Question: What are some drawbacks of applying support

> Carving Creations jointly produces wood chips and sawdust used in agriculture. The wood chips and sawdust are actually by-products of the company’s core operations, but Carving Creations accounts for them just like normally produced goods because of thei

> Board-It, Inc., produces the following types of 2 × 4 × 10 wood boards: washed, stained, and pressure treated. These products are produced jointly until they are cut. One batch produces 45 washed boards, 35 stained boards, and 20 pressure treated boards.

> Refer to your answers to Exercises 7–9. Compare the total support department costs allocated to each production department under each cost allocation method. Which production department is allocated the most support department costs (a) Under the direct

> Yo-Down Inc. produces yogurt. Information related to the company’s yogurt production follows: Support Department 1’s costs total $142,000. Using the direct method of support department cost allocation, determine the c

> What is the main difference between the physical units and weighted average methods of joint cost allocation?

> Nozama.com Inc. sells consumer electronics over the Internet. For the next period, the budgeted cost of the sales order processing activity is $250,000 and 50,000 sales orders are estimated to be processed. a. Determine the activity rate of the sales ord

> Comfort Foods Inc. uses activity-based costing to determine product costs. For each activity listed in the left column, match an appropriate activity base from the right column. You may use items in the activity-base list more than once or not at all.

> The management of Nova Industries Inc. manufactures gasoline and diesel engines through two production departments, Fabrication and Assembly. Management needs accurate product cost information in order to guide product strategy. Presently, the company us

> Eclipse Motor Company manufactures two types of specialty electric motors, a commercial motor and a residential motor, through two production departments, Assembly and Testing. Presently, the company uses a single plantwide factory overhead rate for allo

> Handy Leather, Inc., produces three sizes of sports gloves: small, medium, and large. A glove pattern is first stenciled onto leather in the Pattern Department. The stenciled patterns are then sent to the Cut and Sew Department, where the glove is cut an

> Isaac Engines Inc. produces three products—pistons, valves, and cams—for the heavy equipment industry. Isaac Engines has a very simple production process and product line and uses a single plantwide factory overhead ra

> Scrumptious Snacks Inc. manufactures three types of snack foods: tortilla chips, potato chips, and pretzels. The company has budgeted the following costs for the upcoming period: Factory depreciation ……â&#128

> Bounce Back Insurance Company carries three major lines of insurance: auto, workers’ compensation, and homeowners. The company has prepared the following report: Management is concerned that the administrative expenses may make some of

> Bach Instruments Inc. makes three musical instruments: flutes, clarinets, and oboes. The budgeted factory overhead cost is $2,948,125. Overhead is allocated to the three products on the basis of direct labor hours. The products have the following budgete

> Metroid Electric manufactures power distribution equipment for commercial customers, such as hospitals and manufacturers. Activity-based costing was used to determine customer profitability. Customer service activities were assigned to individual custome

> Are large or small companies more likely to use the reciprocal services method to allocate support department costs to production departments? Why?

> a. Differentiate between a vertical and horizontal unit within a company. b. Are the accounting and legal departments normally considered vertical or horizontal units within a company? c. Would a consumer products division that sells products directly to

> Handbrain Inc. is considering a change to activity-based product costing. The company produces two products, cell phones and tablet PCs, in a single production department. The production department is estimated to require 2,000 direct labor hours. The to

> Lonsdale Inc. manufactures entry and dining room lighting fixtures. Five activities are used in manufacturing the fixtures. These activities and their associated budgeted activity costs and activity bases are as follows: Corporate records were obtained

> Hercules Inc. manufactures elliptical exercise machines and treadmills. The products are produced in its Fabrication and Assembly production departments. In addition to production activities, several other activities are required to produce the two produ

> Kennedy Appliance Inc.’s Machining Department incurred $450,000 of factory overhead cost in producing hoses and valves. The two products consumed a total of 9,000 direct machine hours. Of that amount, hoses consumed 4,250 direct machine hours. Determine

> a. Based upon the data in Exercise 3-7, determine the following for December: 1. Direct materials cost per equivalent unit 2. Conversion cost per equivalent unit 3. Cost of the beginning work in process completed during December 4. Cost of units started

> The following information concerns production in the Baking Department for December. All direct materials are placed in process at the beginning of production. a. Determine the number of units in work in process inventory at December 31. b. Determine th

> Data for the two departments of Kimble & Pierce Company for June of the current fiscal year are as follows: Production begins in the Drawing Department and finishes in the Winding Department. If all direct materials are placed in process at the begi

> The Converting Department of Worley Company had 2,400 units in work in process at the beginning of the period, which were 35% complete. During the period, 10,800 units were completed and transferred to the Packing Department. There were 1,900 units in pr

> The cost accountant for River Rock Beverage Co. estimated that total factory overhead cost for the Blending Department for the coming fiscal year beginning February 1 would be $3,150,000, and total direct labor costs would be $1,800,000. During February,

> Radford Inc. manufactures a sugar product by a continuous process, involving three production departments— Refining, Sifting, and Packing. Assume that records indicate that direct materials, direct labor, and applied factory overhead for the first depart

> How does management determine the order in which support department costs are allocated under the sequential method?

> Alcoa Inc. (AA) is the world’s largest producer of aluminum products. One product that Alcoa manufactures is aluminum sheet products for the aerospace industry. The entire output of the Smelting Department is transferred to the Rolling

> Based on the data in Exercise 3-14, determine the following: a. Cost of beginning work in process inventory completed in November b. Cost of units transferred to the next department during November c. Cost of ending work in process inventory on November

> a. Based on the data in Exercise 3-11, determine the following: 1. Cost of beginning work in process inventory completed this period 2. Cost of units transferred to finished goods during the period 3. Cost of ending work in process inventory 4. Cost per

> The charges to Work in Process—Assembly Department for a period, together with information concerning production, are as follows. All direct materials are placed in process at the beginning of production. Determine the following: a. Th

> Eclipse Solar Company operates two factories. The company applies factory overhead to jobs on the basis of machine hours in Factory 1 and on the basis of direct labor hours in Factory 2. Estimated factory overhead costs, direct labor hours, and machine h

> Schumacher Industries Inc. manufactures recreational vehicles. Schumacher Industries uses a job order cost system. The time tickets from June jobs are summarized as follows: Job 11-101 …………………... $ 4,640 Job 11-102 ……………….…….. 5,510 Job 11-103 ………………...…

> The weekly time tickets indicate the following distribution of labor hours for three direct labor employees: The direct labor rate earned per hour by the three employees is as follows: Tom Couro …….. $32 David Cla

> A summary of the time tickets is as follows: Journalize the entry to record the factory labor costs.

> Kingsford Furnishings Company manufactures designer furniture. Kingsford Furnishings uses a job order cost system. Balances on April 1 from the materials ledger are as follows: Fabric ………â

> Materials issued are as follows: Journalize the entry to record the issuance of materials.

> Why is the direct method of support department cost allocation less accurate than the sequential and reciprocal services methods?

> The following information is available for the first year of operations of Creston Inc., a manufacturer of fabricating equipment: Sales ……………………………………….……………… $12,375,000 Gross profit …………………………….…………………. 5,200,000 Indirect labor ………………………….………………….… 410

> Collegiate Publishing Inc. began printing operations on March 1. Jobs 301 and 302 were completed during the month, and all costs applicable to them were recorded on the related cost sheets. Jobs 303 and 304 are still in process at the end of the month, a

> Cost data for Johnstone Manufacturing Company for the month ended March 31 are as follows: a. Prepare a cost of goods manufactured statement for March. b. Determine the cost of goods sold for March.

> The following events took place for Rushmore Biking Inc. during February, the first month of operations as a producer of road bikes: • Purchased $480,000 of materials. • Used $434,500 of direct materials in production. • Incurred $125,000 of direct labor

> The following information is available for Fuller Manufacturing Company for the month ending October 31: Cost of direct materials used in production …………………. $1,323,600 Direct labor …………………………………….…………………………. 1,680,000 Work in process inventory, October

> The following account appears in the ledger prior to recognizing the jobs completed in January: Jobs finished during January are summarized as follows: a. Journalize the entry to record the jobs completed. b. Determine the cost of the unfinished jobs a

> Walker Manufacturing Company reported the following materials data for the month ending June 30: Materials purchased ………………………….. $845,700 Materials inventory, June 1 ………………….. 238,500 Materials inventory, June 30 ……………….. 190,400 Determine the cost of d

> Exotic Engine Shop uses a job order cost system to determine the cost of performing engine repair work. Estimated costs and expenses for the coming period are as follows: The average shop direct labor rate is $37.50 per hour. Determine the predetermined

> The following events took place for Sorensen Manufacturing Company during January, the first month of its operations as a producer of digital video monitors: a. Purchased $250,000 of materials. b. Used $180,000 of direct materials in production. c. Incur

> The following is a manufacturing cost report of Marching Ants Inc. a. List the errors in the preceding report. b. Prepare a corrected report.

> A partial list of the costs for Wisconsin and Minnesota Railroad, a short hauler of freight, follows. Classify each cost as either indirect or direct. For purposes of classifying each cost, use the train as the cost object. a. Costs of accident cleanup b

> From the choices presented in parentheses, choose the appropriate term for completing each of the following sentences: a. An example of factory overhead is (electricity used to run assembly line, CEO salary). b. Direct materials costs combined with direc

> The balance sheet for Garcon Inc. at the end of the current fiscal year indicated the following: Bonds payable, 8% ……………………….. $5,000,000 Preferred $4 stock, $50 par …………….. 2,500,000 Common stock, $10 par ………………….. 5,000,000 Income before income tax exp

> An analysis of the general ledger accounts indicates that office equipment, which cost $245,000 and on which accumulated depreciation totaled $112,500 on the date of sale, was sold for $105,900 during the year. Using this information, indicate the items

> Rizzo Goal Inc. produces and sells hockey equipment, often custom made for online orders. The company has the following performance metrics on its balanced scorecard: days from ordered to delivered, number of shipping errors, customer retention rate, and

> Coulson and Company is a large retail business that has a firm-wide balanced scorecard. Recently, management has discussed the need for the balanced scorecard to be more relevant to each individual department of the company. Specifically, management want

> Grand Grocery developed a balanced scorecard with six strategic objectives under the standard four performance perspectives, as follows: a. Draw a strategy map that shows how these strategic objectives likely influence each other. b. Describe, in words,

> The following is the balanced scorecard for Smith Company: a. Label each element of the balanced scorecard. b. Identify the company’s overall strategic objective (i.e., the strategic objective that all the other strategic objectives co

> Apples & Oranges Inc. is trying to become more efficient in shipping goods. It is experimenting with two new shipping procedure initiatives aimed at achieving this strategic objective. The company has provided the following data regarding the two pro

> Buffalo BBQ Restaurant is trying to become more efficient in training its chefs. It is experimenting with two training programs aimed at this objective. Both programs have basic and advanced training modules. The restaurant has provided the following dat

> Why does support department cost allocation matter to service businesses (such as colleges and universities)?

> Eat-n-Run Inc. owns and operates 10 food trucks (mobile kitchens) throughout metropolitan Los Angeles. Each food truck has a different food theme, such as Irish-Mexican fusion, traditional Mexican street food, Ethiopian cuisine, and Lebanese-Italian fusi

> American Express Company is a major financial services company noted for its American Express® card. Some of the performance measures used by the company on its balanced scorecard follow: For each measure, identify whether the measure best fi

> Sunny Nights Inc. is completely powered by the city power grid, but management is considering switching fuel sources in an effort to improve the public’s perception of the company’s corporate social responsibility. Within the next five years, management

> Two departments within Cougar Gear Inc. are Production and Sales. Each department has a unique scorecard, as follows: The Production Department scorecard focuses on the learning and growth and internal processes perspectives. The Sales Department scorec

> Silver Lining Inc. has a balanced scorecard with a strategy map that shows that delivery time and the number of erroneous shipments is expected to affect the company’s ability to satisfy the customer. Further, the strategy map for the balanced scorecard

> Henry’s Cafe is a local restaurant that is growing quickly. While the company does not yet have a balanced scorecard, Henry has mentioned that being efficient in producing meals is a high priority of his business and appears to be a significant driver of

> Jackson Fabricators Inc. machines metal parts for the automotive industry. Under the traditional manufacturing approach, the parts are machined through two processes: milling and finishing. Parts are produced in batch sizes of 40 parts. A part requires 6

> Vernon Inc. has analyzed the setup time on its computer-controlled lathe. The setup requires changing the type of fixture that holds a part. The average setup time has been 140 minutes, consisting of the following steps: a. Why should management be conc

> Furry Friends Inc. manufactures toy stuffed animals. The direct labor time required to cut, sew, and stuff a toy is 10 minutes per unit. The company makes two types of stuffed toys—a lion and a bear. The lion is assembled in lot sizes of 50 units per bat

> Rag Swag Inc. manufactures various styles of men’s casual wear. Shirts are cut and assembled by a workforce that is paid by piece rate. This means that they are paid according to the amount of work completed during a period of time. To illustrate, if the

> How can support department and joint cost allocation affect production employee performance evaluations?

> The procurement process for Jarom Wholesale Company includes a series of activities that transforms a materials requisition into a vendor payment. The process begins with a request for materials. The requesting department prepares and sends a materials r

> The American textile industry has moved much of its operations offshore in the pursuit of lower labor costs. Textile imports have risen from under 5% of all textile production in the early 1960s to over 95% today. Offshore manufacturers make long runs of

> Eon Technologies has recently implemented a lean manufacturing approach. A production manager has approached the controller with the following comments: I am very upset with our accounting system now that we have implemented our new lean manufacturing me

> The chief executive officer (CEO) of Cobalt Inc. just read an article written by a business professor at Harvard University describing the benefits of the lean philosophy. The CEO issued the following statement after reading the article: This company wil

> Amenity Hotels Inc. is considering the construction of a new hotel for $50 million. The expected life of the hotel is 25 years, with no residual value. The hotel is expected to earn revenues of $30 million per year. Total expenses, including depreciation

> Coast-to-Coast Inc. is considering the purchase of an additional delivery vehicle for $70,000 on January 1, 20Y1. The truck is expected to have a five-year life with an expected residual value of $15,000 at the end of five years. The expected additional

> Jane’s Clothing Inc. is evaluating two capital investment proposals for a retail outlet, each requiring an investment of $975,000 and each with a seven-year life and expected total net cash flows of $1,050,000. Location 1 is expected to

> Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 5,000 units at $18 each. The new manufacturing equipment will cost $120,000 and is e

> Hana Inc. is considering an investment in new equipment that will be used to manufacture a smartphone. The phone is expected to generate additional annual sales of 10,000 units at $300 per unit. The equipment has a cost of $4,500,000, residual value of $

> Maui Fabricators Inc. is considering an investment in equipment that will replace direct labor. The equipment has a cost of $125,000 with a $15,000 residual value and an eight-year life. The equipment will replace one employee who has an average wage of

> Why are support department costs difficult to apply to products?

> Vail Resorts, Inc. (MTN), announced a $415 million expansion of lodging properties, ski lifts, and terrain in Park City, Utah. Assume that this investment is estimated to produce $99 million in equal annual cash flows for each of the first 10 years of th

> Diamond & Turf Inc. is considering an investment in one of two machines. The sewing machine will increase productivity from sewing 150 baseballs per hour to sewing 290 per hour. The contribution margin per unit is $0.32 per baseball. Assume that any

> Tasty Doughnuts has computed the net present value for capital expenditure at two locations. Relevant data related to the computation are as follows: a. Determine the present value index for each proposal. b. Which location does your analysis support? E

> Carnival (CCL) has recently placed into service some of the largest cruise ships in the world. One of these ships, the Carnival Breeze, can hold up to 3,600 passengers, which can cost $750 million to build. Assume the following additional information: &a

> Jones Excavation Company is planning an investment of $125,000 for a bulldozer. The bulldozer is expected to operate for 1,000 hours per year for five years. Customers will be charged $90 per hour for bulldozer work. The bulldozer operator costs $30 per

> A company is considering replacing an old piece of machinery, which cost $400,000 and has $175,000 of accumulated depreciation to date, with a new machine that has a purchase price of $550,000. The old machine could be sold for $250,000. The annual varia

> Somerset Computer Company has been purchasing carrying cases for its portable computers at a purchase price of $24 per unit. The company, which is currently operating below full capacity, charges factory overhead to production at the rate of 40% of direc

> On the basis of the following data, the general manager of Hawkeye Shoes Inc. decided to discontinue Children’s Shoes because it reduced operating income by $30,000. What is the flaw in this decision, if it is assumed fixed costs would

> Charles Schwab Corporation (SCHW) is one of the more innovative brokerage and financial service companies in the United States. The company recently provided information about its major business segments as follows (in millions): a. How does a brokerage

> The condensed product-line income statement for Rhinebeck Company for the month of October is as follows: Fixed costs are 20% of the cost of goods sold and 30% of the selling and administrative expenses. Rhinebeck Company assumes that fixed costs would

> When might activity-based costing be preferred overusing a relative amount of product sales in allocating selling and administrative expenses to products?

> A condensed income statement by product line for Warrick Beverage Inc. indicated the following for Mango Cola for the past year: It is estimated that 30% of the cost of goods sold represents fixed factory overhead costs and that 25% of the operating exp

> Laredo Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $120,000. The freight and installation costs for the equipment are $1,500. If purchased, annual repairs and maintenance are estimated to be $2,2

> Box Elder Power Company expects to operate at 85% of productive capacity during May. The total manufacturing costs for May for the production of 40,000 batteries are budgeted as follows: The company has an opportunity to submit a bid for 5,000 batteries

> Dakota Coffee Company produces Columbian coffee in batches of 7,500 pounds. The standard quantity of materials required in the process is 7,500 pounds, which cost $6.00 per pound. Columbian coffee can be sold without further processing for $9.80 per poun

> Boyer Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $60,000, the accumulated depreciation is $24,000, its remaining useful life is five years,

> Burlington Construction Company is considering selling excess machinery with a book value of $115,000 (original cost of $275,000 less accumulated depreciation of $160,000) for $90,000, less a 6% brokerage commission. Alternatively, the machinery can be l

> Championship Sports Inc. operates two divisions—the Winter Sports Division and the Summer Sports Division. The following income and expense accounts were provided from the trial balance as of December 31, 20Y9, the end of the fiscal yea