What are product costs and selling, general, and administrative costs? Give examples of product costs and of selling, general, and administrative costs.
> The Hereford Plant produces a single part used in airplane hydraulic systems. The plant manager has asked the plant controller to determine the monthly volume that would result in the plant meeting its monthly operating profit goal. Operating profits at
> Jordan’s Gym is located in a popular vacation spot with much higher demand in the summer than in the winter. The gym has both annual memberships and individual visit prices, which makes it a popular alternative for seasonal visitors. Th
> Bradford Fabric Shops is a chain of retail stores offering fabrics, accessories, and machines for sewing, knitting, and so on. The company’s 13 retail stores are managed by employees, most of whom started working on the sales floor and
> Goulburn, Inc. produces parts for heavy equipment used in mining and construction. The plant that produces one part common to many vehicles is highly automated, so all labor is considered part of factory overhead. The plant manager, who has just been pro
> Mendota Foods sells a variety of food products around the world. The company engages directly with individuals with an interest in cooking by offering ideas and recipes in various staff blogs and podcasts. The management team at Mendota believes this dri
> Consider the Business Application item “Outsourcing and the Effect of Corporate Culture.” Would the impact on company culture show up in a differential cost analysis? If so, how? If not, should we ignore it?
> Willis Cosmetics produces a variety of cosmetics and hair care products. One popular shampoo is produced at the company’s Genoa Street Plant (GSP). The financial staff are in the process of revising the estimates for overhead and are lo
> Fordson Bank operates a branch in a relatively small rural community. Fordson has a strong customer service focus and knows that branch visits can be important in fostering a reputation for good customer service. However, as Internet banking increases in
> Belden Frozen Foods packages a variety of frozen meals and vegetables. In its Saratoga Street plant, the company packages frozen corn only. The cost analyst at the Saratoga plant has conducted an analysis of the plant overhead cost accounts. Partial info
> The Customer Support Department at Wadsworth Supply is analyzing the costs of its services. A cost analyst has collected monthly data on the three main functions of the department and the total costs for the last year, which follow. The cost analyst also
> Refer to the information in Problem 4-77. Required a. A local engineering firm claims it can revise the production process such that the Gamma product only requires 20 machine minutes on the shared machine. How much would Oxley be willing to pay per peri
> Oxley, Inc. manufactures three products (Alpha, Beta, and Gamma) utilizing, in one of the processes, a single machine for all products. Data on the individual products follow: The single machine used for all three products has a maximum capacity of 480,0
> Pierson Products manufactures furniture, primarily for institutional use, such as for furniture rental companies, college dorm rooms, and budget hotel and motel chains. The company’s Verne Valley plant manufactures one of the desk produ
> You were appointed the manager of Storage Solutions Section (S3) at Milbank Technologies, a manufacturer of mobile computing parts and accessories, late last year. S3 manufactures a drive assembly for the company’s most popular product.
> Ferry Electronics produces a wide variety of video and audio systems for home entertainment. One of the Ferry plants (Lakeview) produces home theatre systems. The plant produces three models, Silver, Gold, and Platinum, which differ in the quality of the
> Pilgrim Fitness makes various devices for personal fitness tracking. One of its well-established products is a low-cost band, the PF-24, meant to compete with more sophisticated smart watches and other expensive devices. The PF-24 has been on the market
> Hostess Brands makes a variety of baked goods just like The AM Bakery. In what ways are the cost accounting issues the same? In what ways are they different?
> For each of the following statements, indicate whether it is true, false, or uncertain. Explain why. Give examples in your answer. a. Cost accountants should be concerned with both product and period costs. b. Opportunity costs tend to be easier to ident
> John Deere Company manufactures farm equipment. Managers at assembly plants must make many decisions, and for this, they use cost accounting information. Required For each of the following managers, identify a decision that they might make for which cost
> Belleterre Tiles makes tiles for flooring and other applications. The CFO of the company provides you with the following information for the period October through December, the company’s third quarter: Required a. What is the average s
> Rowe Tool and Die (RTD) produces metal fittings as a supplier to various manufacturing firms in the area. The following is the forecasted income statement for the next quarter, which is the typical planning horizon used at RTD. RTD expects to sell 45,000
> Fill in the missing items for the following inventories:
> One of the major activities of the City Art Museum (CAM) is a Neighborhood Outreach Program, which was developed both as a public service and to market the museum and its other programs. One of the Outreach offerings, which is popular with both city and
> Swain Athletic Gear (SAG) operates six retail outlets in a large Midwest city. One is in center city on Cornwall Street and the others are scattered around the perimeter of the city. Management at SAG is concerned about declining sales and profitability
> Lessing Toy and Hobby (LTH) is a chain of hobby and craft stores in the Southeast. LTH operates multiple stores and is organized into two divisions: Northern and Southern. Individual stores are placed in one or the other division based on geography. Rece
> Westover Travel offers travel packages using both air and ocean travel. Westover offers two packages, Tourist and Premier, that differ in the accommodations, class of travel, and so on. Westover has a call center, which handles customer queries and compl
> Tacoma Accessories makes two laptop cases, Plastic and Leather, that require direct materials, direct labor, and overhead. The following data refer to operations expected for next quarter: Tacoma uses a two-stage cost allocation system: It uses direct-ma
> Goodyear Tire and Rubber Company manufactures a well-known automotive tire. They are produced in Goodyear plants and sold to consumers in many outlets including auto parts retail chains such as Pep Boys. Both Goodyear and Pep Boys need to calculate the c
> How are job order, process, and operations costing the same? How are they different?
> Why is a process costing system not appropriate for companies that produce items that are distinctly different from one another?
> How is depreciation on manufacturing equipment recorded in ledger accounts? How is this depreciation assigned to the items produced in a job-order costing system and in a process costing system?
> To what types of products is a job-order costing system best suited? Provide examples.
> What do the terms overapplied overhead and underapplied overhead mean?
> Al Carmon says that his company has a difficult time establishing a predetermined overhead rate because the number of units of product produced during a period is difficult to measure. What are two measures of production other than the number of units of
> Why is the salary of a production worker capitalized while the salary of a marketing manager is expensed?
> X Company recorded the payment for utilities used by the manufacturing facility by decreasing Cash and increasing Manufacturing Overhead. Why was the increase made to Manufacturing Overhead instead of Work in Process Inventory?
> At the end of the accounting period, an adjustment is made for the accrued wages of production workers. How would this entry affect assets, liabilities, and equity? What is the effect on the income statement?
> Goods that cost $2,000 to make were sold for $3,000 on account. How does their sale affect assets, liabilities, and equity? What is the effect on the income statement?
> How do manufacturing costs flow through inventory accounts?
> The management team of Magnificent Modems Inc. (MMI) wants to investigate the effect of several different growth rates on sales and cash receipts. Cash sales for the month of January are expected to be $10,000. Credit sales for January are expected to be
> Direct raw materials were purchased on account, and the costs were subsequently transferred to Work in Process Inventory. How would the transfer affect assets, liabilities, equity, and cash flows? What is the effect on the income statement? Would your an
> Under what circumstance is a variable costing statement format used? What potential problem could it eliminate?
> How is profitability affected by increases in productivity under the variable and absorption costing approaches?
> How does the variable costing approach differ from the absorption costing approach? Explain the different income statement formats used with each approach.
> For what purpose is the schedule of cost of goods manufactured and sold prepared? Do all companies use the statement?
> What is the purpose of the Manufacturing Overhead account?
> Because of seasonal fluctuations, Buresch Corporation has a problem determining the unit cost of its products. For example, high heating costs during the winter months cause the cost per unit to be higher than the per-unit cost in the summer months even
> Why are actual overhead costs not used in determining periodic product cost?
> How does the adjustment to close an insignificant amount of overapplied overhead to the Cost of Goods Sold account affect net income?
> Use the same transaction data for Magnificent Modems Inc. Required 1. One of Magnificent Modems’ sales representatives receives a special offer to sell 1,000 modems at a price of $72 each. Should the offer be accepted? 2. Magnificent Modems has the oppor
> What is the difference between direct and indirect raw materials costs?
> How can present value “what-if” analysis be enhanced by using software programs?
> Define the term annuity. What is one example of an annuity receipt?
> Why are present value tables frequently used to convert future values to present values?
> If you wanted to have $100,000 one year from today and desired to earn a 6 percent return, what amount would you need to invest today? Which amount has more value, the amount today or the $100,000 a year from today?
> How does a company establish its minimum acceptable rate of return on investments?
> Define the term return on investment. How is the return normally expressed? Give an example of a capital investment return.
> A dollar today is worth more than a dollar in the future.” “The present value of a future dollar is worth less than one dollar.” Are these two statements synonymous? Explain.
> What is a postaudit? How is it useful in capital budgeting?
> How do capital investments affect profitability
> To this point, we have assumed that Magnificent Modems produced only one type of modem. Suppose instead we assume the company produces several different kinds of modems. The production process differs for each type of product. Some require more setup tim
> What are the advantages and disadvantages associated with the unadjusted rate of return method for evaluating capital investments?
> The payback method cannot be used if the cash inflows occur in unequal patterns.” Do you agree or disagree? Explain.
> What are three reasons that cash is worth more today than cash to be received in the future?
> I always go for the investment with the shortest payback period.” Is this a sound strategy? Why or why not?
> What typical cash inflow and outflow items are associated with capital investments?
> What is the relationship between desired rate of return and internal rate of return?
> Paul Henderson is a manager for Spark Company. He tells you that his company always maximizes profitability by accepting the investment opportunity with the highest internal rate of return. Explain to Mr. Henderson how his company may improve profitabili
> Which is the best capital investment evaluation technique for ranking investment opportunities?
> Does the net present value method provide a measure of the rate of return on capital investments?
> What criteria determine whether a project is acceptable under the net present value method?
> In 2019, Uber Technologies, Inc., reported a net loss, although it had a net profit in 2018. It reported negative cash flows from operating activities in both 2019 and 2018. Using the company’s Form 10-K for the fiscal year ended December 31, 2019, compl
> Two investment opportunities have positive net present values. Investment A’s net present value amounts to $40,000 while B’s is only $30,000. Does this mean that A is the better investment opportunity? Explain.
> Maria Espinosa borrowed $15,000 from the bank and agreed to repay the loan at 8 percent annual interest over four years, making payments of $4,529 per year. Because part of the bank’s payment from Ms. Espinosa is a recovery of the original investment, wh
> Receiving $100,000 per year for five years is equivalent to investing what amount today at 14 percent? Provide a mathematical formula to solve this problem, assuming use of a present value annuity table to convert the future cash flows to their present v
> What is a capital investment? How does it differ from an investment in stocks or bonds?
> Carmen Douglas claims that her company’s performance evaluation system is unfair. Her company uses return on investment (ROI) to evaluate performance. Ms. Douglas says that even though her ROI is lower than another manager’s, her performance is far super
> What are the three types of responsibility centers? Explain how each differs from the others.
> What is a responsibility center?
> How do responsibility reports promote the management by exception doctrine?
> How does the concept of predominant control as opposed to that of absolute control apply to responsibility accounting?
> Who receives responsibility reports? What do the reports include?
> Andy and Jean Crocket are involved in divorce proceedings. When discussing a property settlement, Andy told Jean that he should take over their investment in an apartment complex because she would be unable to absorb the loss that the apartments are gene
> What are five potential advantages of decentralization?
> All travel expenses incurred by Pure Water Pump Corporation are reported only to John Daniels, the company president. Pure Water is a multinational company with five divisions. Are travel expenses reported following the responsibility accounting concept?
> If cost is the basis for transfer pricing, should actual or standard cost be used? Why?
> What are three approaches to establishing transfer prices? List the most desirable approach first and the least desirable last.
> Why are transfer prices important to managers who are evaluated based on profitability criteria?
> Is it true that the manager with the highest residual income is always the best performer?
> How can a residual income approach to performance evaluation reduce the likelihood of suboptimization?
> What three ways can a manager increase the return on investment?
> What two factors affect the computation of return on investment?
> Pam Kelly says she has no faith in budgets. Her company, Kelly Manufacturing Corporation, spent thousands of dollars to install a sophisticated budget system. One year later the company’s expenses are still out of control. She believes budgets simply do
> The following selected information was drawn from the records of Fleming Company. Fleming is experiencing cash flow problems. Despite the fact that it reported significant increases in operating income, operating activities produced a net cash outflow. R
> Minnie Divers, the manager of the marketing department for one of the industry’s leading retail businesses, has been notified by the accounting department that her department experienced an unfavorable sales volume variance in the preceding period but a
> How are flexible budget variances determined? What causes these variances?
> With respect to fixed costs, what are the consequences of the actual volume of activity exceeding the planned volume?
> What factors could lead to an increase in sales revenues that would not merit congratulations to the marketing manager?
> When would variable cost volume variances be expected to be unfavorable? How should unfavorable variable cost volume variances be interpreted?
> Joan Mason, the marketing manager for a large manufacturing company, believes her unfavorable sales volume variance is the responsibility of the production department. What production circumstances that she does not control could have been responsible fo
