What are differential costs and revenues?
> Tannhauser Financial is a banking services company that offers many different types of checking accounts. It has recently adopted an activity-based costing system to assign costs to various types of checking accounts. The following data relate to one typ
> The Cheesecake Shoppe is a national bakery that is known for its strawberry cheesecake. It makes 12 different kinds of cheesecake as well as many other types of bakery items. It has recently adopted an activity-based costing system to assign manufacturin
> The Summit Manufacturing Company produces two products. One is a recreational whitewater kayak molded from plastic and designed to perform as a durable whitewater play boat. The other product is a high-performance competition kayak molded with high-tech
> Simon Products manufactures jewelry settings and sells them to retail stores. In the past, most settings were made by hand, and the overhead allocation rate in the prior year was $12 per labor hour ($2,700,000 overhead ÷ 225,000 labor hours). In the curr
> Snowcap Electronics is a manufacturer of data storage devices. Snowcap consists of two service departments (maintenance and computing) and two production departments (assembly and testing). Maintenance costs are allocated on the basis of square footage o
> Armstrong Industries produces electronic equipment for the marine industry. Armstrong has two service departments (maintenance and computing) and two production departments (assembly and testing). Maintenance costs are allocated on the basis of square fo
> World Airlines has three service departments: (1) ticketing, (2) baggage handling, and (3) engine maintenance. The service department costs are estimated for separate cost pools formed by department and are allocated to two revenue-producing departmen
> Pelton Instruments manufactures a variety of electronic instruments that are used in military and civilian applications. Sales to the military are generally on a cost-plus-profit basis with profit equal to 10 percent of cost. Instruments used in military
> Brennen produces a mint syrup used by gum and candy companies. Recently, the company has had excess capacity due to a foreign supplier entering its market. Brennen is currently bidding on a potential order from Quality Candy for 5,000 cases of syrup. The
> Binder Manufacturing produces small electric motors used by appliance manufacturers. In the past year, the company has experienced severe excess capacity due to competition from a foreign company that has entered Problems Binder’s market. The company is
> The Kiddo Company manufactures and ships children’s stuffed animals across the nation. The following are profit statements for the company’s two lines of business: Costs that are easily associated with each line of bu
> DataPoint, Inc. has decided to discontinue manufacturing its Quantum model personal organizer. Currently the company has a number of partially completed personal organizers on hand. The company has spent $110 per unit to manufacture these organizers. To
> E-Teller manufactures ATM machines. Recently the company has begun manufacturing and marketing a machine that can recognize customer fingerprints. Demand for this machine is very strong, and the chief executive officer of E-Teller is considering dropping
> Consider the information in Exercise 7-8 and identify the following statements as true or false. a. Supervisory salary is an avoidable cost if the company decides to buy the valves. b. Depreciation of building is an avoidable cost if the company decides
> The Tufanzi Furniture Company manufactures leather furniture. The manufacturing process uses a variety of metal pieces, such as brackets, braces, and casters. Carla Reid, the resource officer of Tufanzi, has been asked to determine whether it is advisabl
> The following are six cost pools established for a company using activity-based costing. The pools are related to the company’s products using cost drivers. Cost pools: 1. Inspection of raw materials 2. Production equipment repairs and maintenance 3.
> Reece Herbal Supplements purchases, in bulk, a variety of dietary supplements that the company bottles, packages, and ships to health-food stores and drugstores around the country. The company has a good reputation, and its products are in high demand. L
> At Dalton Playground Equipment, the powder-coating process is a bottleneck. Typically, it takes approximately 2 hours to switch between jobs. The time is spent cleaning nozzles and paint tanks and recalibrating equipment. Currently the company runs relat
> Northwest Minerals operates a mine. During July, the company obtained 500 tons of ore, which yielded 250 pounds of gold and 62,500 pounds of copper. The joint cost related to the operation was $500,000. Gold sells for $950 per ounce, and copper sells for
> Gavin West is a commercial fisherman, and he has just returned from a trip off the coast of Maine. He has calculated the cost of his catch as follows: Wages of deckhands…………………………………………….$35,000 Gavin’s wage……………………………………………………….…18,000 Food, medical sup
> Good Earth Products produces orange juice and candied orange peels. A 1,000-pound batch of oranges, costing $500, is transformed using labor of $50 into 100 pounds of orange peels and 300 pints of juice. The company has determined that the sales value of
> Sylvan Wood Products purchases alder logs for $100 per log. After the bark is stripped, the log is spun on a veneer cutter, which peels thin layers of wood (referred to as veneer) that are sold to furniture manufacturers for $150 per 3′ × 30′ sheet of ve
> Carpets Unlimited produces and sells three lines of carpet: economy, standard, and deluxe. Jeff Choi, the chief financial officer of the company, has prepared the following report on the profitability in the past year. In the report, fixed costs are allo
> Lennon Fans manufactures three model fans for industrial use. The standard selling price and cost of each fan follow: Essentially, all overhead costs are fixed. Some of the fixed overhead costs are direct costs to particular models, and others are commo
> Midwestern Sod produces two products, fescue grass and Bermuda grass: The company has 130,000 square yards of growing space available. In the past year, the company dedicated 65,000 square yards to fescue and 65,000 square yards to Bermuda grass. Annu
> Pantheon Gaming, a computer enhancement company, has three product lines: audio enhancers, video enhancers, and connection-speed accelerators. Common costs are allocated based on relative sales. A product line income statement follows: Since the profit
> Mulan Carpet produced 1,200 yards of its economy-grade carpet. In the coloring process, there was a pigment defect, and the resulting color appeared to be faded. The carpet normally sells for $15 per yard: $7 of variable cost per yard and $6 of fixed cos
> The Curtis Corporation is beginning production of Mighty Mint, a new mouthwash in a small spray container. The product will be sold to wholesalers and large drugstore chains in packages of 30 containers for $20 per package. Management allocates $225,000
> Susan Crossing purchased a used Ford Focus for $12,000. Since purchasing the car, she has spent the following amounts on parts and labor: New stereo system…………$1,500 New paint job………………....2,500 New tires………………………..1,200 New muffler……………………..250 Total……
> Emerson Ventures is considering producing a new line of hang gliders. The company estimates that variable costs will be $400 per unit and fixed costs will be $400,000 per year. Required: a. Emerson has a pricing policy that dictates that a product’s pr
> Consider the information in Problem 8-11. Lauden Conference Solutions has decided to adopt an activity-based pricing scheme. On future jobs, the company will charge a 35 percent markup on the sum of product costs plus installer salaries. In addition, the
> Lauden Conference Solutions specializes in the design and installation of meeting and conference centers for large corporations. When bidding on jobs, the company estimates product cost and direct labor for installers and marks up the total cost by 35 pe
> Symphony Sound is designing a portable recording studio to be sold to consumers. The team developing the product includes representatives from marketing, engineering, and cost accounting. The recording studio will include sound-canceling monitor headphon
> Baker Plumbing Fixtures is developing a preplumbed acrylic shower unit. The team developing the product includes representatives from marketing, engineering, and cost accounting. To date, the team has developed a set of features that it plans to incorpor
> The product design team of Cervantes Golf is in the process of designing a new model of golf bag cart. The company estimates that variable costs will be $33 per unit and fixed costs will be $850,000 per year. Required: a. Suppose the company wants to s
> The Wendel Stove Company is developing a “professional”-model stove aimed at the home market. The company estimates that variable costs will be $2,700 per unit and fixed costs will be $12,600,000 per year. Required: a. Suppose the company wants to set
> Adagio Music Publishing is a boutique company that publishes and prints sheet music for composers and also records and sells CDs of their compositions. Adagio is considering purchasing a line of CDs from a well-regarded composer, Jacques Elles, from anot
> RoverPlus, a pet product superstore, is considering pricing a new RoverPlus-labeled dog food. The company will buy the premium dog food from a company in Indiana that packs the product with a RoverPlus label. Rover pays $9 for a 50-pound bag delivered to
> Elite Kitchenware has come out with a new line of dishes that it plans to test market through a series of demonstrations at the local mall throughout the month of August. If the demonstrations result in enough sales, the program will be expanded to other
> Hearthstone Appliances supplies parts for laundry and kitchen appliances. Customer orders are placed over the Internet and are generally filled in 1 or 2 days using express mail services. Angela Farnsworth, a consultant with ABM Services, has been asked
> Why are opportunity costs relevant when making decisions?
> Why are batch sizes generally larger in bottleneck departments?
> Why is the bottleneck department referred to as a drum in the Theory of Constraints?
> Why is the relative sales value a more logical basis for allocating joint costs than physical quantity?
> What is a qualitative advantage of making rather than buying a component?
> Give an example of a fixed cost that is not sunk but is still irrelevant.
> What is the proper approach to analyzing whether a product line should be dropped?
> What are avoidable costs?
> Why are sunk costs irrelevant in decision making?
> Preston Concrete is a major supplier of concrete to residential and commercial builders in the Pacific Northwest. The company’s policy is to price deliveries at 25 percent over full cost per cubic yard (including an allowance for administrative costs). A
> Galloway University Medical Center (GUMC) has a top rated medical facility that draws patients from a three state area. On the day of discharge from the GUMC hospital, most patients fill their prescriptions from the GUMC pharmacy. However, when it comes
> The product design team at New Time Products is in the process of designing a clock using target costing. Product features in comparison to competing products suggest a price of $35 per unit. The company requires a profit of 30 percent of selling price.
> A new product is being designed by an engineering team at Odin Security. Several managers and employees from the cost accounting department and the marketing department are also on the team to evaluate the product and determine the cost using a target co
> A cross-functional team at Mazzor Systems is developing a new product using the target costing methodology. Product features in comparison to competing products suggest a price of $2,800 per unit. The company requires a profit of 25 percent of selling pr
> Flamingos to Go is a service company owned by Irvin Vonnet that will “plant” plastic flamingos on a special day in people’s yards to help celebrate and advertise birthdays, births, anniversaries, and other important milestones. The average delivery is pr
> What is the lowest per unit price on a special order that a company could accept and still not show a loss from the special order?
> Explain the target costing process. How is it calculated?
> Explain why less profitable customers may become more profitable if a supplier switches to activity-based pricing.
> Why is cost-plus pricing inherently circular for a manufacturing firm?
> As manager of the waste treatment facility for the city of Columbus Park, Illinois, Ann Paxton is in the process of preparing an annual expense budget. While eating lunch at her desk, she thought about the coming year. “Next year, my department will prob
> The Abruzzi Olive Oil Company is a small producer of premium olive oil. Cheryl Sounders, the owner of Abruzzi, is currently developing a budget spreadsheet to explore the impact of various sales goals on production. In 2017, the company had monthly sales
> Juniper Packaging Solutions provides custom packaging products to companies all over the United States. With five production facilities, the company produces cardboard boxes, plastic and steel drums, aluminum bottles, and absorbent pouches and bags. Comp
> Sergo Games produces a variety of action games including a flight simulation game, Airport 10, which sold more than 800,000 copies in the past year. The programs are run on computers, and the company operates an in-house production facility that manufact
> What are the advantages of evaluating projects using the net present value and internal rate of return methods instead of the payback and accounting rate of return methods?
> How is the internal rate of return (IRR) determined if there are uneven cash flows?
> What is a “special order”? How does whether a company is operating at capacity or not matter in deciding whether to accept the special order?
> Explain how the profit-maximizing price is calculated. Why is the profit-maximizing price extremely difficult to calculate for an actual product?
> How is cost allocation used in customer profitability analysis?
> To implement target costing for a new product, companies often set up a cross-functional team with members from engineering, marketing, and cost accounting. Why is a cross- functional team desirable when implementing the target costing approach?
> According to economic theory, how would a manager determine the profit-maximizing price for a product or service?
> What are the disadvantages of the cost-plus approach to pricing?
> Why does the failure to consider soft benefits discourage investment?
> Why may managers concentrate on the short-run profitability of investments rather than their net present values?
> How are cash flows affected as a result of the tax consequences of depreciation?
> What is the cost of equity financing?
> How do the net present value and the internal rate of return methods differ in their approach to evaluating investment alternatives?
> What are the two approaches for evaluating investments that take into account the time value of money?
> Why is it important to take into account the time value of money when making capital budgeting decisions?
> What is a capital expenditure decision?
> Prepare a performance report for Imperial Data Devices using the budget information from Exercise 10-14 and the next performance information. During the period, Imperial produced 13,000 units and incurred the following costs: From exercise 10-14: Expect
> Expected manufacturing costs for Imperial Data Devices are as follows: Required: Estimate manufacturing costs for production levels of 12,000 units, 15,000 units, and 17,000 units per month. Variable Costs Fixed Costs per Month Supervisory salaries
> Mississippi Retailers expects credit sales in the next quarter as follows: April……..$ 80,000 May…………90,000 June………. 113,000 Prior experience has shown that 70 percent of a month’s sales are collected in the month of sale, 20 percent are collected in the
> Prepare quarterly manufacturing overhead budgets for Roehler Industrial for 2017, using the production information from Exercise 10-7. Roehler has overhead costs as follows: From exercise 10-7: Roehler Industrial has estimated that production for the ne
> Prepare quarterly direct labor budgets for Roehler Industrial for 2017, using the production information in Exercise 10-7. It takes 3.0 hours of direct labor to produce each finished unit of product. Direct labor costs are $20 per hour. Each employee can
> VitaPup produces a vitamin-enhanced dog food that is sold in Kansas. The company expects sales to be 13,000 bags in January, 14,900 bags in February, 19,400 bags in March, and 22,000 bags in April. There are 1,300 bags on hand at the start of January. Vi
> Oregon Adventures provides tours of scenic locations in Oregon. The company expects tours taken to increase dramatically compared with the prior year. For the past year, 2017, the number of tours given were as follows: First quarter……………6,000 Second quar
> Explain why a budget-based compensation scheme may encourage a manager to shift income from the current period to a future period if expected performance is quite high (e.g., greater than 120 percent of budgeted performance). How could the income shiftin
> At the start of 2018, the New Orleans Fine Food Company budgeted before-tax income as follows: Actual before tax income for 2018 was: Required: Florence Roden, the owner of the company, is pleased that sales were much higher than planned, but she also
> An investment that costs $85,000 will return $35,000 per year for 5 years. Determine the net present value of the investment if the required rate of return is 12 percent. (Ignore taxes.) Should the investment be undertaken?
> Suppose you face the prospect of receiving $1,200 per year for the next 7 years plus an extra $950 payment at the end of 7 years. Determine how much this prospect is worth today if the required rate of return is 15 percent.
> Generally speaking, the cost of capital for a food-processing company is lower than the cost of capital for a company that runs casinos. Briefly expain why this is the case.
> Explain why interest expense is not treated as a cash outflow in capital budgeting decisions made using net present value (NPV) analysis.
> The Herbolt Company is considering a new line of business. Starting the business will require an initial investment in equipment of $355,000. It is expected that the new business will increase net income by $32,000 per year for 5 years. The equipment wil
> A company is making an investment of $2,500,000 that will yield the following cash flows: Year 1……………$ 250,000 Year 2……………$ 440,000 Year 3……………$ 650,000 Year 4……………$ 850,000 Year 5……………..$1,102,765 Required: What is the internal rate of return of the
> Newport Department Store is considering development of an e-commerce business. The company estimates that development will require an initial outlay of $1,300,000. Other cash flows will be as follows: Year 1…………… ($750,000) Year 2……………..$221,000 Year 3…
> Great Northern Fishing Company is contemplating the purchase of a new smoker. The smoker will cost $60,000 but will generate additional revenue of $34,000 per year for 6 years. Additional costs, other than depreciation, will equal $12,000 per year. The s
> WesternGear.com is expected to have operating losses of $350,000 in its first year of business and $270,000 in its second year. However, the company expects to have income before taxes of $400,000 in its third year and $650,000 in its fourth year. The co
> Examine Table B9-1 in Appendix B. Explain why the numbers decrease as you move from left to right in a given row. Explain why the numbers decrease as you move from top to bottom in a given column. Table B9-1: TABLE B9-1 Present value of $1 due in n
> Sally Omar is the manager of the office products division of Wallace Enterprises. In this position, her annual bonus is based on an appraisal of return on investment (ROI) measured as Division income ÷ End-of-year division assets (net of accumulated depr
> Reece Jewelry has 45 stores in major malls around the country. The company is considering starting an online business, ReeceJewelry.com, which will require a substantial investment in technology. Required: Identify a potential benefit of the online bus
