What is an opportunity cost?
> How might computing the cost driver rate by using the planned level of the cost driver lead to a death spiral?
> What are the three options for dealing with the difference between actual and applied capacity (overhead) costs?
> “Use of a single cost driver rate when an indirect cost pool includes costs that have different cost drivers (causes of costs) leads to distortions in job costs.” Do you agree with this statement? Explain.
> Why are predetermined cost driver rates used when recording job costs?
> What problem arises when cost driver rates are based on planned or actual short-term usage?
> Provide several examples of the differences between high- and low-cost-to-serve customers.
> When do organizations use profit centers?
> Why do firms use multiple indirect cost pools?
> Why are costs estimated for individual jobs?
> In the context of computing a predetermined indirect cost rate, what is a cost driver?
> What has increased the need for cost systems that accurately deal with indirect manufacturing costs?
> Airport Coach Service Company operates scheduled coach service from Boston’s Logan Airport to downtown Boston and to Cambridge. A common scheduling service center at the airport is responsible for ticketing and customer service for both
> The Leblanc Company employs a job order costing system to account for its costs. The company has three production departments. Separate departmental cost driver rates are employed because the demand for overhead resources for the three departments is ver
> The Hillman Company sells and services lawn mowers, snow blowers, and other equipment. The service department uses a job order cost system to determine the cost of each job, such as oil changes, tune-ups, and repairs. The department assigns conversion co
> Hoyt Company uses a plantwide cost driver rate with machine hours as the cost driver. At the beginning of last year, Hoyt Company estimated its capacity-related (overhead) costs as $15,000,000 for a practical capacity of 100,000 machine hours per year. D
> Sherman Company manufactures and sells small pumps made to customer specifications. It has two service departments and two production departments. Data on current year operations follow: Management allocates maintenance department costs using machine ho
> Boston Box Company has two service departments, maintenance and grounds, and two production departments, fabricating and assembly. Management has decided to allocate maintenance costs on the basis of machine hours used by the departments and grounds cost
> John Malone, general manager of Midwest Office Products (MOP), was concerned about the financial results for calendar year 2003. Despite a sales increase from the prior year, the company had just suffered the first loss in its history (see summary income
> Sanders Manufacturing Company produces electronic components on a job order basis. Most business is gained through bidding on jobs. Most firms competing with Sanders bid full cost plus a 30% markup. Recently, with the expectation of gaining more sales, S
> The information below pertains to October production at Zippy Company’s bottling plant, which produces and bottles sports drinks. Each unit consists of a case of 12 bottles: Required (a) Using the weighted-average method, determine th
> Connor Chemical Company’s plant processes batches of organic chemical products through three stages after starting with raw materials: (1) Mixing and blending, (2) Reaction chamber, and (3) Pulverizing and packing. Connor Chemical&ac
> The Gonzalez Company uses a job order costing system at its plant in Green Bay, Wisconsin. The plant has a machining department and a finishing department. The company uses two cost driver rates for allocating manufacturing overhead costs to job orders:
> Bravo Steel Company supplies 8structural steel products to the construction industry. Its plant has three production departments: cutting, grinding, and drilling. The estimated overhead cost and practical capacity direct labor hours and machine hours for
> Modern Metalworks Company has two departments, milling and assembly. The company uses a job costing system with a plantwide cost driver rate that is computed by dividing plantwide overhead costs by total plantwide practical capacity direct labor hours. T
> Calla Manufacturing Company has 40 machines in its factory. The machines run for two shifts each day, with 30 workers per shift. Allowing for machine maintenance and break time for machine operators, each machine can be used for production for an average
> The information below pertains to July production at Porter Company’s paint factory, which produces paints for household interiors: Using the weighted-average method, determine the number of equivalent units of production for materials
> Mackenzie Consulting computes the cost of each consulting engagement by adding a portion of firmwide overhead costs to the labor cost of the consultants on the engagement. The overhead costs are assigned to each consulting engagement using a cost driver
> Kappa Company runs two shifts each day. Workers on average have four weeks off per year and after training and breaks, average 34 hours per week. What is Kappa’s practical capacity number of labor hours per year?
> AU.S. automobile components plant had recently been reorganized so that quality and employee teamwork were to be the guiding principles for all managers and workers. One production worker described the difference: In the old production environment, we we
> The following costs pertain to job 923 at Becker Auto Shop. Determine the total cost for job 923. QUANITITY PRICE Direct materials: Engine oil 11 ounces $2 per ounce Lubricant 3 per ounce 15 per hour 2 ounces Direct labor 3 hours Overhead costs (ba
> Ernie’s Electronics, Inc., delivered 1,000 custom-designed computer monitors to its customer, Video Shack. The following cost information was compiled in connection with this order: Direct Materials Used Part A327: 1 unit costing $60 per monitor Part B1
> Famous Flange Company manufactures a variety of special flanges for numerous customers. Annual capacity-related (manufacturing overhead) costs are $4,000,000 and the practical capacity level of machine hours is 120,000. The company uses planned machine h
> Ming Company has two service departments (S1 and S2) and two production departments (P1 and P2). Last year, directly identified overhead costs were $300,000 for S1 and $300,000 for S2. Information on the consumption of their services follows: Required (
> Carleton Company has two service departments and two production departments. Information on annual manufacturing overhead costs and cost drivers follows: The company allocates service department costs using the sequential method. First, S1 costs are all
> San Rafael Company has two production departments, assembly and finishing, and two service departments, machine setup and inspection. Machine setup costs are allocated on the basis of number of setups, whereas inspection costs are allocated on the basis
> Pitman Chemical Company manufactures and sells Goody, a product that sells for $10 per pound. The manufacturing process also yields 1 pound of a waste product, called Baddy, in the production of every 10 pounds of Goody. Disposal of the waste product cos
> Fancy Foods Company produces and sells canned vegetable juice. The ingredients are first combined in the blending department and then packed in gallon cans in the canning department. The following information pertains to the blending department for Janua
> Morrison Company carefully records its costs because it bases prices on the cost of the goods it manufactures. Morrison also carefully records its machine usage and other operational information. Manufacturing costs are computed monthly, and prices for t
> Eastern Wood Products has two production departments: cutting and assembly. The company has been using a plantwide cost driver rate computed by dividing plantwide overhead costs by total plantwide direct labor hours. The estimates for overhead costs and
> A credit card company has classified its customers into the following types for customer profitability analysis: 1. Applies for credit card in response to a low introductory interest rate; transfers balance to new account, but when the low introductory
> The Brinker Company uses a job order costing system at its local plant. The plant has a machining department and a finishing department. The company uses machine hours to allocate machining department overhead costs to jobs and uses direct labor cost to
> Youngsborough Products, a supplier to the automotive industry, had seen its operating margins shrink below 20% as its customers put continued pressure on pricing. Youngsborough produced four products in its plant and decided to eliminate products that no
> Over the past 15 years, Anthony’s Auto Shop has developed a reputation for reliable repairs and has grown from a one-person operation to a nineperson operation, including one manager and eight skilled auto mechanics. In recent years, ho
> What are sunk costs? Explain whether they are relevant costs.
> What does the term breakeven point mean?
> What are the three components of a linear program?
> “When production capacity is constrained, determine what products to make by ranking them in order of their contribution per unit.” Do you agree with this statement? Explain.
> What is an opportunity cost that is relevant in a make-or-buy decision?
> Are avoidable costs relevant? Explain.
> Julie Martinez, manager of the new retail outlet of Super Printing, is pondering the management challenges in her new position. Super Printing is a long-established printing company in a major metropolitan area. The new Super outlet, located at the edge
> How are mixed costs and step variable costs similar and different?
> Explain the difference between the contribution margin ratio and contribution margin per unit.
> What does the term contribution margin per unit mean? How is the contribution margin used in cost analysis to support managerial decisions?
> Explain the difference between variable costs and fixed costs.
> What are some different managerial uses of cost information?
> “When production capacity is limited and it is possible to obtain additional customer orders, a firm must consider its opportunity costs to evaluate the profitability of these new orders.” Do you agree with this statement? If so, what are the opportunity
> “Prices must cover both variable and fixed costs of production.” Do you agree with this statement? Explain.
> In analyzing whether to drop a product or department, what are two difficulties that arise related to the impact on costs or revenues?
> What qualitative considerations are relevant in a make-or-buy decision?
> Provide an example of a fixed cost that would be relevant to a make-or-buy decision, and an example of a fixed cost that would not be relevant to such a decision.
> What is a cost center?
> Are fixed costs always irrelevant?
> What behavioral factors may influence some managers to consider sunk costs as being relevant in their decisions?
> Why should decision makers focus only on the relevant costs for decision making?
> What does the term incremental cost mean?
> How do step variable costs differ from fixed costs?
> Santos Company is considering introducing a new compact disc player model at a price of $105 per unit. Santos’s controller has compiled the following incremental cost information based on an estimate of 120,000 units of sales annually for the new product
> Walt’s Woodwork Company makes and sells wooden shelves. Walt’s carpenters make the shelves in the company’s rented building. Walt has a separate office at another location that also includes a showroom where customers can view sample shelves and ask ques
> Spencer Grant, a financial planner, contacts and meets with local individuals to assist with financial planning and investments in Spencer’s employer’s investment services company. Spencer receives no fee for financial
> Xu Company makes two types of wood doors: standard and deluxe. The doors are manufactured in a plant consisting of three departments: cutting, assembly, and finishing. Both labor and machine time are spent on the two products as they are worked on in eac
> Hudson Hydronics, Inc., is a corporation based in Troy, New York, that sells high-quality hydronic control devices. It manufactures two products, HCD1 and HCD2, for which the following information is available: The average wage rate including fringe ben
> What is a responsibility center?
> Excel Corporation manufactures three products at its plant. The plant capacity is limited to 120,000 machine hours per year on a single-shift basis. Direct material and direct labor costs are variable. The following data are available for planning purpos
> Perform an Internet or electronic library search on “close underperforming departments,” “unprofitable products,” or a similar phrase to locate an example of a company that has closed unprofitable stores or dropped unprofitable products or services. Desc
> Merchant Company manufactures and sells three models of electronic printers. Ken Gail, president of the company, is considering dropping model JT484 from its product line because the company has experienced losses for this product during the past three q
> Hollenberry, Inc., is a successful mail-order catalog business with customers worldwide. The company’s headquarters is in a small town some distance from any major metropolitan area. Sales have grown steadily over the years, and the call center facilitie
> Beau’s Bistro has a reputation for providing good value for its menu prices. The desserts, developed by the pastry chef, are one of the distinctive features of the menu. The pastry chef has just given notice that he will relocate to another city in a mon
> Syd Young, the production manager at Fuchow Company, purchased a cutting machine for the company last year. Six months after the purchase of the cutting machine, Syd learned about a new cutting machine that is more reliable than the machine that he purch
> Genis Battery Company is considering accepting a special order for 50,000 batteries that it received from a discount retail store. The order specified a price of $4 per unit, which reflects a discount of $0.50 per unit relative to the companyâ€
> Anderson Department Stores is considering the replacement of the existing elevator system at its downtown store. A new system has been proposed that runs faster than the existing system, experiences few breakdowns, and as a result promises considerable s
> Wedmark Corporation’s Cupertino, California, plant manufactures chips used in personal computers. Its practical capacity is 2,000 chips per week, and fixed costs are $75,000 per week. The selling price is $500 per chip. Production this quarter is 1,600 c
> Dawson Company produces and sells 80,000 boxes of specialty foods each year. Each box contains the same assortment of food. The company has computed the following annual costs: Dawson normally charges $25 per box. A new distributor has offered to purcha
> What does control mean in a decentralized organization?
> Capilano Containers Company specializes in making high-quality customized containers to order. Its agreement with the labor union ensures employment for all its employees and a fixed payroll of $80,000 per month, including fringe benefits. This payroll m
> Last month, Capetini Capacitor Company sold capacitors to its distributors for $250 per capacitor. The sales level of 3,000 capacitors per month was less than the single-shift capacity of 4,400 capacitors at its plant located in San Diego. Variable produ
> Johnson Company and Smith Company are competing firms that offer limousine service from the Charlesburg airport. While Johnson pays most of its employees on a per-ride basis, Smith prefers to pay its employees fixed salaries. Information about the sellin
> Shannon O’Reilly is trying to decide whether to continue to take public transportation to work or to purchase a car. Before making her decision, she would like to compare the cost of using public transportation and the cost of driving a car. Required (a
> Classify each of the following as a variable or fixed cost with respect to a unit of production: a. Salaries of production supervisors. b. Steel used in automobile production. c. Wood used in furniture production. d. Salaries for factory custodial staff.
> Berry Company produces and sells 30,000 cases of fruit preserves each year. The following information reflects a breakdown of its costs: Berry marks up its prices 40% over full costs. It has surplus capacity to produce 15,000 more cases. A French superm
> Gilmark Company has 10,000 obsolete lamps carried in inventory at a cost of $12 each. They can be sold as they are for $4 each. They can be reworked, however, at a total cost of $55,000 and sold for $10 each. Required Determine whether it is worthwhile
> Florida Favorites Company produces toy alligators and toy dolphins. Fixed costs are $1,290,000 per year. Sales revenue and variable costs per unit are as follow: Required (a) Suppose the company currently sells 140,000 alligators per year and 60,000 dol
> A&Z Company sells products both domestically and internationally. Fixed costs totaled $5,000,000 last year. In an effort to increase its total sales volume, A&Z plans to spend an additional $1,280,000 in advertising next year. Expected average pr
> What is decentralization?
> Last year, Able Co. recorded sales revenues of $1,260,000, variable costs of $570,000, and fixed costs of $480,500. Required (a) At what sales dollar level will Able earn a before-tax target profit of $250,000? (b) At what sales dollar level will Able b
> Patterson Parkas Company’s sales revenue is $30 per unit, variable costs are $19.50 per unit, and fixed costs are $147,000. Required (a) Compute Patterson’s contribution margin per unit and contribution margin ratio. (b) Determine the number of units Pa
> Morton Medical Institute operates a 300-bed hospital and offers a number of specialized medical services. Morton’s hospital facility and equipment are leased on a long-term basis. The hospital charges $2,000 per patient day. On the basis of past cost dat
> Klear Camera Company is considering introducing a new video camera. Its selling price is projected to be $1,000 per unit. Variable manufacturing costs are estimated to be $500 per unit. Variable selling costs are 10% of sales dollars. The company expects
> Percy’s is a small hamburger shop catering mainly to students at a nearby university. It sells hamburgers and vegetarian burgers and is open for business from 11:00 A.M. until 11:00 P.M., Monday through Friday. The owner, Percy Luk, employs two cooks, on
> Classify each of the following as a variable or fixed cost with respect to a unit of product that is sold: a. Commissions paid to sales personnel. b. Advertising expenses. c. Salaries of staff processing orders. d. Salary of the chief executive officer.
> Boyd Wood Company makes a regular and a deluxe grade of wood floors. Regular grade is sold at $16 per square yard, and the deluxe grade is sold at $25 per square yard. The variable cost of making the regular grade is $10 per square yard. It costs an extr
