Refer to the original data given for Saturn Game Company in the preceding problem. An activity-based costing study has revealed that Saturn’s $300,000 of fixed costs include the following components: Setup (40 setups at $800 per setup) ....................................... $ 32,000 Engineering (500 hours at $50 per hour)................................... 25,000 Inspection (1,000 inspections at $60 per inspection) ............... 60,000 General factory overhead ............................................................ 123,000 Total ........................................................................................... $240,000 Fixed selling and administrative costs ....................................... 60,000 Total fixed costs ......................................................................... $300,000 Management is considering the installation of new, highly automated manufacturing equipment that would significantly alter the production process. In addition, management plans a move toward Just in time inventory and production management. If the new equipment is installed, setups will be quicker and less expensive. Under the proposed JIT approach, there would be 300 setups per year at $100 per setup. Since a total quality control program would accompany the move toward JIT, only 100 inspections would be anticipated annually, at a cost of $90 each. After the installation of the new production system, 800 hours of engineering would be required at a cost of $56 per hour. General factory overhead would increase to $332,200. However, the automated equipment would allow Saturn to cut its unit variable cost by 20 percent. Moreover, the more consistent product quality anticipated would allow management to raise the price of computer games to $52 per unit. (Ignore income taxes.) Data from preceding problem: Saturn Game Company manufactures computer games. Last year Saturn sold 25,000 games at $50 each. Total costs amounted to $1,050,000 of which $300,000 were considered fixed. In an attempt to improve its product, the company is considering replacing a component part that has a cost of $5 with a new and better part costing $9 per unit in the coming year. A new machine would also be needed to increase plant capacity. The machine would cost $36,000 with a useful life of six years and no salvage value. The company uses straight-line depreciation on all plant assets. (Ignore income taxes.) Required: 1. Upon seeing the ABC analysis given in the problem, Saturn Game Company’s vice president for manufacturing exclaimed to the controller, “I thought you told me this $300,000 cost was fixed. These don’t look like fixed costs at all. What you’re telling me now is that setup costs us $800 every time we set up a production run. What gives?” As Saturn’s controller, write a short memo explaining to the vice president what is going on. 2. Compute Saturn’s new break-even point if the proposed automated equipment is installed. 3. Determine how many units Saturn will have to sell to show a profit of $280,000, assuming the new technology is adopted. 4. If Saturn adopts the new manufacturing technology, will its break-even point be higher or lower? Will the number of sales units required to earn a profit of $280,000 be higher or lower? (Refer to your answers for the first two requirements of the preceding problem.) Are the results in this case consistent with what you would typically expect to find? Explain.
> Briefly describe two methods that can be used to evaluate a particular least-squares regression line.
> Why do many operating managers prefer a contribution income statement instead of a traditional income statement?
> Determine the missing amounts in each of the following independent cases. Case A Case B Case C Sales ? $240,000 $ 60,000 Beginning inventory, raw material Ending inventory, raw material 7,500 $ 180,000 15,000 Purchases of raw material 200,000 255,000
> Distinguish between line and staff positions. Give two examples of each in a university setting.
> What is meant by the phrase “different costs for different purposes”?
> The following selected information was extracted from the 20x1 accounting records of Surgical Products, Inc.: Raw-material-purchases .................................................. $350,000 Direct labor ................................................
> Thomas Cleverly purchased a vacant lot outside of London for £17,200, because he heard that a shopping mall was going to be built on the other side of the road. He figured that he could make a bundle by putting in a fast-food outlet on the site. As it tu
> Distinguish between cost accounting and managerial accounting.
> Explain why an overtime premium is included in manufacturing overhead.
> The following data refer to Laredo Luggage Company for the year 20x2: Required: 1. Prepare Laredo Luggage’s schedule of cost of goods manufactured for the year. 2. Prepare Laredo Luggage’s schedule of cost of goods s
> List and describe four important differences between managerial and financial accounting.
> List several possible cost drivers that could be used by a cruise line such as Carnival.
> Why is the cost of idle time treated as manufacturing overhead?
> How can a profit-volume graph be used to predict a company’s profit for a particular sales volume?
> LaJolla Airways operates commuter flights in California. Due to a political convention held in San Diego, the airline added several extra flights during a two-week period. Additional cabin crews were hired on a temporary basis. However, rather than hirin
> Give examples of how each of the objectives of managerial accounting activity would be important in an airline company such as American Airlines.
> List, describe, and give an example of each of the four different types of production processes.
> Angella Lopez, a consultant with Deloitte & Young, has just begun an engagement at Olympic Airways, which is based in Seattle. The company has fallen on hard times of late despite record profits for the rest of the airline industry. Management is somewha
> List several product costs incurred in the production of a backpack.
> Indicate for each of the following costs whether it is a product cost or a period cost. 1. Cost of grapes purchased by a winery. 2. Depreciation on pizza ovens in a pizza restaurant. 3. Cost of plant manager’s salary in a computer production facility. 4.
> Explain briefly how activity-based costing (ABC) affects cost-volume-profit analysis.
> Two companies have identical fixed expenses, unit variable expenses, and profits. Yet one company has set a much lower price for its product. Explain how this can happen.
> Stereo Technology, Inc. manufactures printed circuits for stereo amplifiers. A common product defect is a “drift” caused by failure to maintain precise heat levels during the production process. Rejects from the 100 percent testing program can be reworke
> How could cost-volume-profit analysis be used in budgeting? In making a decision about advertising?
> When sales volume increases, which company will experience a larger percentage increase in profit: company X, which has mostly fixed expenses, or company Y, which has mostly variable expenses?
> East Company manufactures VCRs using a completely automated production process. West Company also manufactures VCRs, but its products are assembled manually. How will these two firms’ cost structures differ? Which company will have a higher operating lev
> List the most important assumptions of cost-volume profit analysis.
> In a strategy meeting, a manufacturing company’s president said, “If we raise the price of our product, the company’s break-even point will be lower.” The financial vice president responded by saying, “Then we should raise our price. The company will be
> What information is conveyed by a cost-volume-profit graph in addition to a company’s break-even point?
> Give examples of each of the four primary management activities in the context of a national fast-food chain such as Burger King.
> Briefly explain each of the following methods of computing a break-even point in units: (a) contribution margin approach, (b) equation approach, and (c) graphical approach.
> SkiCo, Inc., manufactures ski boots. The company’s projected income for the coming year, based on sales of 160,000 units, is as follows: Sales.............................................................. $16,000,000 Operating expenses: Variable ex
> Hollywood Stars, Inc., owns and operates a nationwide chain of movie theaters. The chain’s 450 properties vary from low-volume, small-town, single-screen theaters to high-volume, urban, multiscreen theaters. The firm’s
> Distinguish between simple regression and multiple regression.
> Phoenix-based CompTronics manufactures audio speakers for desktop computers. The following data relate to the period just ended when the company produced and sold 42,000 speaker sets: Sales ................................................................
> Premier Corporation sells two models of home ice cream makers, Mister Ice Cream and Cold King. Current sales total 60,000 units, consisting of 21,000 Mister Ice Cream units and 39,000 Cold King units. Selling price and variable cost information follows.
> Boundaries, a chain of retail stores, sells books and music CDs. Condensed monthly income data are presented in the following table for November 20x4. (Ignore income taxes.) Additional information: • Management estimates that closing t
> Dillon, Jones, and Kline, Ltd. is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow. Model A: Variable costs, $8.00 per unit Annual fixed c
> Detroit Disk, Inc. is a retailer for digital video disks. The projected net income for the current year is $600,000 based on a sales volume of 400,000 video disks. Detroit Disk has been selling the disks for $24 each. The variable costs consist of the $1
> Surreal Sound, Inc., manufactures and sells compact disks. Price and cost data are as follows: Selling price per unit (package of two CDs) ........................... $ 25.00 Variable costs per unit: Direct material.......................
> ScholarPak Company produced and sold 70,000 backpacks during the year just ended at an average price of $30 per unit. Variable manufacturing costs were $12 per unit, and variable marketing costs were $6 per unit sold. Fixed costs amounted to $540,000 for
> Use the Internet to access the website for one of the following companies, or any other company of your choosing. American Airlines: www.aa.com Coca-Cola: www.coca-cola.com Deere and Company: www.deere.com IBM: www.ibm.com Google: www.google.com Require
> Columbus Canopy Company (CCC) manufactures and sells adjustable canopies that attach to motor homes and trailers. The market covers both new units as well as replacement canopies. CCC developed its 20x4 business plan based on the assumption that canopies
> Seattle Telecom, Inc. manufactures telecommunications equipment. The company has always been production oriented and sells its products through agents. Agents are paid a commission of 15 percent of the selling price. Seattle Telecom’s b
> Explain the meaning of the term least squares in the least-squares regression method of cost estimation.
> Great Northern Ski Company recently expanded its manufacturing capacity. The firm will now be able to produce up to 15,000 pairs of cross-country skis of either the mountaineering model or the touring model. The sales department assures management that i
> The Asian Division of Worldwide Reference Corporation produces a pocket dictionary containing popular phrases in six Asian languages. Annual budget data for the coming year follow. Projected sales are 100,000 books Required: 1. Calculate the break-even
> Toledo Tool Company (TTC) manufactures a line of electric garden tools that are s old in general hardware stores. The company’s controller, Will Fulton, has just received the sales forecast for the coming year for TTC’
> Central Pennsylvania Limestone Company produces thin limestone sheets used for cosmetic facing on buildings. The following income statement represents the operating results for the year just ended. The company had sales of 1,800 tons during the year. The
> Saturn Game Company manufactures computer games. Last year Saturn sold 25,000 games at $50 each. Total costs amounted to $1,050,000 of which $300,000 were considered fixed. In an attempt to improve its product, the company is considering replacing a comp
> Steven Clark and two of his colleagues are considering opening a law office in a large metropolitan area that would make inexpensive legal services available to those who could not otherwise afford services. The intent is to provide easy access for their
> Zodiac Company has decided to introduce a new product, which can be manufactured by either a computer assisted manufacturing system or a labor-intensive production system. The manufacturing method will not affect the quality of the product. The estimated
> What is the most important difference between a manufacturing firm and a service industry firm, with regard to the classification of costs as product costs or period costs?
> PneumoTech, Inc. is studying the addition of a new valve to its product line. The valve would be used by manufacturers of pneumatic equipment. The company anticipates starting with a relatively low sales volume and then boosting demand over the next seve
> Explain the impact of an increase in the level of activity (or cost driver) on (a) total variable cost and (b) variable cost per unit.
> Lake Champlain Sporting Goods Company, a wholesale supply company, engages independent sales agents to market the company’s products throughout New York and Ontario. These agents currently receive a commission of 20 percent of sales, bu
> Susquehanna Medical Center operates a general hospital in northeastern Pennsylvania. The medical center also rents space and beds to separately owned entities rendering specialized services, such as Pediatrics and Psychiatric Care. Susquehanna charges ea
> Power Grid Engineering Associates, Inc., provides consulting services to commercial electric utilities. The consulting firm’s contribution-margin ratio is 25 percent, and its annual fixed expenses are $200,000. The firm’s income-tax rate is 40 percent.
> Refer to the income statement given in the preceding exercise. Prepare a new contribution income statement for the La Jolla Inn in each of the following independent situations. (Ignore income taxes.) 1. The hotel’s volume of activity increases by 25 per
> A contribution income statement for the La Jolla Inn is shown below. (Ignore income taxes.) Revenue................................................................................... $1,500,000 Less: Variable Expenses ....................................
> Brad’s Bicycle Shop sells 21-speed bicycles. For purposes of a cost-volume-profit analysis, t he shop owner has divided sales into two categories, as follows: Seventy percent of the shop’s sales are medium-quality bike
> Pacific Rim Publications, Inc., specializes in reference books that keep abreast of political and economic issues in the Pacific Rim countries. The results of the company’s operations during the prior year are given in the following table. All units prod
> Rosario Company, which is located in Buenos Aires, Argentina, manufactures a component used in farm machinery. The firm’s fixed costs are 2,000,000 p per year. The variable cost of each component is 1,000 p, and the components are sold for 1,500 p each.
> Refer to the data given in the preceding exercise. (Ignore income taxes.) Data from preceding exercise: The Dallas Armadillos, a minor-league baseball team, play their weekly games in a small stadium just outside Dallas. The stadium holds 6,000 people,
> Consider the following cost items: 1. Current year’s depreciation on a ship owned by a cruise line. 2. The cost of chemicals and paper used during the period by a producer of film products. 3. Assembly-line wage cost incurred by a bicycle manufacturer. 4
> Explain the impact of an increase in the level of activity (or cost driver) on (a) total fixed cost and (b) fixed cost per unit of activity.
> An art museum covers its operating expenses by charging a small admission fee. The objective of the nonprofit organization is to break even. A local arts enthusiast has just pledged an annual donation of $10,000 to the museum. How will the donation affec
> The Dallas Armadillos, a minor-league baseball team, play their weekly games in a small stadium just outside Dallas. The stadium holds 6,000 people, and tickets sell for $20 each. The franchise owner estimates that the team’s annual fixed expenses are $3
> Fill in the missing data for each of the following independent cases. (Ignore income taxes.) Sales Variable Total Fixed Net Break-Even Revenue Expenses Contribution Margin Expenses Income Sales Revenue 1. ? $120,000 $240,000 ? $150,000 ? 2. $ 55,000
> University Pizza delivers pizzas to the dormitories and apartments near a major state university. The company’s annual fixed expenses are $54,000. The sales price of a pizza is $10, and it costs the company $6 to make and deliver each pizza. (In the foll
> Use an equation to express a least-squares regression line. Interpret each term in the equation.
> What is the chief drawback of the high-low method of cost estimation? What problem could an outlier cause if the high-low method were used?
> Describe the visual-fit method of cost estimation. What are the main strengths and weaknesses of this method?
> Explain the cost estimation problem caused by allocated and discretionary costs.
> What is an outlier? List some possible causes of outliers. How should outliers be handled in cost estimation?
> Suggest an appropriate independent variable to use in predicting the costs of the following tasks. a. Handling materials at a loading dock. b. Registering vehicles at a county motor vehicle office. c. Picking oranges. d. Inspecting computer components in
> (Note: Instructors who wish to cover all three cost-estimation methods with the same data set may assign this problem in conjunction with the next one.) Nantucket Marine Supply is a wholesaler for a large variety of boating and fishing equipment. The com
> What is meant by a learning curve? Explain its role in cost estimation.
> List and define the four basic management activities.
> A cost analyst showed the company president a graph that portrayed the firm’s utility cost as semivariable. The president criticized the graph by saying, “This fixed-cost component doesn’t look right to me. If we shut down the plant for six months, we wo
> Indicate which of the following descriptions is most likely to describe each cost listed below. Description …….………………………………..………Costs Engineered cost…………… Annual cost of maintaining an interstate highway Committed cost …………... Cost of ingredie
> Using graphs, show how a semivariable (or mixed) cost behavior pattern can be used to approximate (a) a stepvariable cost and (b) a curvilinear cost.
> Cherry Hill Glass Company employs a normal-costing system. The following information pertains to the year just ended. • Total manufacturing costs were $1,250,000. • Cost of goods manufactured was $1,212,500. • Applied manufacturing overhead was 30 percen
> The following data refer to Mister Munchie, Inc. for the year 20x4. Required: 1. Prepare Mister Munchie’s schedule of cost of goods manufactured for 20x4. 2. Prepare the company’s schedule of cost of goods sold for 20
> Shawn Toy Company incurred the following costs to produce job number TB78, which consisted of 1,000 teddy bears that can walk, talk, and play cards. Direct material: 8/11/x0 Requisition number 201: 500 yards of fabric at $.90 per yard 8/12/x0 Requisition
> Opticom, Inc. a manufacturer of fiber optic communications equipment, uses a j ob-order costing system. Since the production process is heavily automated, manufacturing overhead is applied on the basis of machine hours using a predetermined overhead rate
> Explain why a manufacturer’s cost of supervising production might be a step-fixed cost.
> Rexford Company manufactures finger splints for kids who get tendonitis from playing video games. The firm had the following inventories at the beginning and end of the month of January. The following additional manufacturing data pertains to January op
> List and explain four purposes of product costing.
> Liliana Richmond started KidCo, Inc. in Albuquerque, New Mexico to produce affordable children’s furnishings. The company uses a job-order costing system. KidCo’s work-in-process inventory at the end of November consis
> Define the term strategic cost management.
> Name several activities in the value chain of a. A manufacturer of cotton shirts b. An airline.
> Indicate whether each of the following costs is a direct cost or an indirect cost of the restaurant in a hotel. a. Cost of food served. b. Chef’s salary and fringe benefits. c. Part of the cost of maintaining the grounds around the hotel, which is alloca
> How can a hotel’s management use cost-volume-profit analysis to help in deciding on room rates?
> What do you think it means to be a professional? In your view, are managerial accountants professionals?
> Two years ago the manager of a large department store purchased new bar code scanners costing $39,000. A salesperson recently tried to sell the manager a new computer-integrated checkout system for the store. The new system would save the store a substan
> The controller for Oneida Vineyards, Inc. has predicted the following costs at various levels of wine output. The company’s marketing manager has predicted the following prices for the firm’s fine wines at various lev
> Draw a simple graph of each of the following types of cost behavior patterns: (a) variable, (b) step-variable, (c) fixed, (d) step-fixed, (e) semivariable, and (f) curvilinear.
> A large manufacturer of electronic machinery stated the following as one of its goals: “The company should become the low-cost producer in its industry.” How can managerial accounting help the company achieve this goal?
> Think about the process of registering for classes at your college or university. What additional information would you like to have before you register? How would it help you? What sort of information might create information overload for you?
