The questions in this exercise are based on JetBlue Airways Corporation. To answer the questions, you will need to download JetBlue’s Form 10-K/A for the year ended December 31, 2004 at www.sec.gov/edgar/searchedgar/companysearch.html. Once at this website, input CIK code 1158463 and hit enter. In the gray box on the right-hand side of your computer screen define the scope of your search by inputting 10-K and then pressing enter. Select the 10-K/A with a filing date of March 8, 2005. You do not need to print the 10-K/A to answer the questions. Required: 1. What is JetBlue’s strategy for success in the marketplace? Does the company rely primarily on a customer intimacy, operational excellence, or product leadership customer value proposition? What evidence supports your conclusion? 2. What business risks does JetBlue face that may threaten the company’s ability to satisfy stockholder expectations? What are some examples of control activities that the company could use to reduce these risks? (Hint: Focus on pages 17–23 of the 10-K/A). 3. How can the concept of unit-level activities be applied to an airline? More specifically, what are two examples of unit-level activities for JetBlue? What steps has JetBlue taken to manage these unit-level activities more efficiently? 4. How can the concept of batch-level activities be applied to an airline? What are two examples of batch-level activities for JetBlue? What steps has JetBlue taken to manage these batch-level activities more efficiently? 5. What is one example of a customer-level activity and an organization-sustaining activity for JetBlue?
> Why is the first stage of the allocation process in activity-based costing often based on interviews?
> What assumption is implicitly made about cost behavior when all of the items in a budget are adjusted in proportion to a change in activity? Why is this assumption questionable?
> Java Source, Inc. (JSI), is a processor and distributor of a variety of blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. JSI offers a large variety of different coffees that it sells
> What assumption is implicitly made about cost behaviour when a budget is directly compared to actual results? Why is this assumption questionable?
> How does a flexible budget based on two cost drivers differ from a flexible budget based on a single cost driver?
> Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following
> What does a flexible budget performance report do that a simple comparison of budgeted to actual results does not do?
> What is a spending variance and what does it mean?
> What is a revenue variance and what does it mean?
> TipTop Flight School offers flying lessons at a small municipal airport. The school’s owner and manager has been attempting to evaluate performance and control costs using a variance report that compares the planning budget to actual re
> Exchange Corp. is a company that acts as a facilitator in tax-favored real estate swaps. Such swaps, know as 1031 exchanges, permit participants to avoid some or all of the capital gains taxes that would otherwise be due. The bookkeeper for the company h
> Refer to the data for Foam Products, Inc., in Exercise 8–12 and the following additional details concerning the activity rates in the activity-based costing system: Management has provided their ease of adjustment codes for the purpose
> Advanced Products Corporation has supplied the following data from its activity-based costing system: During the year, Advanced Products completed one order for a new customer, Shenzhen Enterprises. This customer did not order any other products durin
> Frank Weston, supervisor of the Freemont Corporation’s Machining Department, was visibly upset after being reprimanded for his department’s poor performance over the prior month. The department’s cost
> Milano Pizza is a small neighborhood pizzeria that has a small area for in-store dining as well as offering take-out and free home delivery services. The pizzeria’s owner has determined that the shop has two major cost driversâ
> Several years ago, Westmont Corporation developed a comprehensive budgeting system for profit planning and control purposes. While departmental supervisors have been happy with the system, the factory manager has expressed considerable dissatisfaction wi
> Harrison Company makes two products and uses a traditional costing system in which a single plantwide predetermined overhead rate is computed based on direct labor-hours. Data for the two products for the upcoming year follow: These products are customi
> Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity based costing system contains the following six activity cost pools and activity rates: Activity data have been supplied for the following tw
> The St. Lucia Blood Bank, a private charity partly supported by government grants, is located on the Caribbean island of St. Lucia. The blood bank has just finished its operations for September, which was a particularly busy month due to a powerful hurri
> Alyeski Tours operates day tours of coastal glaciers in Alaska on its tour boat the Blue Glacier. Management has identified two cost drivers—the number of cruises and the number of passengers—that it uses in its budget
> Vulcan Flyovers offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in 1982. Data concerning the company’s operations in July appear below: The company measures its activity in terms
> Quilcene Oysteria farms and sells oysters in the Pacific Northwest. The company harvested and sold 8,000 pounds of oysters in August. The company’s flexible budget for August appears below: The actual results for August appear below:
> What are unit-level, batch-level, product-level, customer-level, and organization-sustaining activities?
> Flight Café is a company that prepares in-flight meals for airlines in its kitchen located next to the local airport. The company’s planning budget for July appears below: In July, 17,800 meals were actually served. The co
> Puget Sound Divers is a company that provides diving services such as underwater ship repairs to clients in the Puget Sound area. The company’s planning budget for May appears below: Required: During May, the company’
> Model X100 sells for $120 per unit whereas Model X200 offers advanced features and sells for $500 per unit. Management expects to sell 50,000 units of Model X100 and 5,000 units of Model X200 next year. The direct material cost per unit is $50 for Model
> Packaging Solutions Corporation manufactures and sells a wide variety of packaging products. Performance reports are prepared monthly for each department. The planning budget and flexible budget for the Production Department are based on the following fo
> The Gourmand Cooking School runs short cooking courses at its small campus. Management has identified two cost drivers that it uses in its budgeting and performance reports—the number of courses and the total number of students. For exa
> AirQual Test Corporation provides on-site air quality testing services. The company has provided the following data concerning its operations: The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses sho
> Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate costs for pricing and other purposes. The proprietor of the company believes that costs are driven primarily by the size of customer lawns, the size of custom
> Via Gelato is a popular neighborhood gelato shop. The company has provided the following data concerning its operations: While gelato is sold by the cone or cup, the shop measures its activity in terms of the total number of liters of gelato sold. For e
> Refer to the data for Pixel Studio, Inc., in Problem 8–18. In addition, the company has provided the following details concerning its activity rates: Management has provided the following ease of adjustment codes for the various costs:
> Jake’s Roof Repair has provided the following data concerning its costs: For example, wages and salaries should be $23,200 plus $16.30 per repair-hour. The company expected to work 2,800 repair-hours in May, but actually worked 2,900 r
> Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $28 per hundred square feet. However,
> Wyckam Manufacturing Inc. has provided the following information concerning its manufacturing costs: For example, utilities should be $1,400 per month plus $0.05 per machine-hour. The company expects to work 5,000 machine-hours in June. Note that the co
> Refer to the data for Lavage Rapide in Exercises 10–8 and 10–10. Data from Exercises 10–8 and 10–10. Required: Prepare a flexible budget performance report that shows the company&aci
> Refer to the data for Lavage Rapide in Exercises 10–8 and 10–10. Data from Exercises 10–8 and 10–10. Required: Prepare a report showing the company’s revenue and s
> Refer to the data for Lavage Rapide in Exercise 10–8. The actual operating results for August appear on the following page. Data from Exercise 10–8 Required: Prepare a report showing the company’s ac
> Foam Products, Inc., makes foam seat cushions for the automotive and aerospace industries. The company’s activity-based costing system has four activity cost pools, which are listed below along with their activity measures and activity
> Refer to the data for Lavage Rapide in Exercise 10–8. The company actually washed 8,800 cars in August. / For example, electricity costs are $1,200 per month plus $0.15 per car washed. The company expects to wash 9,000 cars in August and to col
> Lavage Rapide is a Canadian company that owns and operates a large automatic carwash facility near Montreal. The following table provides data concerning the company’s costs: For example, electricity costs are $1,200 per month plus $0.
> SecuriCorp operates a fleet of armored cars that make scheduled pickups and deliveries in the Los Angeles area. The company is implementing an activity-based costing system that has four activity cost pools: Travel, Pickup and Delivery, Customer Service,
> Refer to the data for The Terminator Inc. in Exercise 10–6. A management intern has suggested that the budgeted revenues and costs should be adjusted for the actual level of activity in April before they are compared to the actual reven
> The Terminator Inc. provides on-site residential pest extermination services. The company has several mobile teams who are dispatched from a central location in company-owned trucks. The company uses the number of jobs to measure activity. At the beginni
> Smoky Mountain Corporation makes two types of hiking boots—Xtreme and the Pathfinder. Data concerning these two product lines appear below: The company has a traditional costing system in which manufacturing overhead is applied to unit
> The Little Theatre is a nonprofit organization devoted to staging plays for children. The theater has a very small full-time professional administrative staff. Through a special arrangement with the actors’ union, actors and directors r
> Refer to the data for Advanced Products Corporation in Exercise 8–14. Data from in Exercise 8–14. Required: 1. Using Exhibit 8A–1 as a guide, prepare a report showing the first-stage allocations of o
> Boyne University offers an extensive continuing education program in many cities throughout the state. For the convenience of its faculty and administrative staff and to save costs, the university operates a motor pool. The motor pool operated with 20 ve
> Tom Kemper is the controller of the Wichita manufacturing facility of Prudhom Enterprises, Inc. The annual cost control report is one of the many reports that must be fi led with corporate headquarters and is due at corporate headquarters shortly after t
> Why are top management support and cross-functional involvement crucial when attempting to implement an activity-based costing system?
> CD Express, Inc., provides CD duplicating services to software companies. The customer provides a master CD from which CD Express makes copies. An order from a customer can be for a single copy or for thousands of copies. Most jobs are broken down into b
> Why is direct labor a poor base for allocating overhead in many companies?
> This exercise should be assigned in conjunction with Exercise 8–8. The results of the first-stage allocation of the activity-based costing system at Durban Metal Products, Ltd., in which the activity rates were computed, appear below:
> In what fundamental ways does activity-based costing differ from traditional costing methods such as those described in Chapters 2 and 3?
> The manager of the Westfield branch of Security Home Bank has provided the following data concerning the transactions of the branch during the past year: The lowest costs reported by other branches for these activities are displayed below: Required: 1.
> The following activities occur at Greenwich Corporation, a company that manufactures a variety of products. a. Receive raw materials from suppliers. b. Manage parts inventories. c. Do rough milling work on products. d. Interview and process new employees
> Fairway Golf Corporation produces private label golf clubs for pro shops throughout North America. The company uses activity-based costing to evaluate the profitability of serving its customers. This analysis is based on categorizing the companyâ&#
> Refer to the data in Exercise 7–1 for Ida Sidha Karya Company. The absorption costing income statement prepared by the company’s accountant for last year appears below (all currency values are in thousands of rupiahs):
> Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The sounding bars are
> Parker Products Inc, a manufacturer, reported $123 million in sales and a loss of $18 million in its annual report to shareholders. According to a CVP analysis prepared for management, the company’s break-even point is $115 million in sales. Required: As
> Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $210. Data for last year’s operations follow: Required: 1. Assume that the company uses variable costing. Compute
> Whitman Company has just completed its first year of operations. The company’s absorption costing income statement for the year appears below: The company’s selling and administrative expenses consist of $210,000 per
> Lynch Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operations: During the year, the company produced 25,000 units and sold 20,000 units. The selling price of the
> “These statements can’t be right,” said Ben Yoder, president of Rayco, Inc. “Our sales in the second quarter were up by 25% over the first quarter, yet these income statements show a
> Explain how a shift in the sales mix could result in both a higher break-even point and a lower net income.
> Neptune Company produces toys and other items for use in beach and resort areas. A small, inflatable toy has come onto the market that the company is anxious to produce and sell. The new toy will sell for $3 per unit. Enough capacity exists in the compan
> The Shirt Works sells a large variety of tee shirts and sweatshirts. Steve Hooper, the owner, is thinking of expanding his sales by hiring local high school students, on a commission basis, to sell sweatshirts bearing the name and mascot of the local hig
> Morton Company’s contribution format income statement for last month is given below: The industry in which Morton Company operates is quite sensitive to cyclical movements in the economy. Thus, profits vary considerably from year to ye
> Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, a store that specializes in fashionable sandals. Angie has just received a degree in business and she is anxious to apply the principles she has learned to her business. In time, she
> A CVP graph such as the one shown below is a useful technique for showing relationships among an organization’s costs, volume, and profits. Required: 1. Identify the numbered components in the CVP graph. 2. State the effect of each of
> The questions in this exercise are based on the Benetton Group, a company headquartered in Italy and known in the United States primarily for one of its brands of fashion apparel—United Colors of Benetton. To answer the questions, you will need to downlo
> The questions below pertain to two different scenarios involving a manufacturing company. In each scenario, the cost structure of the company is constant from year to year. Selling prices, unit variable costs, and total fixed costs are the same in every
> What is meant by a product’s contribution margin ratio? How is this ratio useful in planning business operations?
> The Fashion Shoe Company operates a chain of women’s shoe shops around the country. The shops carry many styles of shoes that are all sold at the same price. Sales personnel in the shops are paid a substantial commission on each pair of
> Gold Star Rice, Ltd., of Thailand exports Thai rice throughout Asia. The company grows three varieties of rice—Fragrant, White, and Loonzain. (The currency in Thailand is the baht, which is denoted by B.) Budgeted sales by product and i
> Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable costs are $8 per unit, and fixed costs total $180,000 per year. Required: Answer the following independent questions: 1. What is the productâ&#
> This makes no sense at all,” said Bill Sharp, president of Essex Company. “We sold the same number of units this year as we did last year, yet our profits have more than doubled. Who made the goofâ
> Explain how fixed manufacturing overhead costs are shifted from one period to another under absorption costing.
> What is the basic difference between absorption costing and variable costing?
> Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable costs are high, totalling $15 per ball, of which 60%
> How does Lean Production reduce or eliminate the difference in reported net operating income between absorption and variable costing?
> Under absorption costing, how is it possible to increase net operating income without increasing sales?
> Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for municipalities. The company uses variable costing for internal management reports and absorption costing for external reports to shareholders, creditors, and the government. Th
> If the units produced exceed unit sales, which method would you expect to show the higher net operating income, variable costing or absorption costing? Why?
> What are the arguments in favour of treating fixed manufacturing overhead costs as period costs?
> What are the arguments in favour of treating fixed manufacturing overhead costs as product costs?
> Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Tyler’s personal fi
> During Heaton Company’s first two years of operations, the company reported absorption costing net operating income as follows: The company’s $18 unit product cost is computed as follows: Forty percent of fixed manuf
> Carlos Cavalas, the manager of Echo Products’ Brazilian Division, is trying to set the production schedule for the last quarter of the year. The Brazilian Division had planned to sell 3,600 units during the year, but by September 30 onl
> Starfax, Inc., manufactures a small part that is widely used in various electronic products such as home computers. Operating results for the first three years of activity were as follows (absorption costing basis): In the latter part of Year 2, a compe
> Far North Telecom, Ltd., of Ontario, has organized a new division to manufacture and sell specialty cellular telephones. The division’s monthly costs are shown below: Far North Telecom regards all of its workers as full-time employees
> In response to a request from your immediate supervisor, you have prepared a CVP graph portraying the cost and revenue characteristics of your company’s product and operations. Explain how the lines on the graph and the break-even point would change if
> Denton Company manufactures and sells a single product. Cost data for the product are given below: The product sells for $60 per unit. Production and sales data for July and August, the first two months of operations, follow: The companyâ€&#
> Guochang Li was hired as chief executive officer (CEO) in late November by the board of directors of ContactGlobal, a company that produces an advanced global positioning system (GPS) device. The previous CEO had been fired by the board of directors due
> Carbex, Inc., produces cutlery sets out of high-quality wood and steel. The company makes a standard cutlery set and a deluxe set and sells them to retail department stores throughout the country. The standard set sells for $60, and the deluxe set sells
> The Ferre Publishing Company has three service departments and two operating departments. Selected data from a recent period on the five departments follow: The company allocates service department costs by the step-down method in the following order: A
> Madison Park Co-op, a whole foods grocery and gift shop, has provided the following data to be used in its service department cost allocations: Required: Using the step-down method, allocate the costs of the service departments to the two operating depa
> “This is really an odd situation,” said Jim Carter, general manager of Highland Publishing Company. “We get most of the jobs we bid on that require a lot of press time in the Printing Department, yet
> Selzik Company makes super-premium cake mixes that go through two processing departments, Blending and Packaging. The following activity was recorded in the Blending Department during July: All materials are added at the beginning of work in the Blendin
> Refer to the data for the Blending Department of Sunspots Beverages, Ltd., in Problem 4–13. Assume that the company uses the FIFO method rather than the weighted-average method in its process costing system. Required: 1. Determine the equivalent units fo
