St. Paul Lumber Company incurs a cost of $280 per hundred board feet in processing certain “rough-cut” lumber, which it sells for $320 per hundred board feet. An alternative is to produce a “finished cut” at a total processing cost of $350 per hundred board feet, which can be sold for $415 per hundred board feet. What is the amount of (a) the differential revenue, (b) differential cost, and (c) differential income for processing rough-cut lumber into finished cut?
> A condensed income statement by product line for Garcia Beverages Inc. indicated the following for Melon Cola for the past year: Sales ……………………………………. $ 3,750,000 Cost of goods sold …………………. (2,250,000) Gross profit …………………………. $ 1,500,000 Operating exp
> Orwell Industries is considering selling excess machinery with a book value of $300,000 (original cost of $950,000 less accumulated depreciation of $650,000) for $145,000 less a 5% brokerage commission. Alternatively, the machinery can be leased out for
> A new assistant controller recently said: “All the assembly workers in this plant are covered by union contracts, so there should be no labor variances.” Was the controller’s remark correct? Discuss.
> a. What are the two variances between the actual cost and the standard cost for direct materials? b. Discuss some possible causes of these variances.
> Monsanto Company, a large chemical and fibers company, invested $37 million in state-of-the-art systems to improve process control, laboratory automation, and local area network (LAN) communications. The investment was not justified merely on cost saving
> The reliability of cost-volume-profit (CVP) analysis depends on several key assumptions. What are those primary assumptions?
> Two projects have an identical net present value of $360,000. Are both projects equal in desirability?
> With a group of students, visit a local copy and graphics shop or a take-out pizza restaurant. As you observe the operation, consider the costs associated with running the business. As a group, identify as many costs as you can and classify them accordin
> Why might the use of the cash payback period for analyzing the financial performance of theatrical releases from a motion picture production studio be used over the net present value method?
> Why should the production requirements set forth in the production budget be carefully coordinated with the sales budget?
> How does the target cost concept differ from cost plus approaches?
> The returns on investment for Shear Co.’s three divisions, North, South, and Midwest are 38%, 30%, and 22%, respectively. In expanding operations, which of Shear Co.’s divisions should be given priority? Explain.
> What is the major shortcoming of using operating income as a performance measure for investment centers?
> Under what circumstances would a static budget be appropriate?
> Many fast-food restaurant chains, such as McDonald’s, occasionally discontinue restaurants in their system. What are some financial considerations in deciding to eliminate a store?
> A company fabricates a component at a cost of $7.75. A supplier offers to supply the same component for $6.15. Under what circumstances is it reasonable to purchase from the supplier?
> A company is offered incremental business at a special price that exceeds the variable cost. What other issues must the company consider in deciding whether to accept the business?
> Why would the average rate of return differ from the internal rate of return on the same project?
> Fabricator Inc., a specialized equipment manufacturer, uses a job order cost system. The overhead is allocated to jobs on the basis of direct labor hours. The overhead rate is now $3,000 per direct labor hour. The design engineer thinks that this is illo
> A company could sell a building for $650,000 or lease it out for $5,000 per month. What would need to be considered in determining if the lease option would be preferred?
> Explain the meaning of (a) differential revenue, (b) differential cost, and (c) differential income.
> a. What is the objective of just-in-time processing? b. How does just-in-time processing differ from traditional processing?
> a. Differentiate between the clock card and the time ticket. b. Why should the total time reported on an employee’s time tickets for a payroll period be compared with the time reported on the employee’s clock cards for the same period?
> a. Name two principal types of cost accounting systems. b. Which system provides for a separate record of each particular quantity of product that passes through the factory? c. Which system accumulates the costs for each department or process within the
> List three differences in how managerial accounting differs from financial accounting.
> In one group, find a local business, such as a copy shop, that charges for printing, faxing, copying, and scanning documents. In the other group, determine the price of a mid-range printer/copier/scanner/fax machine. Combine this information from the two
> Metro-Goldwyn-Mayer Studios Inc. (MGM) is a major producer and distributor of theatrical and television filmed entertainment. Regarding theatrical films, MGM states, “Our feature films are exploited through a series of sequential domestic and international
> World Electronics Inc. invested $16,000,000 to build a plant in a foreign country. The labor and materials used in production are purchased locally. The plant expansion was estimated to produce an internal rate of return of 20% in U.S. dollar terms. Due
> Use the data from E11-12 and assume that break-even sales are $2,798 million. Determine the following for Molson-Coors Brewing Company. Round to one decimal place. 1. Margin of safety expressed as dollar sales. 2. Margin of safety expressed as a percenta
> At a recent staff meeting, the management of Warp Time Technologies Inc. was considering discontinuing its Track Time line of electronic games. The chief financial analyst reported the following current monthly data for the Track Time F
> For a major university, match each cost in the following table with the appropriate activity base. An activity base may only be used more than once. Activity Base a. Number of enrollment applications b. Number of financial aid applications c. Number
> The following cost graphs illustrate various types of cost behavior: For each of the following costs, identify the cost graph that best illustrates its cost behavior as the number of units produced increases. a. Direct material cost per unit. b. Fees f
> Following is a list of various costs incurred in producing and selling college textbooks. With respect to the production and sale of textbooks, classify each cost as either variable, fixed, or mixed. 1. Art commission of $36,000 paid for use of art on tex
> Five selected transactions for the current month are indicated by letters in the following accounts in a job order cost accounting system: Describe each of the five transactions. Cost of Goods Sold Materials (e) increase (a) decrease Factory Overhe
> A Masters of Accountancy degree at Jalapeno University would cost $15,000 for an additional fifth year of education beyond the bachelor’s degree. Assume that all tuition is paid at the beginning of the year. A student considering this investment must eval
> Reboot Inc. provides computer repair services for the community. Ashley DaCosta’s computer was not working, and she called Reboot for a home repair visit. The Reboot Inc. technician arrived at 2:00 P.M. to begin work. By 4:00 P.M., the
> From the choices presented in the parentheses, choose the appropriate term for completing each of the following sentences: a. Advertising expenses are usually viewed as (period, product) costs. b. An example of factory overhead is (plant depreciation, sa
> From the following list of activity bases for an automobile dealership, select the base that would be most appropriate for each of these costs: (1) preparation costs (cleaning, oil, and gasoline costs) for each car received, (2) salespersons’ commission
> Which of the following items are properly classified as part of factory overhead for Caterpillar? a. Amortization of patents on new assembly process b. Consultant fees for a study of production line employee productivity c. Depreciation on Peoria, Illinoi
> Indicate whether the following costs of Colgate-Palmolive Company would be classified as direct materials cost, direct labor cost, or factory overhead cost: a. Bottles in which mouthwashes are sold b. Depreciation on production machinery c. Depreciation o
> Name the following graph and identify the items represented by the letters (a)Â through (f). Operating Profit (Loss) $300,000 $200,000 $100,000 b $(100,000) $(200,000) $(300,000) 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,00
> Name the following graph, and identify the items represented by the letters (a) through (f). Sales and Costs $100,000 $75,000 $50,000 a $25,000 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 Units of Sales
> The internal rate of return method is used by Leach Construction Co. in analyzing a capital expenditure proposal that involves an investment of $400,125 and annual net cash flows of $75,000 for each of the eight years of its useful life.
> Currently, the unit selling price of a product is $1,350, the unit variable cost is $900, and the total fixed costs are $810,000. A proposal is being evaluated to increase the unit selling price to $1,400. a. Compute the current break-even sales (units).
> One item is omitted from each of the following computations of the return on investment: Determine the missing items, identifying each by the appropriate letter. Return on Investment Profit Margin x Investment Turnover 12% 8% (a) (b) 16% 1.25 24% (
> For the current year ending December 31, McAdams Industries expects fixed costs of $1,860,000, a unit variable cost of $105, and a unit selling price of $125. a. Compute the anticipated break-even sales (units). b. Compute the sales (units) required to re
> Erin Haywood was recently hired as a cost analyst by Wind River Medical Supplies Inc. One of Erin’s first assignments was to perform a net present value analysis for a new warehouse. Erin performed the analysis and calculated a present value index of 0.8.
> For each of the following service departments, select the activity base listed that is most appropriate for charging service expenses to responsible units. Service Department Activity Base a. Accounts Receivable 1. Number of computers b. Central Pur
> Indicate whether each of the following costs of an airplane manufacturer would be classified as direct materials cost, direct labor cost, or factory overhead cost: a. Aircraft engines b. Controls for flight deck c. Depreciation of equipment d. Landing gea
> Which of the following graphs best illustrates fixed costs per unit as the activity base changes? (a) (ь) Activity Base Activity Base Costs per Unit Costs per Unit
> Which of the following graphs illustrates how total fixed costs behave with changes in total units produced? (a) (Ь), Total Units Produced Total Units Produced Total Cost Total Cost
> In cost analyses, how are mixed costs treated?
> Describe the behavior of (a) total fixed costs and (b) unit fixed costs as the level of activity increases.
> How would each of the following costs be classified if units produced is the activity base? a. Direct materials costs b. Direct labor costs c. Electricity costs of $0.09 per kilowatt-hour
> A chemical company has a commodity-grade and a premium-grade product. Why might the company elect to process the commodity-grade product further to the premium-grade product?
> Under what circumstances is it appropriate to use the target cost concept?
> Modern Living Inc. is a privately held diversified company with five separate divisions organized as investment centers. A condensed income statement for the Patio Division for the past year, assuming no service department c
> An examination of the accounting records of Larredo Company disclosed a high contribution margin ratio and production at a level below maximum capacity. Based on this information, suggest a likely means of improving operating income.
> Differentiate between a cost center and a profit center.
> A net present value analysis used to evaluate a proposed equipment acquisition indicated a $115,000 net present value. What is the meaning of the $115,000 as it relates to the desirability of the proposal?
> Why would the cash payback method understate the value of a project with a large residual value?
> What information does the cash payback period ignore that is included by the net present value method?
> What method can be used to place two capital investment proposals with unequal useful lives on a comparable basis?
> What provision of the Internal Revenue Code is especially important to consider in analyzing capital investment proposals?
> In a decentralized company in which the divisions are organized as investment centers, how could a division be considered the least profitable, even though it earned the largest amount of operating income?
> Why should the factors under the control of the investment center manager (revenues, expenses, and invested assets) be considered in computing the return on investment?
> Weyerhaeuser developed a system that assigns service department expenses to user divisions on the basis of actual services consumed by the division. Here are a number of Weyerhaeuser’s activities in its central Financial Services Department: • Payroll •
> The Laser Division of FOX Technologies Inc. has been experiencing revenue and profit growth during the years 20Y6–20Y8. The divisional income statements are provided below. Assume that there are no charges from service
> For what decisions is the manager of a cost center not responsible?
> In what major respect would budget performance reports prepared for the use of plant managers of a manufacturing business with cost centers differ from those prepared for the use of the various department supervisors who report to the plant managers?
> Differentiate between a profit center and an investment center.
> Why would standard cost be a more appropriate transfer cost between cost centers than actual cost?
> When would a company use zero-based budgeting?
> What behavioral problems are associated with establishing conflicting goals within the budget?
> What behavioral problems are associated with setting a budget too loosely?
> Give an example of budgetary slack.
> What is the manager’s role in a responsibility center?
> How can standards be used by management to help control costs?
> The three divisions of Dixie Foods are Cereal, Produce, and Snacks. The divisions are structured as investment centers. The following responsibility reports were prepared for the three divisions for the prior year: 1. Which division is making the best
> How does a schedule of collections from sales assist in preparing the cash budget?
> In preparing the budget for the cost of goods sold, what are the three budgets from which data on relevant estimates of quantities and costs are combined with data on estimated inventories?
> What is the first step in preparing a master budget?
> How are standards used in budgetary performance evaluation?
> How often should standards be revised?
> What is meant by reporting by the “principle of exceptions,” as the term is used in reference to cost control?
> Why might the use of ideal standards in applying the cost-plus approach to product pricing lead to setting product prices that are too low?
> What does operating leverage measure, and how is it computed?
> How can activity-based costing be used in service companies?
> It was reported that Exabyte Corporation, a fast- growing Colorado marketer of computer devices has decided to purchase key components of its product from other suppliers. A former chief executive officer of Exabyte stated, “If we’d tried to build our ow
> The Customer Service Department of Bragg Inc. asked the Publications Department to prepare a brochure for its training program. The Publications Department delivered the brochures and charged the Customer Service Department a rate that was 15% higher tha
> Both Gouda Company and Cheddar Company had the same sales, total costs, and operating income for the current fiscal year; yet Gouda Company had a lower break-even point than Cheddar Company. Explain the reason for this difference in break-even points.
> If insurance rates are increased, what effect will this change in fixed costs have on the break-even point?
> At the end of the fiscal year, there was a relatively minor balance in the factory overhead account. What procedure can be used for disposing of the balance in the account?
> a. What is (1) over applied factory overhead and (2) under applied factory overhead b. If the factory overhead account has a positive balance, was factory overhead under applied or over applied?
> If fixed costs increase, what would be the impact on the (a) contribution margin and (b) operating income?
> In applying the high-low method of cost estimation, how is the total fixed cost estimated?
> Describe the source of the data for increasing Work in Process for (a) direct materials, (b) direct labor, and (c) factory overhead.
> Which of the following graphs illustrates how unit variable costs behave with changes in total units produced? (a), (Ь) 0 Total Units Produced 0 Total Units Produced Unit Cost Unit Cost
> How does the use of the materials requisition help control the issuance of materials from the storeroom?
> What kind of firm would use a job order cost system?
