What is a cost driver?
> Cannes Company has the following information available for September 2014. Unit selling price of video game consoles ……………………………$ 400 Unit variable costs ……………………………………………………………..$ 275 Total fixed costs ……………………………………………………………. $52,000 Units sold ………………
> In 2013, Manhoff Company had a break-even point of $350,000 based on a selling price of $5 per unit and fixed costs of $112,000. In 2014, the selling price and the variable costs per unit did not change, but the break-even point increased to $420,000. I
> Warner Inc. sells a high-speed retrieval system for mining information. It provides the following information for the year. Overhead is applied on the basis of direct labor hours. (a) Compute the predetermined overhead rate. (b) Determine the amount of
> Kare Kars provides shuttle service between four hotels near a medical center and an international airport. Kare Kars uses two 10-passenger vans to offer 12 round trips per day. A recent month’s activity in the form of a cost-volume-prof
> In the month of March, Style Salon services 560 clients at an average price of $120. During the month, fixed costs were $21,024 and variable costs were 60% of sales. Instructions: (a) Determine the contribution margin in dollars, per unit, and as a rati
> Turgro Company manufactures a single product. Annual production costs incurred in the manufacturing process are shown below for two levels of production. Instructions: (a) Define the terms variable costs, fixed costs, and mixed costs. (b) Classify each
> Danny Baden’s Verde Vineyards in Oakville, California, produces three varieties of wine: Merlot, Viognier, and Pinot Noir. His winemaster, Russel Hansen, has identified the following activities as cost pools for accumulating overhead and assigning it to
> Santana Corporation manufactures snowmobiles in its Blue Mountain, Wisconsin, plant. The following costs are budgeted for the first quarter’s operations. Machine setup, indirect materials …………………………………..$ 4,000 Inspections ……………………………………………………………………..16
> Quik Prints Company is a small printing and copying firm with three high-speed offset printing presses, five copiers (two color and three black-and-white), one collator, one cutting and folding machine, and one fax machine. To improve its pricing practic
> Perdon Corporation manufactures safes—large mobile safes, and large walk-in stationary bank safes. As part of its annual budgeting process, Perdon is analyzing the profitability of its two products. Part of this analysis involves estima
> Shady Lady sells window coverings (shades, blinds, and awnings) to both commercial and residential customers. The following information relates to its budgeted operations for the current year. The controller, Peggy Kingman, is concerned about the resid
> American Fabrics has budgeted overhead costs of $990,000. It has allocated overhead on a plantwide basis to its two products (wool and cotton) using direct labor hours which are estimated to be 450,000 for the current year. The company has decided to exp
> Ayala Inc. has conducted the following analysis related to its product lines, using a traditional costing system (volume-based) and an activity-based costing system. Both the traditional and the activity-based costing systems include direct materials and
> Knox Company begins operations on January 1. Because all work is done to customer specifications, the company decides to use a job order cost system. Prepare a flowchart of a typical job order system with arrows showing the flow of co
> Lasso and Markowitz is a law firm that is initiating an activity-based costing system. Sam Lasso, the senior partner and strong supporter of ABC, has prepared the following list of activities performed by a typical attorney in a day at the firm. Activit
> Healthy Products, Inc., uses a traditional product costing system to assign overhead costs uniformly to all products. To meet Food and Drug Administration requirements and to assure its customers of safe, sanitary, and nutritious food, Healthy engages in
> Many of you will someday own your own business. One rapidly growing opportunity is no-frills workout centers. Such centers attract customers who want to take advantage of state-ofthe-art fitness equipment but do not need the other amenities of full-servi
> Brett Stern was hired during January 2014 to manage the home products division of Hi-Tech Products. As part of his employment contract, he was told that he would get $5,000 of additional bonus for every 1% increase that the division’s p
> Cost-volume-profit analysis can also be used in making personal financial decisions. For example, the purchase of a new car is one of your biggest personal expenditures. It is important that you carefully analyze your options. Suppose that you are consid
> Helena Company reports the following total costs at two levels of production. Classify each cost as variable, fixed, or mixed. 5,000 Units 10,000 Units Indirect labor $ 3,000 $ 6,000 Property taxes Direct labor 7,000 28,000 7,000 56,000 Direct mate
> Adamson Company manufactures four lines of garden tools. As a result of an activity analysis, the accounting department has identified eight activity cost pools. Each of the product lines is produced in large batches, with the whole plant devoted to one
> For Eckstein Company, the predetermined overhead rate is 130% of direct labor cost. During the month, Eckstein incurred $100,000 of factory labor costs, of which $85,000 is direct labor and $15,000 is indirect labor. Actual overhead incurred was $115,000
> Classify each of the following activities within a tax-preparation business as value-added (VA) or non–value-added (NVA). (a) Advertising. (b) Completing tax returns. (c) Billing clients. (d) Answering client questions. (e) Accompanying clients to audit
> Indicate whether the following statements are true or false. (a) The reasoning behind ABC cost allocation is that products consume activities and activities consume resources. (b) Activity-based costing is an approach for allocating direct labor to produ
> Indicate whether each of the following statements is true or false. 1. Many hospitals use job order costing for small, routine medical procedures. 2. A manufacturer of computer flash drives would use a job order cost system. 3. A process cost system uses
> Stan Kaiser is confused about the source documents used in assigning materials and labor costs. Identify the documents and give the entry for each document.
> “Entries to Manufacturing Overhead normally are only made daily.” Do you agree? Explain.
> What source documents are used in accumulating direct labor costs?
> Scott Bestor is an accountant for Westfield Company. Early this year, Scott made a highly favorable projection of sales and profits over the next 3 years for Westfield’s hot-selling computer PLEX. As a result of the projections Scott presented to senior
> There are three inventory control accounts in a job order system. Identify the control accounts and their subsidiary ledgers.
> Your roommate asks your help in understanding the major steps in the flow of costs in a job order cost system. Identify the steps for your roommate.
> Total fixed costs are $26,000 for Daz Inc. It has a contribution margin per unit of $15, and a contribution margin ratio of 25%. Compute the break-even sales in dollars.
> “Break-even analysis is of limited use to management because a company cannot survive by just breaking even.” Do you agree? Explain.
> Marshall Company’s GWhiz calculator sells for $40. Variable costs per unit are estimated to be $26. What are the contribution margin per unit and the contribution margin ratio?
> Faye Dunn defines contribution margin as the amount of profit available to cover operating expenses. Is there any truth in this definition? Discuss.
> (a) What is cost behavior analysis? (b) Why is cost behavior analysis important to management
> What is an activity cost pool?
> What is the formula for computing activity-based overhead rates?
> What type of industry is likely to use a process cost system? Give some examples.
> Your roommate asks for your help on the following questions about CVP analysis formulas. (a) How can the mathematical equation for break-even sales show both sales units and sales dollars? (b) How do the formulas differ for contribution margin per unit a
> What are the principal differences between activity based costing (ABC) and traditional product costing?
> What is generally true about overhead allocation to high-volume products versus low-volume products under a traditional costing system?
> In an automated manufacturing environment, what basis of overhead allocation is frequently more relevant than direct labor hours?
> Of what benefit is classifying activities as value-added and non–value-added?
> What refinement has been made to enhance the efficiency and effectiveness of ABC for use in managing costs?
> What are the limitations of activity-based costing?
> What are the benefits of activity-based costing?
> What is the formula for assigning activity cost pools to products?
> What makes a cost driver accurate and appropriate?
> As discussed in the chapter, the principles underlying activity-based costing have evolved into the broader approach known as activity-based management. One of the common practices of activity-based management is to identify all business activities, clas
> What are the similarities between a job order and a process cost system?
> Under what conditions is direct labor a valid basis for allocating overhead?
> Mark Haley is uncertain about the steps used to prepare a production cost report. State the procedures that are required in the sequence in which they are performed
> Sam Bowyer believes there are no significant differences in the flow of costs between job order cost accounting and process cost accounting. Is Bowyer correct? Explain.
> Your roommate is confused about the features of process cost accounting. Identify and explain the distinctive features for your roommate.
> At Trent Company, there are 800 units of ending work in process that are 100% complete as to materials and 40% complete as to conversion costs. If the unit cost of materials is $3 and the total costs assigned to the 800 units is $6,000, what is the per u
> (a) Ann Quinn believes the production cost report is an external report for stockholders. Is Ann correct? Explain. (b) Identify the sections in a production cost report.
> How are equivalent units of production computed?
> Reyes Company transfers out 12,000 units and has 2,000 units of ending work in process that are 25% complete. Materials are entered at the beginning of the process and there is no beginning work in process. Reyes uses the FIFO method to compute equivalen
> Soria Co. started and completed 2,000 units for the period. Its beginning inventory is 800 units 25% complete and its ending inventory is 400 units 20% complete. Soria uses the FIFO method to compute equivalent units. How many units were transferred out
> There are many resources available on the Web to assist people in time management. Some of these resources are designed specifically for college students. Instructions: Go to http://www.dartmouth.edu/~acskills/videos/video_tm.html (or do an Internet sea
> What is meant by the term “equivalent units of production”?
> Contrast the primary focus of job order cost accounting and of process cost accounting.
> What is the difference between operations costing and a process cost system?
> “At the end of the year, under- or overapplied overhead is closed to Income Summary.” Is this correct? If not, indicate the customary treatment of this amount.
> What purposes are served by a production cost report?
> Jane Neff believes that the cost of goods manufactured schedule in job order cost accounting is the same as shown in Chapter 1. Is Jane correct? Explain.
> Clauss Company transfers out 14,000 units and has 2,000 units of ending work in process that are 25% complete. Materials are entered at the beginning of the process and there is no beginning work in process. Assuming unit materials costs of $3 and unit c
> What elements are involved in computing a predetermined overhead rate?
> Sam Bowden believes actual manufacturing overhead should be charged to jobs. Do you agree? Why or why not?
> Coats Company had zero units of beginning work in process. During the period, 9,000 units were completed, and there were 600 units of ending work in process. What were the units started into production?
> In a recent year, an oil refinery in Texas City, Texas, on the Houston Ship Channel exploded. The explosion killed 14 people and sent a plume of smoke hundreds of feet into the air. The blast started as a fire in the section of the plant that increased t
> Amanda Inc. sold 10,000 units and recorded sales of $400,000 for the first month of 2014. In making the sales, the company incurred the following costs and expenses. (a) Prepare a CVP income statement for the month ended January 31, 2014. (b) Compute t
> Indicate the source documents that are used in charging costs to specific jobs.
> What is the purpose of a job cost sheet?
> Identify which costing system—job order or process cost—the following companies would primarily use: (a) Quaker Oats, (b) Jif Peanut Butter, (c) Gulf Craft (luxury yachts), and (d) Warner Bros. Motion Pictures.
> Performance Company sells two types of performance tires. The lower-priced model is guaranteed for only 50,000 miles; the higher-priced model is guaranteed for 150,000 miles. The unit contribution margin on the higher-priced tire is twice as high as that
> What is meant by the term sales mix? How does sales mix affect the calculation of the break-even point?
> If management chooses to reduce its selling price to match that of a competitor, how will the break-even point be affected?
> The traditional income statement for Wheat Company shows sales $900,000, cost of goods sold $500,000, and operating expenses $200,000. Assuming all costs and expenses are 75% variable and 25% fixed, prepare a CVP income statement through contribution mar
> If production is greater than sales, how does absorption costing net income differ from variable costing net income?
> If production equals sales, what, if any, is the difference between net income under absorption costing versus under variable costing?
> Provide three examples of management decisions that benefit from CVP analysis.
> R. B. Dillman Company manufactures a high-tech component that passes through two production processing departments, Molding and Assembly. Department managers are partially compensated on the basis of units of products completed and transferred out relati
> Doc Rowan Corporation sells one product, its waterproof hiking boot. It began operations in the current year and had an ending inventory of 8,500 units. The company sold 20,000 units throughout the year. Fixed manufacturing overhead is $5 per unit, and t
> Distinguish between absorption costing and variable costing.
> Pine Company has a degree of operating leverage of 8. Fir Company has a degree of operating leverage of 4. Interpret these measures.
> What is a measure of operating leverage, and how is it calculated?
> What is operating leverage? How does a company increase its operating leverage?
> What is meant by “cost structure?” Explain how a company’s cost structure affects its break-even point
> How is the contribution margin per unit of limited resource computed?
> What is meant by CVP analysis?
> “Cost-volume-profit (CVP) analysis is based entirely on unit costs.” Do you agree? Explain
> At the high and low levels of activity during the month, direct labor hours are 90,000 and 40,000, respectively. The related costs are $165,000 and $100,000. What are the fixed and variable costs at any level of activity?
> Diane Barone was a good friend of yours in high school and is from your home town. While you chose to major in accounting when you both went away to college, she majored in marketing and management. You have recently been promoted to accounting manager f
> How should mixed costs be classified in CVP analysis? What approach is used to effect the appropriate classification?
> “The relevant range is indispensable in cost behavior analysis.” Is this true? Why or why not?
> Contrast the effects of changes in the activity level on total fixed costs and on unit fixed costs.
> The traditional income statement for Pace Company shows sales $900,000, cost of goods sold $600,000, and operating expenses $200,000. Assuming all costs and expenses are 70% variable and 30% fixed, prepare a CVP income statement through contribution marg
> Huang Company’s break-even sales are $500,000. Assuming fixed costs are $180,000, what sales volume is needed to achieve a target net income of $90,000?
