Verna Salsbury tells you that she thinks the terms fixed cost and variable cost are confusing. She notes that fixed cost per unit changes when the number of units changes. Furthermore, variable cost per unit remains fixed regardless of how many units are produced. She concludes that the terminology seems to be backward. Explain why the terminology appears to be contradictory.
> What is the relationship between activity-based management and just-in-time inventory?
> Issacs Corporation produces two lines of pocket knives. The Arrowsmith product line involves very complex engineering designs; the Starscore product line involves relatively simple designs. Since its introduction, the low-volume Arrowsmith products have
> Alisa Kamuf’s company has reported losses from operations for several years. Industry standards indicate that prices are normally set at 30 percent above manufacturing cost, which Ms. Kamuf has done. Assuming that her other costs are in line with industr
> Why would machine hours be an inappropriate allocation base for batch-level costs?
> Milken Manufacturing has three product lines. The company’s new accountant, Marvin LaSance, is responsible for allocating facility-level costs to these product lines. Mr. LaSance is finding the allocation assignment a daunting task. He knows there have b
> If each patient in a hospital is considered a cost object, what are examples of unit-, batch-, product-, and facility-level costs that would be allocated to this object using an activity-based costing system?
> Abbott Laboratories develops and manufactures a broad and diversified line of health care products. On January 4, 2017, Abbott Laboratories completed its $23.6 billion acquisition of St. Jude Medical, Inc., a medical device manufacturer. In 2015, the las
> Beth Nelson, who owns and runs a small sporting goods store, buys most of her merchandise directly from manufacturers. Ms. Nelson was shocked at the $7.50 charge for a container of three ping-pong balls. She found it hard to believe that it could have co
> Why did traditional costing systems base allocations on a single companywide cost driver?
> In a manufacturing environment, which costs are direct and which are indirect in product costing?
> How is an allocation rate determined? How is an allocation made?
> What are the important factors in determining the appropriate cost driver to use in allocating a cost?
> Give an example of why the statement “All direct costs are avoidable” is incorrect.
> Why are the terms direct cost and indirect cost independent of the terms fixed cost and variable cost? Give an example to illustrate.
> What is a direct cost? What criteria are used to determine whether a cost is a direct cost?
> If the cost object is a manufactured product, what are the three major cost categories to accumulate?
> Why is cost accumulation imprecise?
> Presented here is selected information from the 2018 fiscal-Year 10-K reports of four companies. The four companies, in alphabetical order, are: Advance Auto Parts, Inc., a retail auto parts company. AT&T, Inc., a company that provides communication
> What are the three methods used for allocating service center costs? How do the methods differ?
> Larry Kwang insists that the costs of his school’s fund-raising project should be determined after the project is complete. He argues that only after the project is complete can its costs be determined accurately and that it is a waste of time to try to
> Respond to the following statement: “The allocation base chosen is unimportant. What is important in product costing is that overhead costs be assigned to production in a specific period by an allocation process.”
> On January 31, the managers of Integra, Inc., seek to determine the cost of producing their product during January for product pricing and control purposes. The company can easily determine the costs of direct materials and direct labor used in January p
> What is the objective of allocating indirect manufacturing overhead costs to the product?
> Why are some manufacturing costs not directly traceable to products?
> What is a cost object? Identify four different cost objects in which an accountant would be interested.
> If a company is trying to find the break-even point for multiple products that sell simultaneously, what consideration must be taken into account?
> What is the equation method for determining the break-even point? Explain how the results of this method differ from those of the contribution margin approach.
> What are three alternative approaches to determine the break-even point? What do the results of these approaches show?
> The following information relates to The Kroger Co., and Publix Super Markets Inc., for their 2019 and 2018 fiscal years. Table Summary: The Selected Financial Information with amounts in millions except per share amounts of The Kroger Company shows thre
> When would the customer be willing to pay a premium price for a product or service? What pricing strategy would be appropriate under these circumstances?
> What variables affect profitability? Name two methods for determining profitability when simultaneous changes occur in these variables.
> If Company A has a projected margin of safety of 22 percent while Company B has a margin of safety of 52 percent, which company is at greater risk when actual sales are less than budgeted?
> In what three ways can the contribution margin be useful in cost-volume-profit analysis?
> How does a contribution margin income statement differ from the income statement used in financial reporting?
> What is the relationship between cost-volume-profit analysis and the relevant range?
> Setting the sales price is easy: Enter cost information and desired profit data into one of the cost-volume-profit formulas, and the appropriate sales price can be computed mathematically. Do you agree with this line of reasoning? Explain.
> How would the algebraic formula used to compute the break-even point under the equation method be changed to solve for a desired target profit?
> Mary Hartwell and Jane Jamail, college roommates, are considering the joint purchase of a computer that they can share to prepare class assignments. Ms. Hartwell wants a particular model that costs $2,000; Ms. Jamail prefers a more economical model that
> What assumptions are inherent in cost-volume-profit analysis? Since these assumptions are usually not wholly valid, why do managers still use the analysis in decision making?
> Refer to the job cost sheet in Exhibit 12.3. Required Construct a spreadsheet that re-creates the job cost sheet in Exhibit 12.3. Use formulas wherever possible, such as in the total row. Data from Exhibit 12.3: Reality Bytes Job-order, process, and hyb
> What does the term break-even point mean? Name the two ways it can be measured.
> Are companies with predominately fixed cost structures likely to be more profitable?
> Explain the risk and rewards to a company that result from having fixed costs.
> Would a fixed or variable cost structure be more advantageous if volume is decreasing?
> If volume is increasing, would a company benefit more from a pure variable or a pure fixed cost structure? Which cost structure would be advantageous if volume is decreasing?
> Explain the limitations of using operating leverage to predict profitability.
> How is operating leverage calculated?
> Define the term operating leverage and explain how it affects profits.
> How can knowing cost behavior relative to volume fluctuations affect decision making?
> Lewis Company had 8,000 units of product in work in process inventory at the beginning of the period and started 16,000 units during the period. At the end of the period, 4,000 units remained in work in process. The ending work in process inventory was e
> Because of seasonal fluctuations, Norel Corporation has a problem determining the unit cost of the products it produces. For example, high heating costs during the winter months causes per-unit cost to be higher than per-unit cost in the summer months e
> All costs are variable because if a business ceases operations, its costs fall to zero. Do you agree with this statement? Explain.
> The president of Bright Corporation tells you that he sees a dim future for his company. He feels that his hands are tied because fixed costs are too high. He says that fixed costs do not change and therefore the situation is hopeless. Do you agree? Expl
> Between the variable cost structure and the fixed cost structure, which has the greater risk? Explain.
> When would the high-low method be appropriate for estimating variable and fixed costs? When would least-squares regression be the most desirable?
> Sam’s Garage is trying to determine the cost of providing an oil change. Why would the average cost of this service be more relevant information than the actual cost for each customer?
> How is the relevant range of activity related to fixed and variable cost? Give an example of how the definitions of these costs become invalid when volume is outside the relevant range.
> Define fixed cost and variable cost and give an example of each.
> What do the terms value-added activity and nonvalue-added activity mean? Provide an example of each type of activity.
> What is a value chain?
> René Alverez knew she was in over her head soon after she took the job. Even so, the opportunity for promotion comes along rarely and she believed that she would grow into it. Ms. Alverez is the cost accounting specialist assigned to the finishing depart
> What does the term activity-based management mean?
> What does the term reengineering mean? Name some reengineering practices.
> What is a just-in-time (JIT) inventory system? Name some inventory costs that can be eliminated or reduced by its use.
> What costs should be considered in determining the sales price of a product?
> What are some of the common ethical conflicts that accountants encounter?
> How has the Institute of Management Accountants responded to the need for high standards of ethical conduct in the accounting profession?
> What is cost allocation? Give an example of a cost that needs to be allocated.
> Why is cost classification important to managers?
> How does a product cost differ from a selling, general, and administrative cost? Give examples of each.
> What is an indirect cost? Provide examples of product costs that would be classified as indirect.
> Professor Julia Silverman received the following e-mail message: “I don’t know if you remember me. I am Tim Wallace. I was in your introductory accounting class a couple of years ago. I recently graduated and have just started my first real job. I rememb
> How do product costs affect the financial statements? How does the classification of product cost (as an asset vs. an expense) affect net income?
> This problem is an extension of Problem 5-15B, which must be completed first. Assume the same data as in Problem 5-15B with the following additional information. The hours of machine time for processing plates are 1,000 for Kate plates and 2,500 for Monr
> Casey’s Commemoratives makes and sells two types of decorative plates. One plate displays a hand-painted image of Princess Kate; the other plate displays a machine-pressed image of Marilyn Monroe. The Kate plates require 25,000 hours of direct labor to m
> Since its inception, Batum Laboratory has produced a single product, Product S109. With the advent of automation, the company added the technological capability to begin producing a second product, Product N227. Because of the success of Product N227, ma
> Western Boot and Shoe Company makes hand-sewn boots and shoes. Western uses a companywide overhead rate based on direct labor hours to allocate indirect manufacturing costs to its products. Making a pair of boots normally requires 2.4 hours of direct lab
> The following financial statements were drawn from the records of Boston Materials Inc. Table Summary: The Balance Sheets as of December 31 show 3 columns. Column 1 has entries. Column 2 has year 2. Column 3 has year 1. The Income Statement for the year
> The Electric Company engaged in the following transactions during Year 2. The beginning cash balance was $43,000 and the ending cash balance was $48,600. 1. Sales on account were $274,000. The beginning receivables balance was $86,000 and the ending bala
> The comparative balance sheets and an income statement for Wang Beauty Products Inc. are shown as follows. Table Summary: The Balance Sheets as of December 31 show 3 columns. Column 1 has entries. Column 2 has year 2. Column 3 has year 1. Other Informati
> The following financial statements were drawn from the records of Culinary Products Co. Table Summary: The Balance Sheets as of December 31 show 3 columns. Column 1 has entries. Column 2 has year 2. Column 3 has year 1. Additional Data 1. During Year 2,
> The following information can be obtained by examining a company’s balance sheet and income statement information: 1. Increases in current asset account balances, other than cash. 2. Cash outflows to purchase noncurrent assets. 3. Decre
> Obtain the Form 10-Ks for these three companies: AGCO Corporation, Crown Holdings, Inc., and Transocean, Ltd. To obtain the Form 10-Ks, you can use the EDGAR system, or they can be found on the companies’ websites: www.agcocorp.com (Investors), www.crown
> We are the leading U.S. global airline serving 200 million customers every year. We connect customers across our expansive global network to more than 300 destinations in over 50 countries. We are the world’s largest airline by total re
> The following information was drawn from the year-end balance sheets of Long’s Wholesale Inc. Additional information regarding transactions occurring during Year 2: 1. Long’s Wholesale Inc. issued $90,000 of bonds duri
> The following information was drawn from the year-end balance sheets of Vigotti Company. Additional information regarding transactions occurring during Year 2: 1. Investment securities that had cost $11,300 were sold. The Year 2 income statement containe
> The following accounts and corresponding balances were drawn from Crimson Sports Inc.’s Year 2 and Year 1 year-end balance sheets. Assume that Accounts Payable is used for purchases of inventory only. The Year 2 income statement is sho
> Use the financial statements for Bluffton Company from Problem 13-17B to compute the following for Year 4. Round percentages to two decimal points. 1. Current ratio. 2. Quick (acid-test) ratio. 3. Average days to collect accounts receivable, assuming all
> The following financial statements apply to Bedford Appliances Inc. Table Summary: A table shows the Balance Sheets as of December 31 v. Column 1 has entries. Column 2 has year 4. Column 3 has year 3. BEDFORD APPLIANCES INC. Balance Sheets As of December
> Information from Forman Company’s financial statements follows. Average number of shares outstanding was 16,000 for Year 3 and 15,000 for Year 2. Required Compute the following ratios for Forman Company for Year 3 and Year 2 and round c
> Selected data for Hoback Company for Year 3 and additional information on industry averages follow. Industry averages Earnings per share $2.00 Price-earnings ratio 8.00 Return on equity 7.30% Required Round computations to two decimal points. 1. Calcula
> Rustin Craft discovered a piece of wet and partially burned balance sheet after his office was destroyed by fire. He could recall a current ratio of 1.75 and a debt-to-assets ratio of 45 percent. Required Complete the balance sheet by supplying the missi
> Lowery Company has a current ratio of 2:1 on June 30, Year 3. Indicate whether each of the following transactions would increase (+), decrease (−), or not affect (NA) Lowery’s current ratio and its working capital. Required 1. Issued 10-year bonds for $3
> Use the financial statements for Bluffton Company from Problem 13-17B to perform a vertical analysis (based on total assets, total equities, and sales) of both the balance sheets and income statements for Year 4 and Year 3. Round computations to one deci
> Bowen Bridge Company constructs bridges for the State of Kentucky. During Year 2, Bowen started work on three bridges. The cost of materials and labor for each bridge follows. The predetermined overhead rate is $1.20 per direct labor dollar. Actual overh
> Bluffton Company’s stock is quoted at $16 per share at December 31, Year 4 and Year 3. Bluffton’s financial statements follow. Table Summary: A table shows the Balance Sheets as of December 31 in thousands. Column 1 ha
> Burton Corporation’s controller has prepared the following vertical analysis for the president. Required Sales were $800,000 in Year 3 and $900,000 in Year 4. Convert the analysis to income statements for the two years.
> Starr Gifts makes unique western gifts that are sold at souvenir shops. One of the company’s more popular products is a ceramic eagle that is produced in a mass production process that entails two manufacturing stages. In the first prod
> Grenora Company’s beginning work in process inventory consisted of 7,500 units of product on January 1, Year 2. During Year 2, the company started 32,500 units of product and transferred 34,000 units to finished goods inventory. The ending work in proces
> At the beginning of Year 3, Elgin Company had 5,000 units of product in its work in process inventory, and it started 25,000 additional units of product during the year. At the end of the year, 6,000 units of product were in the work in process inventory
