Roberta, Inc., manufactures elliptical machines for several well-known companies. The machines differ significantly in their complexity and their manufacturing batch sizes. The following costs were incurred in 2017: a. Indirect manufacturing labor costs such as supervision that supports direct manufacturing labor, $935,000 b. Procurement costs of placing purchase orders, receiving materials, and paying suppliers related to the number of purchase orders placed, $650,000 c. Cost of indirect materials, $234,000 d. Costs incurred to set up machines each time a different product needs to be manufactured, $392,000 e. Designing processes, drawing process charts, and making engineering process changes for products, $236,900 f. Machine-related overhead costs such as depreciation, maintenance, and production engineering, $865,000 (These resources relate to the activity of running the machines.) g. Plant management, plant rent, and plant insurance, $498,000 Required: 1. Classify each of the preceding costs as output unit–level, batch-level, product-sustaining, or facility sustaining. Explain each answer. 2. Consider two types of elliptical machines made by Roberta, Inc. One machine, designed for professional use, is complex to make and is produced in many batches. The other machine, designed for home use, is simple to make and is produced in few batches. Suppose that Roberta needs the same number of machine hours to make each type of elliptical machine and that Roberta allocates all overhead costs using machine hours as the only allocation base. How, if at all, would the machines be miscosted? Briefly explain why. 3. How is the cost hierarchy helpful to Roberta in managing its business?
> Why is it important to distinguish between the performance of a manager and the performance of the organization subunit for which the manager is responsible? Give an example.
> What special problems arise when evaluating performance in multinational companies?
> Distinguish between measuring assets based on current cost and historical cost.
> “RI is not identical to ROI, although both measures incorporate income and investment into their computations.” Do you agree? Explain.
> Dakota Products uses a job-costing system with two direct-cost categories (direct materials and direct manufacturing labor) and one manufacturing overhead cost pool. Dakota allocates manufacturing overhead costs using direct manufacturing labor costs. Da
> What are the three steps in designing accounting-based performance measures?
> Describe the four levers of control.
> Describe two disclosures required by the SEC with respect to executive compensation.
> Explain the incentive problems that can arise when employees must perform multiple tasks as part of their jobs.
> Explain the role of benchmarking in evaluating managers.
> “Managers should be rewarded only on the basis of their performance measures. They should be paid no salary.” Do you agree? Explain.
> Give examples of financial and nonfinancial performance measures that can be found in each of the four perspectives of the balanced scorecard.
> “Transfer pricing is confined to profit centers.” Do you agree? Explain.
> Name three benefits and two costs of decentralization.
> How should managers consider income tax issues when choosing a transfer-pricing method?
> In each of the following situations, determine whether job costing or process costing would be more appropriate. a. A CPA firm b. An oil refinery c. A custom furniture manufacturer d. A tire manufacturer e. A textbook publisher f. A home builder g.
> “Under the general guideline for transfer pricing, the minimum transfer price will vary depending on whether the supplying division has unused capacity or not.” Do you agree? Explain.
> “Cost and price information play no role in negotiated transfer prices.” Do you agree? Explain.
> Give two reasons why the dual-pricing system of transfer pricing is not widely used.
> What is one potential limitation of full-cost-based transfer prices?
> Under what conditions is a market-based transfer price optimal?
> “Let’s be more practical. DCF is not the gospel. Managers should not become so enchanted with DCF that strategic considerations are overlooked.” Do you agree? Explain.
> “The trouble with discounted cash flow methods is that they ignore depreciation.” Do you agree? Explain.
> Describe the accrual accounting rate-of-return method. What are its main strengths and weaknesses?
> What is the payback method? What are its main strengths and weaknesses?
> “Only quantitative outcomes are relevant in capital budgeting analyses.” Do you agree? Explain.
> 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 th
> “Relevant costs for pricing decisions are full costs of the product.” Do you agree? Explain.
> What is the essence of the discounted cash flow methods?
> List and briefly describe each of the five stages in capital budgeting.
> Distinguish the nominal rate of return from the real rate of return.
> How can capital budgeting tools assist in evaluating a manager who is responsible for retaining customers of a cellular telephone company?
> Describe three ways income taxes can affect the cash inflows or outflows in a motor-vehicle-replacement decision by a taxpaying company.
> Distinguish different categories of cash flows to be considered in an equipment-replacement decision by a taxpaying company.
> Bill Watts, president of Western Publications, accepts a capital budgeting project proposed by division X. This is the division in which the president spent his first 10 years with the company. On the same day, the president rejects a capital budgeting p
> “All overhead costs are relevant in NPV analysis.” Do you agree? Explain.
> What are three factors causing reductions in the cost to place purchase orders for materials?
> “JIT purchasing has many benefits but also some risks.” Do you agree? Explain briefly.
> Vineyard Test Laboratories does heat testing (HT) and stress testing (ST) on materials and operates at capacity. Under its current simple costing system, Vineyard aggregates all operating costs of $1,190,000 into a single overhead cost pool. Vineyard cal
> Why might goal-congruence issues arise when managers use an EOQ model to guide decisions on how much to order?
> What are the steps in computing the cost of a prediction error when using the EOQ decision model?
> Give three examples of opportunity costs that typically are not recorded in accounting systems, although they are relevant when using the EOQ model in the presence of demand uncertainty.
> What assumptions are made when using the simplest version of the economic-order-quantity (EOQ) decision model?
> Discuss the differences between lean accounting and traditional cost accounting.
> Describe three different versions of backflush costing.
> Distinguish inventory-costing systems using sequential tracking from those using backflush costing.
> What are the main features of JIT production, and what are its benefits and costs?
> What is supply-chain analysis, and how can it benefit manufacturers and retailers?
> “You should always choose the supplier who offers the lowest price per unit.” Do you agree? Explain.
> Why do better decisions regarding the purchasing and managing of goods for sale frequently cause dramatic percentage increases in net income?
> Give two examples of nonfinancial measures of internal-business-process quality.
> Give two examples of nonfinancial measures of customer satisfaction relating to quality.
> “Companies should focus on financial measures of quality because these are the only measures of quality that can be linked to bottom-line performance.” Do you agree? Explain.
> Describe three methods that companies use to identify quality problems.
> Distinguish between internal failure costs and external failure costs.
> “When evaluating a company’s performance on the time dimension, managers should only consider financial measures.” Do you agree? Explain.
> “Companies should always make and sell all products whose selling prices exceed variable costs.” Assuming fixed costs are irrelevant, do you agree? Explain.
> Give two reasons why delays occur.
> “There is no tradeoff between customer-response time and on-time performance.” Do you agree? Explain.
> What are three important pitfalls to avoid when implementing a balanced scorecard?
> Distinguish between customer-response time and manufacturing cycle time.
> “When evaluating alternative ways to improve quality, managers need to consider the fully allocated costs of quality.” Do you agree? Explain.
> “Total input includes abnormal as well as normal spoilage and is, therefore, inappropriate as a basis for computing normal spoilage.” Do you agree? Explain.
> Distinguish among spoilage, rework, and scrap.
> How do managers use information about scrap?
> “Abnormal rework costs should be charged to a loss account, not to manufacturing overhead.” Do you agree? Explain.
> “In job costing, the costs of normal spoilage that occur while a specific job is being done are charged to the specific job.” Do you agree? Explain.
> Describe the distinctive characteristic of FIFO computations in assigning costs to units completed and to units in ending work in process.
> Name the five steps in process costing when equivalent units are computed.
> What problems might arise in estimating the degree of completion of semiconductor chips in a semiconductor plant?
> What are the five types of conditions to consider when evaluating a strategy map?
> Explain equivalent units. Why are equivalent-unit calculations necessary in process costing?
> In process costing, why are costs often divided into two main classifications?
> “There’s no reason for me to get excited about the choice between the weighted-average and FIFO methods in my process-costing system. I have long-term contracts with my materials suppliers at fixed prices.” Do you agree with this statement made by a plan
> Why should the accountant distinguish between transferred-in costs and additional direct materials costs for each subsequent department in a process-costing system?
> “The standard-costing method is particularly applicable to process-costing situations.” Do you agree? Why?
> Give two limitations of the physical-measure method of joint-cost allocation.
> Distinguish between the sales value at splitoff method and the NRV method.
> Describe a situation in which the sales value at splitoff method cannot be used but the NRV method can be used for joint-cost allocation.
> Provide three reasons for allocating joint costs to individual products or services.
> Why might the number of products in a joint-cost situation differ from the number of outputs? Give an example.
> “We are already measuring total factor productivity. Measuring partial productivities would be of no value.” Do you agree? Comment briefly.
> Distinguish between a joint product and a byproduct.
> Why might managers seeking a monthly bonus based on attaining a target operating income prefer the sales method of accounting for byproducts rather than the production method?
> “Managers should consider only additional revenues and separable costs when making decisions about selling at splitoff or processing further.” Do you agree? Explain.
> “Managers must decide whether a product should be sold at splitoff or processed further. The sales value at splitoff method of joint-cost allocation is the best method for generating the information managers need for this decision.” Do you agree? Explain
> Why is the constant gross-margin percentage NRV method sometimes called a “joint-cost-allocation and a profit-allocation” method?
> Distinguish among the three methods of allocating the costs of support departments to operating departments.
> Why might a manager prefer that budgeted rather than actual cost-allocation rates be used for costs being allocated to his or her department from another department?
> Identify and discuss arguments that individual product managers may put forward to support their preferred revenue-allocation method.
> Distinguish between the stand-alone and the incremental revenue-allocation methods.
> Why might an analyst incorporate the industry-market-size factor and the interrelationships among the growth, price-recovery, and productivity components into a strategic analysis of operating income?
> What are the challenges of using the incremental cost allocation method when allocating common costs and how might they be overcome?
> Distinguish between the single-rate and the dual-rate methods.
> “Once a company allocates corporate costs to divisions, these costs should not be reallocated to the indirect-cost pools of the division.” Do you agree? Explain.
> What criteria might managers use to guide cost-allocation decisions? Which are the dominant criteria?
> “A company should not allocate all of its corporate costs to its divisions.” Do you agree? Explain.
> Give examples of three different levels of costs in a customer-cost hierarchy.
> “A customer-profitability profile highlights those customers a company should drop to improve profitability.” Do you agree? Explain.
> How can the sales-quantity variance be decomposed further?
