What are the four objectives in the strategic role of cost allocation? Explain each briefly.
> What is zero-base budgeting (ZBB)?
> List the major components of a cash budget.
> In addition to the sales budget, what additional information does a firm need to complete its materials purchases budget?
> Why is the sales budget considered the cornerstone of the organization’s master budget?
> Some critics of budgeting believe that budgets are effective tools for planning but not for control purposes. What is the essence of this argument?
> Many accountants believe that the most important benefit of the master budgeting process is the end result: a set of budgeted (i.e., pro-forma) financial statements. What is the rationale for this view?
> Differentiate master, operating, and financial budgets.
> Define the terms “relative performance contract” and “rolling financial forecasts.” What role for these is envisioned by critics of the traditional budgeting process?
> Define what is meant by the terms what-if analysis and scenario analysis.
> What is the essence of a fixed-performance contract and what dysfunctional consequences can occur through the use of this type of incentive system?
> Calculate the net after-tax cash flow effect of the following information: sales, $260; expenses other than depreciation, $140; depreciation expense, $50; marginal income tax rate, 35%. Round your answer to 2 decimal places.
> How does the use of a time-driven activity-based cost (TDABC) system facilitate the preparation of budgets for an organization?
> Describe at least three benefits that an organization can expect to realize from budgeting.
> Define “degree of operating leverage” (DOL). How is DOL measured?
> What is operating leverage, and for what is it used?
> What is the margin of safety (MOS), and for what is it used?
> Why does the issue of taxes not affect the calculation of the breakeven point?
> What type of risk does sensitivity analysis address?
> Why do management accountants use sensitivity analysis?
> What are the basic assumptions of CVP analysis?
> What is the contribution margin ratio and how is it used?
> Use the appropriate function in Excel (= SLN) to calculate the annual straight-line (SL) depreciation charge for an asset that has a $10,000 acquisition cost, an estimated salvage value of $500, and a useful life of 4 years.
> How is CVP analysis used to calculate the breakeven point for multiple products?
> What is the underlying relationship depicted in a CVP analysis?
> What are nonlinear cost relationships? Give two examples.
> Explain how to choose the dependent and independent variables in regression analysis used for cost estimation.
> How can cost estimation be used in activity-based costing?
> Contrast the use of regression analysis and the high-low method to estimate costs.
> What are the six steps in cost estimation? Which one is the most important? Why?
> Explain the implementation problems in cost estimation.
> List the two methods of cost estimation. Explain the advantages and disadvantages of each.
> Explain the strategic role of cost estimation.
> For a firm facing a marginal income tax rate of 34%, what is the after-tax cash flow effect of (a) a $1,000 increase in contribution margin during the year and (b) a $500 increase in cash operating expenses?
> Carter Dry Cleaning has developed two regression analyses for cost estimation. The accounting manager has presented statistical measures for both of these regressions. Regression A has an R-squared value of .53 and a t-value of 1.08. Regression B has an
> What does the coefficient of determination (R-squared) measure?
> How do we know when high correlation exists? Is high correlation the same as cause and effect?
> Explain what dummy variables are and how they are used in regression analysis.
> List four advantages of regression analysis.
> Define cost estimation and explain its purpose in each of the management functions.
> What are the implementation issues of departmental cost allocation?
> What are the limitations of joint product and departmental cost allocations?
> What are the four methods used in by-product costing, and how do they differ? Which is the preferred method and why?
> Give two or three examples of the use of cost allocation in service industries and not-for-profit organizations.
> Jamison Health Care is trying to decide if it should eliminate its orthopedic care division. Last year, the orthopedic division had a total contribution margin of $100,000 and allocated overhead costs of $200,000, of which $90,000 could be eliminated if
> What are the three phases of the departmental allocation approach? What happens at each phase?
> What are the three methods of departmental cost allocation? Explain how they differ, which is the most preferred, and why.
> What does the term reciprocal mean in the context of departmental cost allocation?
> Explain the difference between joint products and by-products.
> What are some of the ethical issues of cost allocation?
> Specify the advantages of the weighted-average method of process costing in contrast to the FIFO method.
> Identify the conditions under which the weighted-average method of process costing is inappropriate.
> What is the distinction between equivalent units under the FIFO method and equivalent units under the weighted-average method?
> What is a production cost report? What are the five key steps in preparing a production cost report?
> The external purchase price is $35 for a part that can be manufactured for $33 per unit; the $33 manufacturing cost includes $5 per unit allocated fixed cost. What is the per-unit savings to make rather than to buy?
> How is the equivalent unit calculation affected when direct materials are added at the beginning of the process rather than uniformly throughout the process?
> What does the term equivalent units mean?
> Explain the primary differences between job costing and process costing.
> List three types of industries that would likely use process costing.
> Explain activity-based process costing.
> How do cost flows in backflush costing systems differ from those in traditional costing systems?
> What is the main difference between journal entries in process costing and in job costing?
> Under the FIFO method, only current period costs and work are included in equivilent unit costs and equivalent units computation. Under the weighted-average method, what assumptions are made when unit costs and equivalent units are computed?
> Under the weighted-average method, all units transferred out are treated the same way. How does this differ from the FIFO method of handling units transferred out?
> Suppose that manufacturing is performed in sequential production departments. Prepare a journal entry to show a transfer of partially completed units from the first department to the second department. Assume the amount of the costs transferred is $50,00
> Wings Diner has a box lunch that it sells on football game days at the local university. Each box lunch sells for $6.00, which is made up of $2.50 of variable costs and packaging, and $2.50 of fixed cost, plus a $1 markup. In the short run, what is the m
> What are transferred-in costs?
> From the standpoint of cost control, why is the FIFO method superior to the weighted-average method? Is it possible to monitor cost trends using the weighted-average method
> What are the typical characteristics of a company that should use a process costing system?
> What are batch-level activities? Give two examples of batch-level activities.
> What are unit-level activities? Give two examples of unit-level activities.
> What type of company can benefit from an activity-based costing system?
> Briefly describe the first- and second-stage procedures in assigning costs to products when using an activity-based costing system.
> Identify the general levels of cost hierarchy in activity-based costing systems.
> What is activity-based costing, and how can it improve an organization’s costing system?
> Explain why a costing system that uses a volume-based rate is likely to produce distorted product costs.
> Adams Furniture receives a special order for 10 sofas for a special price of $3,000. The direct materials and direct labor for each sofa amount to $100. In addition, supervision and other fixed overhead costs average $150 per sofa. Should Adams accept th
> Brief Exercises 7-11 through 7-14 involve departmental cost allocation with two service departments and two production departments. Use the following information for these four exercises: What is the total cost in P1 and P2 and what is the amount of se
> Firms sell products with high costs at high prices. High selling prices increase revenues and profits. Why then should managers worry about product overcosting?
> Identify opportunities afforded by performing a customer profitability analysis.
> How can activity-based costing and management be used in service organizations?
> What is activity-based management?
> Why do product costing systems using a single, volume-based cost driver tend to over-cost high-volume products? Will there be any undesirable strategic effects from such product cost distortion?
> What are facility-level activities? Give two examples of facility-level activities.
> What are product-level activities? Give two examples of product-level activities.
> “Undercosting a product increases the profit from the product and benefits the firm.” Do you agree? Why?
> What does the following statement mean? “Accounting for overhead involves an important cost-benefit issue.” Why is that issue important?
> What is the role of materials requisitions in a job costing system? Time tickets? Bills of materials?
> ElecPlus Batteries has two different products, AAA and AA batteries. The AA batteries have a contribution margin of $1 per package, and the AAA batteries have a contribution margin of $2 per package. ElecPlus has a capacity for 1,000,000 batteries per mo
> Explain how predetermined factory overhead rates are computed and why they are used to apply factory overhead to units of products instead of actual overhead costs.
> What document is prepared to accumulate costs for each separate job in a job costing system? What types of costs are recorded in the document?
> Which costing system is extensively used in the service industry for hospitals, law firms, or accounting firms? Explain why.
> Explain when companies are likely to use a job costing system or a process costing system. Provide examples.
> Distinguish between job costing and process costing.
> Identify the three characteristics of costing systems.
> How is job costing in a service firm different from job costing in a manufacturer?
> What is the difference between normal and abnormal spoilage?
> What is the best way to choose an appropriate cost driver or cost drivers when applying factory overhead?
> Distinguish between an actual costing system and a normal costing system. What are the components of actual manufacturing costs and the components of normal manufacturing costs?
> Lance’s Diner has a hot-lunch special each weekday and Sunday afternoon. The cost of food and other variable costs for each meal served is $3.50; weekly fixed costs (e.g., building depreciation and equipment rental costs) are $6,000, regardless of the ho
> Explain why overhead might be overapplied in a given period.
