Refer to the illustration of overhead application in the Midtown Advertising Agency on pp. 104–105. Suppose the firm used a single cost driver, total staff compensation, to apply overhead costs to each ad contract From pp. 104-105: To illustrate the cost-accumulation system used in a service industry firm, let’s turn our attention to Midtown Advertising Agency in Cincinnati, Ohio. This small ad agency has two managing partners who pay themselves annual salaries of $100,000 each, and an artistic staff of six people who each earn $50,000 per year. Fringe benefits for these professionals average 40 percent of their compensation. So Midtown Advertising Agency’s direct professional labor budget is as follows: Partner salaries ............................................................... $200,000 Partner benefits (40%) ......................................................... 80,000 Total partner compensation ............................................ $280,000 Artistic staff salaries ........................................................ $300,000 Artistic staff benefits (40%) ................................................ 120,000 Total artistic staff compensation ..................................... $420,000 Contract MJH0207: Advertising Program for Super Scoop Ice Cream Company Direct material ..................................................... $1,800 Direct professional labor (partner) ....................... 1,200 Direct professional labor (artistic staff) ............... 2,000 Applied overhead: Partner support ($1,200 3 90%) .............................. 1,080 Artistic staff support ($2,000 3 120......................... 2,400 Total cost ................................................................. $8,480 Required: 1. Compute the total budgeted staff compensation: both partner and artistic staff compensation. 2. Compute Midtown’s overhead rate on the basis of this single cost driver. 3. Recalculate the applied overhead for the Super Scoop Ice Cream Company contract. 4. Compare the applied overhead using the single cost driver with the applied overhead computed using the two cost drivers used in the text illustration.
> The following data pertain to the Canandaigua Carpet Company for January. Work in process, January 1 (in units) ........................... 25,000 Units started during January .................................................. ? Total units to account fo
> Beowulf and Grendel, a public accounting firm in London, is engaged in the preparation of income tax returns for individuals. The firm uses the weighted-average method of process costing for internal reporting. The following information pertains to Febru
> Lawncraft, Inc. manufactures wooden lawn furniture using an assembly-line process. All direct materials are introduced at the start of the process, and conversion cost is incurred evenly throughout manufacturing. An examination of the company's Work-in-P
> The following data pertain to the Fantasia Flour Milling Company for the month of October. Work in process, October 1 (in units) ..................................... ? Units started during October ........................................ 70,000 Total un
> You just started a summer internship with the successful management consulting firm of Kirk, Spock, and McCoy. Your first day on the job was a busy one, as the following problems were presented to you. Required: Supply the requested comments in each of
> Texarkana Corporation assembles various components used in the computer industry. The company's major product, a disk drive, is the result of assembling three parts: JR1163, JY1065, and DC0766. The following information relates to activities of April: •
> Circle D Fastener Corporation accumulates costs for its single product using process costing. Direct material is added at the beginning of the production process, and conversion activity occurs uniformly throughout the process. A partially completed prod
> Atlantic City Taffy Company produces various kinds of candy, but salt-water taffy is by far its most important product. The company accumulates costs for its product using process costing. Direct material is added at the beginning of the production proce
> Jupiter Corporation manufactures home security devices. During 20x4, 1,000,000 units were completed and transferred to finished-goods inventory. On December 31, 20x4, there were 310,000 units in work in process. These units were 48 percent complete as to
> Use the Internet to access the website for Weyerhaeuser (www.weyerhaeuser.com), International Paper ( www.internationalpaper.com ), or Boise Cascade (www.boisecascade.com Required: Skim over the information presented on the website about the company's
> Raleigh Textiles Company manufactures a variety of natural fabrics for the clothing industry. The following data pertain to the Weaving Department for the month of November. Equivalent units of direct material (weighted-average method............... 62,
> The following data pertain to Tuscaloosa Paperboard Company, a manufacturer of cardboard boxes. Work in process, March 1……………………..………. 10,000 units* Direct material ............................................................. $ 10,900 Conversion ......
> Montana Lumber Company grows, harvests, and processes timber for use in construction. The following data pertain to the firm's sawmill during June. Work in process, June 1 Direct material ............................................................. $ 74
> Refer to the preceding problem regarding Bandway Company. Complete the job-cost record for Job number T79. (Assume that all of the labor hours for job T79 occurred during the week of 10/8 through 10/12.) Job number T79: BANDWAY COMPANY JOB-COST RECO
> Duluth Glass Company manufactures window glass for automobiles. The following data pertain to the Plate Glass Department. Work in process, February 1 Direct material .......................................... $ 43,200 Conversion .........................
> According to some estimates, the volume of electronic commerce transactions exceeds $3 trillion. Business to-business transactions account for almost half of this amount. What changes do you believe are in store for managerial accounting as a result of t
> Bandway Company manufactures brass musical instruments for use by high school students. The company uses a normal-costing system, in which manufacturing overhead is applied on the basis of directlabor hours. The company’s budget for the current year incl
> Andromeda Glass Company manufactures decorative glass products. The firm employs a processcosting system for its manufacturing operations. All direct materials are added at the beginning of the process, and conversion costs are incurred uniformly through
> Conundrum, Inc. manufactures puzzles. Due to a fire in the administrative offices, the accounting records for September of the current year were partially destroyed. You have been able to piece together the following information from the ledger. Upon ex
> PetroTech Company refines a variety of petrochemical products. The following data are from the firm's Amarillo plant. Work in process, July 1................................................... 1,900,000 liters Direct material ........
> Rochester Heating Systems, Inc. calculates its predetermined overhead rate on a quarterly basis. The following estimates were made for the current year. The firm’s main product, part number SC71, requires $600 of direct material and 20
> The Milwaukee plant of Healthy Life Styles, Inc. produces low-fat salad dressing. The following data pertain to the year just ended. During the year the company started 140,000 gallons of material in production. Required: Prepare a schedule analyzing t
> Tiana Shar, the controller for Caesar Glassware Company, is in the process of analyzing the overhead costs for the month of November. She has gathered the following data for the month. Labor Direct-labor hours: Job 57 ................................
> In each case below, fill in the missing amount. 1. Work in Process, June 1 ......................................................... 10,000 pounds Units started during June .........................................................................? Units
> Marvelous Marshmallow Company’s cost of goods sold for January was $690,000. January 31 working process inventory was 90 percent of January 1 work-in-process inventory. Manufacturing overhead applied was 50 percent of direct-labor cost. Other information
> The November production of MVP's Minnesota Division consisted of batch P25 (2,000 professional basketballs) and batch S33 (4,000 scholastic basketballs). Each batch was started and finished during November, and there was no beginning or ending work in pr
> A division manager is responsible for each of Resolute Electronics Corporation’s (REC) divisions. Each division’s controller, assigned by the corporate controller’s office, manages the division’s accounting system and provides analysis of financial infor
> Joey Dulwich has recently been hired as a cost management specialist by Offset Press Company, a privately held company that produces a line of offset printing presses and lithograph machines. During his first few months on the job, Dulwich discovered tha
> Lycoming Leather Company manufactures leather goods in central Pennsylvania. The company's profits have declined during the past nine months. In an attempt to isolate the causes of poor profit performance, management is investigating the manufacturing op
> Seaway, Inc. manufactures outboard motors and an assortment of other marine equipment. The company uses a job-order costing system. Normal costing is used, and manufacturing overhead is applied on the basis of machine hours. Estimated manufacturing overh
> Briefly describe two ways of closing out over applied or under applied overhead at the end of an accounting period.
> Refer to the schedule of cost of goods manufactured prepared for Superior Metals Corporation in the preceding problem. Data from preceding problem (8): Required: 1. How much of the manufacturing costs incurred during 20x4 remained associated with work-
> What is the cause of over applied or under applied overhead?
> Golden State Enterprises provides consulting services throughout California and uses a job-order costing system to accumulate the cost of client projects. Traceable costs are charged directly to individual clients; in contrast, other costs incurred by Go
> What is meant by the term cost driver? What is a volume-based cost driver?
> Juarez, Inc. uses a job-order costing system for its products, which pass from the Machining Department, to the Assembly Department, to finished-goods inventory. The Machining Department is heavily automated; in contrast, the Assembly Department performs
> Why is manufacturing overhead applied to products when product costs are used in making pricing decisions?
> For each of the following activities, explain which of the objectives of managerial accounting activity is involved. In some cases, several objectives may be involved. 1. Measuring the cost of the inventory of tablet computers on hand in a retail electro
> Southwestern Fashions, Inc. which uses a job-order costing system, had two jobs in process at the start of the year: job no. 101 ($168,000) and job no. 102 ($107,000). The following information is available: a. The company applies manufacturing overhead
> How is the concept of product costing applied in service industry firms?
> Dessert Delite Company produces frozen microwavable desserts. The following accounts appeared in the ledger as of December 31. Additional information: a. Accounts payable is used only for direct-material purchases. b. Underapplied overhead of $3,500 fo
> Explain how a Texas Instruments engineer might use bar code technology to record the time she spends on various activities.
> Birmingham Bowling Ball Company (BBBC) uses a job-order costing system to accumulate manufacturing costs. The company’s work-in-process on December 31, 20x3, consisted of one job (no. 3088), which was carried on the year-end balance sheet at $78,400. The
> Describe how a large retailer such as Lowes could use EDI.
> Vermont Clock Works manufactures fine, handcrafted clocks. The firm uses a job-order costing system, and manufacturing overhead is applied on the basis of direct-labor hours. Estimated manufacturing overhead for the year is $260,000. The firm employs 10
> Define each of the following terms, and explain the relationship among them: a. Overhead cost distribution b. Service department cost allocation c. Overhead application.
> ColorTech Corporation manufactures two different color printers for the business market. Cost estimates for the two models for the current year are as follows Each model of printer requires 20 hours of direct labor. The basic system requires 5 hours in
> When a single, volume-based cost driver (or activity base) is used to apply manufacturing overhead, what is the managerial accountant’s primary objective in selecting the cost driver?
> Suppose the fixed expenses of a travel agency increase. What will happen to its break-even point, measured in number of clients served? Why?
> Why are some manufacturing firms switching from direct-labor hours to machine hours or throughput time as the basis for overhead application?
> Refer to Exhibit 3–12, which portrays the three types of allocation procedures used in two-stage allocation. Give an example of each of these allocation procedures in a hospital setting. The ultimate cost object is a patient-day of hosp
> Give an example of how a hospital, such as the Mayo Clinic, might use job-order costing concepts.
> Suppose you are the controller for a company that produces handmade glassware. 1. Choose a volume-based cost driver upon which to base the application of overhead. Write a memo to the company president explaining your choice. 2. Now you have changed jobs
> Describe the flow of costs through a product-costing system. What special accounts are involved, and how are they used?
> Rocky Mountain Leatherworks, which manufactures saddles and other leather goods, has three departments. The Assembly Department manufactures various leather products, such as belts, purses, and saddlebags, using an automated production process. The Saddl
> Describe an important cost-benefit issue involving accuracy versus timeliness in accounting for overhead.
> Contemporary Trends is an interior decorating firm in Munich. The following costs were incurred in the firm’s contract to redecorate the mayor’s offices. Direct material used ............................................................ € 4,100 Direct pr
> Describe how job-order costing concepts are used in professional service firms, such as law practices and consulting firms.
> What does the term safety margin mean?
> Happy Days Balloon Company incurred $167,000 of manufacturing overhead costs during the year just ended. However, only $145,000 of overhead was applied to production. At the conclusion of the year, the following amounts of the year’s applied overhead rem
> Budgeted direct-labor cost: 77,000 hours (practical capacity) at $17 per hour Actual direct-labor cost: 79,000 hours at $18 per hour Budgeted manufacturing overhead: $993,300 Budgeted selling and administrative expenses: $417,000 Actual manufacturing ove
> Biloxi Billiards Company uses normal costing, and manufacturing overhead is applied to work in process on the basis of machine hours. On January 1 of the current year there were no balances in work-in-process or finished-goods inventories. The following
> Describe the process of two-stage cost allocation in the development of departmental overhead rates.
> Refer to the data for the preceding exercise for Aquarius Hotel Supply Company. Prepare a journal entry to add to work-in-process inventory the total manufacturing overhead cost for the year, assuming: 1. The firm uses actual costing. 2. The firm uses no
> Describe some costs and benefits of using multiple overhead rates instead of a plantwide overhead rate.
> The following data pertain to the Aquarius Hotel Supply Company for the year just ended. Budgeted sales revenue ................................................................ $945,000 Budgeted manufacturing overhead ...................................
> Crunchem Cereal Company incurred the following actual costs during 20x4. Direct material used ................................................... $412,500 Direct labor .................................................................... 180,000 Manufactu
> Dewitt Educational Products started and finished job number RM67 during June. The job required $5,100 of direct material and 40 hours of direct labor at $18 per hour. The predetermined overhead rate is $6 per direct-labor hour. Required: Prepare journ
> Explain the difference between actual and normal costing
> What is the meaning of the term unit contribution margin? Contribution to what?
> Selected data concerning the past year’s operations of the Lone Star Leather Company are as follows: Required: 1. What was the cost of raw materials purchased during the year? 2. What was the direct-labor cost charged to production dur
> The following data refer to Superior Metals Corporation for the year 20x4. Required: 1. Prepare Superior Metals’ schedule of cost of goods manufactured for 20x4. 2. Prepare the company’s schedule of cost of goods sold
> Jay Sports Equipment Company, Inc. incurred the following costs during 20x2. Direct material used .................................................. $226,200 Direct labor...................................................................... 421,200 Manuf
> Describe one advantage and one disadvantage of prorating overapplied or underapplied overhead.
> Visit the website of a film producer, such as Disney, MGM, or Warner Brothers. Walt Disney Studios: www.disney.com MGM: www.mgm.com Warner Brothers; www.warnerbros.com Required: Read about one of the company’s recent (or upcoming) film releases. Then
> Explain the benefits of using a predetermined overhead rate instead of an actual overhead rate.
> The controller for Tender Bird Poultry, Inc. estimates that the company’s fixed overhead is $150,000 per year. She also has determined that the variable overhead is approximately $.15 per chicken raised and sold. Since the firm has a single product, over
> Explain the difference between job-order and process costing.
> For each of the following companies, indicate whether job-order or process costing is more appropriate. 1. Manufacturer of household cleaning solutions. 2. Manufacturer of custom hot tubs and spas. 3. Architectural firm. 4. Manufacturer of ceramic tile.
> What are the purposes of the following documents: a material requisition form, b labor time record, and c job-cost record.
> A company with an advanced manufacturing environment typically will have a higher break-even point, greater operating leverage, and larger safety margin than a labor-intensive firm. True or false? Explain.
> Delmarva Oyster Company has been able to decrease its variable expenses per pound of oysters harvested. How will this affect the firm’s break-even sales volume?
> An individual in the United States wants to buy office equipment from England that costs 2,800 pounds. If the exchange rate is $1.92, how much will it cost him in dollar terms? a. $2,800 b. $5,376 c. $1,458 d. Need more information
> Metering is a. a type of indirect price discrimination b. a type of direct price discrimination c. an evaluation of a product d. an example of bundling
> Airlines charge a ____________ price to business travelers compared to leisure travelers because business travelers have a ____________ demand than leisure travelers. a. higher; more elastic b. higher; less elastic c. lower; more elastic d. lower; les
> Arbitrage a. is the act of buying low in one market and selling high in another market. b. can force a seller to go back to uniform pricing. c. can defeat direct price discrimination. d. All of the above.
> Assume that the price elasticity of demand for movie theatres is -.85 during all evening shows but for all afternoon shows the price elasticity of demand is -2.28. For the theatre to maximize total revenue, it should a. charge the same price for both sh
> What is a better pricing strategy for the monopolist? What is the resulting profit? a. Bundle the goods at $2,800; Profits=$5,600 b. Bundle the goods at $4,000; Profits=$8,000 c. Charge $2,800 for good 1 and charge $1,700 for good 2; Profits=$4,500 d.
> What is the total profit to the monopolist from selling the goods separately? a. $4,500 b. $6,300 c. $7,000 d. $6,000
> Suppose a monopolist only sold the goods separately. What price will the monopolist charge for good 1 to maximize revenues for good 1? a. $2,300 b. $2,800 c. $1,200 d. $1,700
> Perfect price discrimination is when a firm can charge each customer exactly what they are willing to pay. In this case, a. the demand curve is very inelastic. b. the marginal revenue is the demand curve c. the demand curve is very elastic. d. the ma
> Which of the following conditions must be satisfied for price discrimination to be successful? a. The seller must have a different product for each group of customers. b. The seller must be able to identify each customer as having a high or low value.
> In which of the following cases might you expect to find a manufacturer granting exclusive territories? a. A pet supply chain that requires heavy local advertising to drive sales b. Custom computer sales that require a good deal of consultation c. A sub
> A software firm can offer a high-feature version of its software or a stripped-down low-feature version, each with similar production costs. Which of the following cannot be an optimal segmentation strategy? a. Offer only the high-feature version aimed o
> You, a real-estate developer, own a piece of land in Nassau, Bahamas, next to an equal size piece of land owned by a competitor. Both of you have the choice of building a casino or a hotel. Your payoffs are as follows: Your competitor Casino Hote
> Suppose the game is infinitely repeated. What strategies will each firm utilize? a. firm A will charge a low price, and firm B will charge a low price. b. firm A will charge a high price, and firm B will charge a low price. c. firm A will charge a low
> If this game is played once, then a. firm A will charge a low price, and firm B will charge a low price. b. firm A will charge a high price, and firm B will charge a low price. c. firm A will charge a low price, and firm B will charge a high price. d.
> In repeated games, all of the following make it easier to get out of bad situations except a. be nice, no first strikes. b. respond immediately to rivals. c. punish uncooperative players as much as you can. d. make sure your competitors can easily int
> In a Nash equilibrium, a. players are always maximizing their joint profit. b. one player is always earning a higher profit than the other. c. players must be playing the game sequentially. d. None of the above
> If collusion were not illegal, then it would be optimal a. for Megastore to advertise and for Superstore to advertise. b. for Megastore to advertise and for Superstore not to advertise. c. for Megastore not to advertise and for Superstore to advertise.
