Stop-n-Shop operates a downtown parking lot containing 800 parking spaces. The lot is open 2,500 hours per year. The parking charge per car is 50 cents per hour; the average customer parks two hours. Stop-n-Shop rents the lot from a development company for $7,250 per month. The lot supervisor is paid $24,000 per year. Five employees who handle the parking of cars are paid $300 per week for 50 weeks, plus $600 each for the two-week vacation period. Employees rotate vacations during the slow months when four employees can handle the reduced load of traffic. Lot maintenance, payroll taxes, and other costs of operating the parking lot include fixed costs of $3,000 per month and variable costs of 5 cents per parking-space hour. Instructions: a. Draw a cost-volume-profit graph for Stop-n-Shop on an annual basis. Use thousands of parking-space hours as the measure of volume of activity. [Stop-n-Shop has an annual capacity of 2 million parking-space hours (800 spaces × 2,500 hours per year).] b. What is the contribution margin ratio? What is the annual break-even point in dollars of parking revenue? c. Suppose that the five employees were taken off the hourly wage basis and paid 30 cents per car parked, with the same vacation pay as before. (1) How would this change the contribution margin ratio and total fixed costs? (Hint: The variable costs per parking-space hour will now include 15 cents, or one-half of the 30 cents paid to employees per car parked, because the average customer parks for two hours.) (2) What annual revenue would be necessary to produce operating income of $300,000 under these circumstances? Answer: a. The following information is used for parts b. and c. of this problem. Operating data: Revenue per parking-space hour 50 cents Variable costs per parking-space hour 5 cents Fixed costs per year: Supervisor’s salary $ 24,000 Wages ($300 × 52 × 5) 78,000 Rent on lot ($7,250 × 12) 87,000 Fixed maintenance and other expenses ($3,000 × 12) 36,000 Total fixed costs $225,000 Capacity = 800 spaces × 2,500 hours per year = 2,000,000 parking-space hours per year Revenue at full capacity = 2,000,000 × $0.50 = $1,000,000 per year b. Contribution margin ratio: Parking charge per hour $ 0.50 Less: Variable costs per unit 0.05 Contribution margin per unit $ 0.45 Contribution margin ratio ($0.45 ÷ $0.50) 90% Break-even sales volume: Fixed costs: Rent on lot ($7,250 × 12) $ 87,000 Supervisor's salary 24,000 Wages ($300 × 52 × 5) 78,000 Fixed maintenance and other costs ($3,000 × 12) 36,000 Total annual fixed costs $ 225,000 Contribution margin ratio (above) 90% Break-even sales volume ($225,000 ÷ 0.90) $ 250,000 c. (1) New contribution margin ratio per parking-space hour: Parking charge per hour $ 0.50 Less: Variable costs ($0.05 + $0.15) 0.20 Contribution margin per unit $ 0.30 New contribution margin ratio ($0.30 ÷ $0.50) 60% New level of fixed costs: Rent on lot ($7,250 × 12) $ 87,000 Supervisor’s salary 24,000 Vacation pay ($300 × 2 × 5) 3,000 Fixed maintenance and other costs ($3,000 × 12) 36,000 Total fixed costs under new arrangement $ 150,000 (2) Required sales revenue to produce desired operating income: Total fixed costs under new arrangement (above) $ 150,000 Add: Target profit 300,000 Total contribution margin required $ 450,000 New contribution margin ratio (above) 60% Sales volume ($450,000 ÷ 0.60) $ 750,000
> Briefly describe the computation of the cost of finished goods manufactured as it appears in a schedule of the cost of finished goods manufactured.
> Hendersonville Roofing uses job order costing and applies manufacturing overhead to individual projects using predetermined overhead rates. In the Installation Division, overhead is applied on the basis of direct labor hours, and in the Disposal Division
> Ford Motor Company uses FIFO and LIFO to account for different segments of its inventories. A note to the company’s recent financial statements indicated that if FIFO had been used for the entire inventory, the total amount of inventory would have been a
> You are a staff accountant for Pearce, Pearce, and Smith, CPAs, and have worked for several years on the audit of a major client of the firm, Flexor, Inc. Flexor sells its products in a highlycompetitive market and relies heavily on the careful managemen
> Bailey’s materials quantity variance for the current month was exactly one-half of its materials price variance. Both variances were unfavorable. The company’s cost accountant has supplied the following standard cost i
> The U.S. government maintains an Internet site containing information on various countries called The World Factbook. The site includes a database under the “countries and regions” tab. Use the data or other publicly available data to answer the followin
> Starlight, a Broadway media firm, uses the balance sheet approach to estimate uncollectible accounts expense. At year-end an aging of the accounts receivable produced the following five groupings. On the basis of past experience, the company estimated t
> Big Game, Inc., is a manufacturer of hunting supplies. The following is a summary of the company’s annual payroll-related costs. a. Compute Big Game’s total payroll-related costs for the year. b. Compute the net amou
> Joe Felan is the production manager at Utex Corporation. He was recently quoted as saying, “Since management reports aren’t subject to generally accepted accounting principles, and they aren’t directly used by outside investors and creditors, it’s really
> Go to the Home Depot financial statements in Appendix A at the end of this textbook. Refer to Note 1 summarizing the company’s significant accounting policies. Read the section entitled “Cost of Sales” and list what is included in the Home Depot’s cost o
> Under what circumstances do generally accepted accounting principles permit the use of an inventory cost flow assumption? Must a cost flow assumption closely parallel the physical movement of the company’s merchandise?
> Identify what is wrong with the following statement: “There are three basic kinds of cost accounting systems: job order, process, and standard.”
> Early in the year Debra Deal and several friends organized a corporation called Markup, Inc. The corporation was authorized to issue 100,000 shares of $100 par value, 5 percent cumulative preferred stock and 100,000 shares of $1 par value common stock. T
> What are restructuring charges? How are they presented in financial statements?
> Dave Miller is the controller of Mica Corporation. Mica produces five industrial cleaning products. Miller recently decided to implement activity-based costing at Mica. In designing the system, he decided to identify heating costs as a separate cost pool
> Why might earnings per share be more significant to a stockholder in a large corporation than the total amount of net income?
> The only transaction recorded in the Plant Assets account of Pompeii Company in the current year was a $263,000 credit to the Land account. Assuming that this credit resulted from a cash transaction; does this entry indicate a cash receipt or a cash paym
> What does the globalization of business mean? Think of two companies with which you are familiar. How would you describe their level of globalization?
> Precision Systems manufactures CD burners and currently sells 18,500 units annually to producers of laptop computers. Jay Wilson, president of the company, anticipates a 15 percent increase in the cost per unit of direct labor on January 1 of next year.
> The Enforcement Division of the Securities and Exchange Commission (SEC) is an important aspect of the corporate governance structure in the United States that is intended to protect investors. Locate the home page of the SEC by doing a general search on
> Greenway Irrigation Systems uses job order costing and applies manufacturing overhead to individual jobs by using predetermined overhead rates. In the Fabrication Department, overhead is applied on the basis of machine-hours, and in the Installation Depa
> Chezo, Inc., is a large cheese store chain. Shown are selected items adapted from a recent Chezo, Inc., balance sheet. (Dollar amounts are in the millions.) Instructions: a. Using this information, compute the amounts of Chezo’s total
> Briefly explain what accounting benchmark studies are and why they are important for an organization’s management accounting system.
> State the balance sheet or income statement classification (asset, liability, stockholders’ equity, revenue, or expense) of each of the following accounts. a. Cash (received from the issuance of capital stock). b. Organization Costs. c. Preferred Stoc
> Shown as follows are data relating to the operations of Beach, Inc., during 2021 Instructions:a. Prepare a condensed income statement for 2021, including earnings per share statistics.Beach, Inc., had 800,000 shares of $1 par value common stock and 100,
> Explain two ways in which a company that makes purchases on account from foreign companies can protect itself against the losses that would arise from a sudden increase in the foreign exchange rate.
> Describe three basic investment applications of the concept of the time value of money
> At the end of the current year, Eastern Electric received the following information from its actuarial firm The pension plan is fully funded. Eastern Electric has funded only 40 percent of the nonperson postretirement benefits this year. a. Prepare the
> Xanic Corporation issued $8 million of 20-year, 8 percent bonds on April 1, 2021, at 102. Interest is paid on March 31 and September 30 of each year, and all of the bonds in the issue mature on March 31, 2041. Xanic’s fiscal year ends on December 31. Pre
> The accountants for Polyglaze, Inc., have developed the following information regarding the standard cost and the actual cost of a product manufactured in June. Instructions: a. Compute the materials price variance and the materials quantity variance, i
> Quarter Corporation is considering implementation of a JIT inventory system. The company’s industrial engineer recently conducted a study to determine the average number of days spent in each activity of the production process. The foll
> What is the difference between short-run business decisions and long-run strategic plans?
> Explain the term equivalent units. In a fast-moving, assembly-line operation, are the equivalent units likely to differ significantly from the number of units completed during a month? Explain.
> The accounting records of the Cedar Company include the following information relating to the current year. The company manufactures a single product; during the current year, 60,000 units were manufactured and 50,000 units were sold. Instructions: a.
> Go to the following website that features the bottling process at the Coca-Cola Company: Coca-Cola bottling process. After viewing the video, answer the following questions: a. Identify at least four direct materials that are used to create Coca-Cola.® b
> Pacific Airlines operated both an airline and several rental car operations located near airports.During the year just ended, all rental car operations were discontinued and the following operatingresults were reported. All of these amounts are before i
> Louie Optics manufactures an underwater digital camera. The company’s newest model is very popular, but it has an inventory of 5,000 old models for which there is little demand. The company is considering the following options for disposing of these old
> Oro Mining, Inc., has just discovered two new mining sites for copper. Geologists and engineers have come up with the following estimates regarding costs and copper yields if the mines are opened. Oro’s owners currently demand a return
> The following information pertains to May activity in Accessory World’s Coating Department. a. Compute how many cut mat sets were started in the Coating Department during May. b. Prepare a schedule showing: (1) the number of mat sets t
> Top-Shelf Classics uses standard costs in a process cost system. At the end of the current month, the following information is prepared by the company’s cost accountant. The total standard cost per unit of finished product is $9. Durin
> Why is it important to understand the economic system under which a company operates before entering into a business relationship?
> On January 2, 2021, Jason Corporation acquired a new machine with an estimated useful life of five years. The cost of the equipment was $40,000 with an estimated residual value of $5,000. a. Prepare a complete depreciation table under the three depreciat
> One of Turf Smart’s products is a small lawnmower. Two processing departments are involved in the mower’s production. The deck is assembled in one department, and a second department assembles and installs the engine.
> Assume that Congress announces its intention to limit the prices and profits of pharmaceutical companies as part of an effort to control health care costs. What effect would you expect this announcement to have on the p/e ratios and stock prices of pharm
> What amounts are debited to the Direct Labor account during the year? What amounts are credited to this account? What type of balance (debit or credit) is this account likely to have at year-end? Explain.
> The following events were reported in the financial statements of large, publicly owned corporations. a. Atlantic Richfield Company (ARCO), previously a separate company that is now owned by BP America, sold or abandoned the entire nonoil minerals segmen
> Roy’s Toys is a manufacturer of toys and other children’s products. The following are selected items appearing in a recent balance sheet (dollar amounts are in millions). a. Using the information given, compute the am
> Toll House makes chocolate chip cookies. The cookies pass through three production processes: mixing the cookie dough, baking, and packaging. Toll House uses process costing. The following are data concerning the costs incurred in each process during May
> Mary’s TV uses a perpetual inventory system. The following are three recent merchandising transactions. Instructions: a. Prepare journal entries to record these transactions assuming that Mary’s records purchases of
> Sven Enterprises is a large producer of gourmet pet food. During April, it produced 147 batches of puppy meal. Each batch weighs 1,000 pounds. To produce this quantity of output, the company purchased and used 148,450 pounds of direct materials at a cost
> As of December 31 of the current year, Alexander Company has prepared the following information regarding its liabilities and other obligations. Instructions a. Prepare a listing of Alexander’s current and long-term liabilities as th
> Discuss how managers use information they obtain from process costing.
> Listed as follows are eight technical accounting terms introduced or emphasized in this chapter. Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the accounting term described, or answ
> Jan Franks is the manager of one location of the Save Some Inc. chain. Franks’s location is currently earning an ROI of 15 percent on existing average capital of $800,000. The minimum required return for Save Some Inc. is 12 percent. Fr
> Lavalear Corporation uses a process costing system and traces costs through several processing departments, starting with the Bonding Department. The following is information taken from the Bonding Department’s September production cost
> Whitaker Video is the producer of popular video games. Recently, an investment service published the following per-share amounts relating to the company’s only class of stock. Instructions; a. Without reference to dollar amounts, expl
> Kitchen Electrics uses a perpetual inventory system. The following are three recent merchandising transactions. Instructions: a. Prepare journal entries to record these transactions assuming that Kitchen Electrics records purchases of merchandise at:
> At December 31, year 1, Charter Holding Co. owned the following marketable securities in capital stock of publicly traded companies. In year 2, Charter engaged in the following two transactions. Apr. 10 Sold 1,000 shares of its investment in L Brands, I
> Taylor & Malone is a law firm. Would the concepts of job order or process costing be more appropriate for this type of service business? Explain.
> It is late summer and General Wheels, Inc., an auto manufacturer, is facing a financial crisis. A large issue of bonds payable will mature next March, and the company must issue stock or new bonds to raise the money to retire this debt. Unfortunately, pr
> Matt’s materials quantity variance for the current month was exactly one-half of its materials price variance. Both variances were unfavorable. The company’s cost accountant has supplied the following standard cost inf
> Explain why the present value of a future amount is always less than the future amount
> Rothschild Furnishings, Inc., has three partners—Axle, Brandt, and Conrad. At the beginning of the current year their capital balances were: Axle, $180,000; Brandt, $140,000; and Conrad, $80,000. The partnership agreement provides that partners shall rec
> Why is it important to consider the relationships among cost, quality, and selling prices when establishing standards for direct materials?
> Individuals generally do not prepare statements of cash flows concerning their personal activities. But they do engage in cash budgeting—if not on paper, then at least in their heads.Assume it is December 29—a Monday.
> Ninna Company manufactures wooden shelves. An accountant for Ninna just completed the variance report for the current month. After printing the report, his computer’s hard drive crashed, effectively destroying most of the actual results
> Exhibit 16–6 includes six ledger accounts. Which of these six accounts often have balances at year-end that appear in the company’s formal financial statements? Briefly explain how these balances will be classified in
> At the beginning of 2021, Thompson Service, Inc., showed the following amounts in the stockholders’ equity section of its balance sheet. The transactions relating to stockholders’ equity during the year are as follows
> Randolph Company reports the following information pertaining to its operating activities. During the year, the company purchased $135,000 of direct materials and incurred $22,000 of direct labor costs. Total manufacturing overhead costs for the year am
> Argo Mfg. Co. uses approximately $1,200 in janitorial supplies to clean the work area and factory equipment each month. Should this $1,200 be included in the cost of direct materials used? Explain.
> Jackson Specialties has been in business for more than 50 years. The company maintains a perpetual inventory system, uses a LIFO flow assumption, and ends its fiscal year at December 31. At year-end, the cost of goods sold and inventory are adjusted to r
> Bristow Inc. is interested in establishing a presence in Country Y. Bristow is expecting demand for several of its products to increase in that country because a major customer, Kale Enterprises, is building a manufacturing plant in Y. Bristow has been s
> Refer to the information from Problem 18.2A. Instructions: Complete the March production cost report for the Motor Department of Spa Magic. Data from Problem 18.2A: One of Spa Magic’s products is a whirlpool spa. Two processing depart
> Partner John French has a choice to make. He has been offered by his partners a choice between no salary allowance and a one-third share in the partnership income or a salary of $36,000 per year and a one-quarter share of residual profits. Write a brief
> Criticize the following statement: “In our business, we maximize profits by closing any department that does not show a responsibility margin ratio of at least 15 percent.”
> Shown as follows is information from the financial reports of Pete’s Auto Parts for the past few years. Instructions: a. Calculate the following statistics for Pete’s Auto Parts (round all computations to one decimal
> The following information was taken directly from the footnotes to the financial statements of Best Buy. 1. “A gift card liability is initially established for the value of gift cards when they are sold. We recognize revenue from gift cards when the car
> What is a cost accounting system?
> The Triple Creek Golf Complex is a three-course complex where each course has its own restaurant and pro shop. Thus, the complex is organized into three departments that are treated as investment centers. Budget information for the coming year for these
> Identify the two factors that determine the difference between the present value and the future amount of an investment.
> Under which circumstances is a fixed salary preferable to a pure bonus compensation system?
> Identify three ways that accounting systems help align the goals of employees and the goals of the organization
> Ferris, Inc., sells heavy machinery with a base unit price of $10,000. Ferris offers an optional service agreement for an initial three-year period for $1,500. a. Explain how Ferris should recognize revenue for its contract with a customer that chooses t
> Under what circumstances might a company write down its inventory to carrying value below cost?
> The Empire Hotel is a full-service hotel in a large city. Empire is organized into three departments that are treated as investment centers. Budget information for the coming year for these three departments is shown as follows. The managers of each of t
> A recent annual report issued by Best Buy revealed the following data. The company’s income statement reported total annual revenue of $42,151 million and net income for the year of $1,000 million. Instructions: a. Evaluate Best Buy&
> Why noncumulative preferred stock is often considered an unattractive form of investment?
> Salter Mining Company purchased the Northern Tier Mine for $21 million cash. The mine was estimated to contain 2.5 million tons of ore and to have a residual value of $1 million. During the first year of mining operations at the Northern Tier Mine, 50,00
> Shown are selected data from the financial statements of Hamilton Stores, a retail lighting store. Instructions: a. Explain how the interest expense shown in the income statement could be $80,000, when the interest payment appearing in the statement of
> Muscle Bound Co. sells home exercise equipment. The company has two sales territories, Eastern and Western. Two products are sold in each territory: FasTrak (a Nordic ski simulator) and RowMaster (a stationary rowing machine). During January, the followi
> Outdoor World, Inc., manufactures camping equipment. Shown for the current year are the income statement for the company and a common size summary for the industry in which the company operates. Instructions: a. Prepare a two-column common size income s
> How can operating at 100 percent of capacity create unfavorable variances?
> DeskTop, Inc., operates a national sales organization. The income statements prepared for each sales territory are created by product line. In these income statements, the sales territory manager’s salary is treated as a common fixed cost. Will this sala
> Tyson Furniture has $100,000 in excess cash that it wants to invest in one or more cash equivalents. The treasurer has researched two money market accounts and two certificates of deposit (CDs) offered by four major banks. The following is the informatio
> “Peak pricing is unfair. It makes goods and services available only to the wealthy and prices the average person out of the market.” Instructions: a. Comment on the extent to which you agree or disagree with the preceding statement. b. What is the alter
> What are some of the uses that management may make of accounting information about individual responsibility centers of the business?
> Lamberton Industries uses process costing. All of the company’s manufacturing activities take place in a single processing department. The following information was available for the month of July Partially completed units in July&acir
> Decor, Inc., manufactures bathroom fixtures. Shown for the current year are the income statements for the company and a common size summary for the industry in which the company operates. Instructions: a. Prepare a two-column common size income statemen
> Banner Publications was organized early in 2018 with authorization to issue 10,000 shares of $100 par value preferred stock and 1 million shares of $1 par value common stock. All of the preferred stock was issued at par, and 400,000 shares of common stoc
> Melilla Corporation issued $5 million of 20-year, 9.5 percent bonds on July 1, 2021, at 98. Interest is due on June 30 and December 31 of each year, and all of the bonds in the issue mature on June 30, 2041. Melilla’s fiscal year ends on December 31. Pre
