree? Explain.
> What is meant by an activity base when dealing with variable costs? Give several examples of activity bases.
> Are selling and administrative expenses treated as product costs or as period costs under variable costing?
> When would job-order costing be used instead of process costing?
> Why aren’t actual manufacturing overhead costs traced to jobs just as direct materials and direct labor costs are traced to jobs?
> The questions in this exercise are based on Netflix, Inc. To answer the questions you will need to download the Netflix Form 10-K for the year ended December 31, 2005, at www.sec.gov/edgar/searchedgar/companysearch.html. Once at this website, input CIK c
> The questions in this exercise give you an appreciation for the complexity of budgeting in a large multinational corporation. To answer the questions, you will need to download the Procter & Gamble (P&G) 2005 Annual Report at www.pg.com/investors/annualr
> The questions in this exercise are based on Toll Brothers, Inc., one of the largest home builders in the United States. To answer the questions, you will need to download Toll Brothers’ 2004 annual report (www.tollbrothers.com/homesearch/servlet/HomeSear
> You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country. In the past, the company has done very little in the way of budgeting and at cer
> Haglund Department Store is located in the downtown area of a small city. While the store had been profitable for many years, it is facing increasing competition from large national chains that have set up stores on the outskirts of the city. Recently th
> Understanding the nature of fixed and variable costs is extremely important to managers. This knowledgeis used in planning, making strategic and tactical decisions, evaluating performance, and controllingoperations. Required: Form a team consisting of f
> Define the following terms: incremental cost, opportunity cost, and sunk cost.
> The questions in this problem are based on Blue Nile, Inc. To answer the questions, you will need to download Blue Nile’s 2004 Form 10-K at www.sec.gov/edgar/searchedgar/companysearch.html. Once at this website, input CIK code 1091171 a
> TufStuff, Inc., sells a wide range of drums, bins, boxes, and other containers that are used in the chemical industry. One of the company’s products is a heavy-duty corrosion-resistant metal drum, called the WVD drum, used to store toxi
> Terry Travers is the manufacturing supervisor of Aurora Manufacturing Company, which produces a variety of plastic products. Some of these products are standard items that are listed in the company’s catalog, while others are made to customer specificati
> After a dispute concerning wages, Orville Arson tossed an incendiary device into the Sparkle Company’s record vault. Within moments, only a few charred fragments were readable from the company’s factory ledger, as show
> Roller, Ltd., of Melbourne, Australia, is the exclusive distributor in Australia and the South Pacific of a popular brand of in-line skates manufactured in Mexico. The company is in the process of putting together its cash budget for the second quarter&a
> Assume that your team is going to form a company that will manufacture chocolate chip cookies. The team is responsible for preparing a list of all product components and costs necessary to make this product. Required: Prepare a list of all product compo
> Hector P. Wastrel, a careless employee, left some combustible materials near an open flame in Salter Company’s plant. The resulting explosion and fire destroyed the entire plant and administrative offices. Justin Quick, the company’s controller, and Cons
> M. K. Gallant is president of Kranbrack Corporation, a company whose stock is traded on a national exchange. In a meeting with investment analysts at the beginning of the year, Gallant had predicted that the company’s earnings would grow by 20% this year
> Use an online yellow pages directory to find a company in your area that has a website on which it has an annual report, including a statement of cash flows. Make an appointment with the controller or chief financial officer of the company. Before your m
> Bronson Company manufactures a variety of ballpoint pens. The company has just received an offer from an outside supplier to provide the ink cartridge for the company’s Zippo pen line, at a price of $0.48 per dozen cartridges. The company is interested i
> Airlines sometimes offer reduced rates during certain times of the week to members of a businessperson’s family if they accompany him or her on trips. How does the concept of relevant costs enter into the decision by the airline to offer reduced rates of
> In the late 1980s and early 1990s, public universities found that they were no longer immune to the financial stress faced by their private sister institutions and corporate America. Budget cuts were in the air across the land. When the budget ax hit, th
> Angora Wraps of Pendleton, Oregon, makes fine sweaters out of pure angora wool. The business is seasonal, with the largest demand during the fall, the winter, and Christmas holidays. The company must increase production each summer to meet estimated dema
> Kelvin Aerospace, Inc., manufactures parts such as rudder hinges for the aerospace industry. The company uses a job-order costing system with a predetermined plantwide overhead rate based on direct labor-hours. On December 16, 2008, the company’s control
> Terri Ronsin had recently been transferred to the Home Security Systems Division of National Home Products. Shortly after taking over her new position as divisional controller, she was asked to develop the division’s predetermined overhead rate for the u
> Haley Romeros had just been appointed vice president of the Rocky Mountain Region of the Bank Services Corporation (BSC). The company provides check processing services for small banks. The banks send checks presented for deposit or payment to BSC, which
> Norton Company, a manufacturer of infant furniture and carriages, is in the initial stages of preparing the annual budget for next year. Scott Ford has recently joined Norton’s accounting staff and is interested to learn as much as possible about the com
> Stacy Cummins, the newly hired controller at Merced Home Products, Inc., was disturbed by what she had discovered about the standard costs at the Home Security Division. In looking over the past several years of quarterly income statements at the Home Se
> Maria Chavez owns a catering company that serves food and beverages at parties and business functions. Chavez’s business is seasonal, with a heavy schedule during the summer months and holidays and a lighter schedule at other times. One
> Refer to the data for Provost Industries in Analytical Thinking in Chapter 4. Assume that the company uses the FIFO method in its process costing system. In Analytical Thinking in Chapter 4 “I think we goofed when we hired that new assistant controller,
> Visic Corporation, a manufacturing company, produces a single product. The following information has been taken from the company’s production, sales, and cost records for the just completed year. Production in units ....................
> Give at least four examples of possible constraints.
> Balance sheet accounts for Joyner Company contained the following amounts at the end of Years 1 and 2: The company’s income statement for Year 2 follows: Sales .......................................................... $900,000 Cost o
> Comparative financial statements for Weaver Company follow: During 2009, the company sold some equipment for $20 that had cost $40 and on which there was accumulated depreciation of $16. In addition, the company sold long-term investments for $10 that
> Below are a number of transactions that took place in Seneca Company during the past year: a. Common stock was sold for cash. b. Interest was paid on a note, decreasing Interest Payable. c. Bonds were retired. d. A long-term loan was made to a subsidiary
> The following changes took place during the year in Pavolik Company’s balance sheet accounts: Long-term investments that had cost the company $6 were sold during the year for $16, and land that had cost $15 was sold for $9. In additio
> Comparative financial statement data for Carmono Company follow: For 2009, the company reported net income as follows: Sales ........................................................ $275 Cost of goods sold ..................................... 150 Gros
> Changes in various accounts and gains and losses on the sale of assets during the year for Argon Company are given below: Item ______________________________Amount Accounts receivable ................................................ $90,000 decrease Acc
> Apex Company prepared the statement of cash flows for the current year that is shown below: Required: Compute Apex Company’s free cash flow for the current year. Apex Company Statement of Cash Flows-Indirect Method Operating activ
> For the just completed year, Hanna Company had a net income of $35,000. Balances in the company’s current asset and current liability accounts at the beginning and end of the year were: The Deferred Income Taxes Payable account on the
> Mary Walker, president of Rusco Products, considers $14,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $8,000 in cash was available at the end of 2009. Because the company reported a large ne
> “See, I told you things would work out,” said Barry Kresmier, president of Lomax Company. “We expanded sales from $1.6 million to $2.0 million in 2009, nearly doubled our warehouse space, and ended th
> How does opportunity cost enter into the make or buy decision?
> Below are transactions that took place in Placid Company during the past year: a. Equipment was purchased. b. A cash dividend was declared and paid. c. Accounts receivable decreased. d. Short-term investments were purchased. e. Equipment was sold. f. Pre
> Bill has just returned from a duck hunting trip. He has brought home eight ducks. Bill’s friend, John, disapproves of duck hunting, and to discourage Bill from further hunting, John has presented him with the following cost estimate per duck: Camper and
> Thalassines Kataskeves, S.A., of Greece makes marine equipment. The company has been experiencing losses on its bilge pump product line for several years. The most recent quarterly contribution format income statement for the bilge pump product line foll
> Hollings Company sells and delivers office furniture in the Rocky Mountain area. The costs associated with the acquisition and annual operation of a delivery truck are given below: Insurance ........................................................ $1,600
> Han Products manufactures 30,000 units of part S-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is as follows: Direct materials .................................... $ 3.60 Direct labor .............
