What is target costing? How does activity-based management play a role in target costing?
> Capital Investments Corporation (CIC) requested a sizable loan from First Federal Bank to acquire a large piece of land for future expansion. CIC reported current assets of $1,900,000 (including $430,000 in cash) and current liabilities of $1,075,000. Fi
> Describe the three methods used to estimate cost behavior. What are the strengths and weaknesses of each method? Will these methods always yield exactly the same results?
> As a team, select an industry to analyze. Using your web browser, each team member should access the annual report or 10-K for one publicly traded company in the industry, with each member selecting a different company. Required: 1. On an individual basi
> Why is a scattergraph useful?
> Lumber Liquidators, Inc., competes with Lowe’s in product lines such as hardwood flooring, moldings, and noise-reducing underlay. The two companies reported the following financial results in fiscal 2016: Required: 1. Calculate the diff
> The formula for estimating cost behavior is y = a + bx. Explain what each term represents.
> Compute the following three ratios for The Home Depot’s year ended January 29, 2017: (i) fixed asset turnover, (ii) days to sell, and (iii) debt-to-assets. To calculate the ratios, use the Fiscal 2016 financial statements of The Home Depot in Appendix A
> What is the relevant range and why is it important?
> Change the amounts for selected balance sheet accounts in the spreadsheets created for either S12–7 or S12–8 to calculate the net cash flows from operating activities if, just before the current year-end, the company’s management took the actions listed
> Explain the difference between discretionary and common fixed costs. Give an example of each.
> A number of manufacturers recently have moved to a JIT inventory system. JIT systems have a number of potential benefits but also can have negative consequences for a company whose suppliers are not dependable. Required: 1. Discuss the reasons a company
> Refer to the information presented in S12–7. Required: Complete the same requirements, except use the direct method only. Data from S12-7: You’ve recently been hired by B2B Consultants to provide financial advisory services to small business managers. B
> Explain what happens to the following when activity level decreases: a. Total fixed cost. b. Total variable cost. c. Total mixed cost. Explain what happens to the following when activity level decreases: a. Total fixed cost. b. Total variable cost. c. T
> You’ve recently been hired by B2B Consultants to provide financial advisory services to small business managers. B2B’s clients often need advice on how to improve their operating cash flows and, given your accounting background, you’re frequently called
> How does profit change under full absorption costing versus variable costing due to an increase in finished goods inventory? Due to a decrease in finished goods inventory?
> QuickServe, a chain of convenience stores, was experiencing some serious cash flow difficulties because of rapid growth. The company did not generate sufficient cash from operating activities to finance its new stores, and creditors were not willing to l
> When will variable costing show the same profit as full absorption costing?
> This case is available online in the Connect eBook. To complete this case, you will evaluate two alternatives for increasing a sports club’s reported operating cash flows
> What is the critical item that is treated differently in full absorption versus variable costing? Explain how each method treats it.
> Explain the difference between absorption costing and variable costing. Why do internal users need variable costing information?
> This case is based on a cash flow reporting fraud at Enron. The case is available online in the Connect eBook. To complete this case, you will evaluate the statement of cash flow effects of misclassifying a loan as a s
> Corey Hart has just opened an interior design business. Corey is targeting customers in established neighborhoods who want to restore and update their homes. Corey Hart’s staff of interior designers performs the following activities on
> When activity level increases, explain what happens to: a. Contribution margin per unit. b. Contribution margin ratio. c. Total contribution margin. d. Total fixed cost. e. Profit.
> As a team, select an industry to analyze. Using your web browser, each team member should access the annual report or 10-K for one publicly traded company in the industry, with each member selecting a different company. Required: 1. On an individual basi
> Explain how to calculate total contribution margin, contribution margin per unit, and contribution margin ratio. What is the meaning of each?
> Go to the Home Depot investor relations website (http://ir.homedepot.com) and download the 2016 annual report. Note: Fiscal 2016 for The Home Depot runs from February 1, 2016, to January 29, 2017. Required: 1. Which of the two basic reporting approaches
> Define each of the following terms: variable cost, fixed cost, step cost, and mixed cost. Give an example of each.
> Go to the Home Depot investor relations website (http://ir.homedepot.com) and download the 2016 annual report. Note: Fiscal 2016 for The Home Depot runs from February 1, 2016, to January 29, 2017. Required: 1. Which of the two basic reporting approaches
> Why must costs be classified into different categories for ABC? What is the basis for these categories?
> In this activity, you will be evaluating whether to purchase a 2018 Chevrolet Bolt EV (electric vehicle) LT or a 2018 Ford Fusion S Hybrid. Assume you plan on keeping your car for 10 years and at the end of 10 years, the resale value for the Bolt and Fus
> How do the ABC categories (hierarchy) in a service company differ from those in a manufacturing company?
> In the last several chapters, you have learned about many aspects of organizational structure, budgeting, and performance evaluation. None of these company characteristics operates in isolation. They all interrelate to form an organizationâ€&#
> Rosehut Olive Oil Company makes two grades of olive oil: standard and extra virgin. Rosehut has identified two activity cost pools, the related costs per pool, the cost driver for each pool, and the expected usage for each pool. Additional information ab
> Identify the categories (hierarchy) of activities in an activity-based costing system for a manufacturing company.
> This chapter discussed the use of the balanced scorecard for evaluating managerial and organizational performance. Many companies have adopted this performance measurement in recent years. Required: Research or visit a company that has implemented the ba
> Describe the two stages of activity-based costing.
> What types of business might use activity-based costing?
> To be able to use a standard costing system, a company must develop standards that will serve as the guide for the amount of a resource (e.g., direct materials, direct labor) that should be consumed in the production of a unit. One way to accomplish this
> How does activity-based costing differ from traditional costing systems?
> Suppose Acore Pharmaceuticals has four sales representatives assigned to the state of Arizona. These sales reps are responsible for visiting physicians in their assigned area, introducing the company’s current or upcoming products, prov
> Go to www.YouTube.com and search for How It’s Made, a television show produced by the Discovery Channel that shows how thousands of products and services are created. Find any product that interests you. Assume the company that makes this product uses a
> What are the potential negative consequences of a traditional volume-based costing system?
> Numerous personal financial planning or budgeting tools are available on the Internet, many of them free. Choose at least two different online budgeting sites and input information for a typical person of your age. (Note: You may either create a fictitio
> The University of Dental Health (UDH) is a state-run university focusing on the education and training of dentists, dental assistants, dental hygienists, and other dental professionals. The university provides both traditional undergraduate courses to 12
> Briefly discuss the advantages and disadvantages of activity-based costing and activity-based management.
> Explain the statement that traditional costing systems use volume-based allocation measures.
> Budgets can be used in almost any type of organization including large corporations, small businesses, government organizations, universities, churches, and student clubs. Required: Choose any local organization and interview two people who are involved
> Explain the concept of a just-in-time inventory system. What is its primary benefit?
> Outsourcing, particularly to overseas companies, is a hot-button topic that has garnered much attention in the academic, national, and local business media. Required: 1. Conduct an Internet search for articles about outsourcing. What are some of the majo
> In January 2018, Walmart announced it would raise its starting wage from $9 to $11 and it would be firing 3,500 store co-managers, a salaried person who acts as a lieutenant underneath each store manager. Required: 1. Explain how the Walmart decision imp
> What are the four types of quality costs that comprise total quality management (TQM)?
> Due to budget cutbacks, colleges and universities across the country are struggling to cut expenses. Frequent casualties of these money-saving decisions are organized sports teams. Suppose that a fictional college, West Tennessee State (WTS), has identif
> What is a non-value-added activity? Considering the construction company in question 10, give an example of a value-added and a non-value-added activity.
> Julio produces two types of calculators, standard and deluxe. The company is currently using a traditional costing system with machine hours as the cost driver but is considering a move to activity-based costing. In preparing for the possible switch, Jul
> For most products and services, managers know that raising prices will reduce demand, while lowering prices will increase demand. What managers don’t always know is how much demand will change in response to a change in price. In economics, the sensitivi
> What is benchmarking? How does it benefit a company?
> Pink Jeep Tours offers off-road tours to individuals and groups visiting the Southwestern U.S. hotspots of Sedona, Arizona, and Las Vegas, Nevada. Take a tour of the company’s website at www.pinkjeep.com. Suppose you are the manager for the Pink Jeep off
> How can ABC be adapted to include sustainability-related metrics? Give an example of an environmental performance measure that could be tracked by an ABC system.
> Suppose you have decided to start a small business selling snacks from vending machines. You have secured a location for one candy vending machine in a local bookstore. Rental for the space will cost $200 per month. Vending machines can be purchased at w
> Define activity-based management and explain how it is related to activity-based costing.
> Companies must make many decisions regarding day-to-day business activities. For each of the following decision-making situations, discuss its impact on a company’s contribution margin, break-even point, margin of safety, and degree of operating leverage
> Explain the difference between the activity-rate method and the activity-proportion method of ABC.
> Go to www.YouTube.com and search for How It’s Made, a television show produced by the Discovery Channel that shows how thousands of products and services are created. Find a product that you have purchased in the last year, such as a toothbrush, ball poi
> Consider a company that offers drivers’ education and defensive driving courses. Give an example of each of the Consider a company that offers drivers’ education and defensive driving courses. Give an example of each of the following activities: customer
> Refer to E4–12. 1. Calculate the overhead assigned to the leather case line using the traditional costing system based on direct labor hours. 2. Calculate the overhead assigned to the leather case line using ABC. (Round activity rates o
> Consider a construction company that builds semicustom homes. Give an example of each of the following activities: facility level, product level, batch level, and unit level.
> Ink Spot Inc. is a new business located in upstate New York. It prints promotional flyers for local businesses and distributes them at public places or area events. The flyers are either placed on the windshield of cars in parking lots or distributed by
> What is the difference between a volume-based cost driver and a non-volume-based cost driver?
> Go to www.YouTube.com and search for How It’s Made, a television show produced by the Discovery Channel that shows how thousands of products and services are created. Find a product that interests you and answer the following questions: ∙ What product di
> How is the number of physical units reconciled to prepare a production report?
> Sustainability accounting should include measures of economic, environmental and social impact. Consider the following metrics which were obtained from Toyota’s 2017 corporate social responsibility (CSR) report and Sustainability websit
> What two methods can be used to prepare a process costing production report? What is the key difference between them?
> Restaurants such as Subway generally offer a limited number of food categories (subs, salads, wraps, etc.) that are similarly priced. On the other hand, a restaurant such as Applebee’s will have a broader menu in which each entrée is individually priced.
> What is the difference between conversion cost and manufacturing overhead?
> Assume you recently accepted a job with a company that designs and builds helicopters for commercial and military use. The company has numerous contracts with the U.S. military that require the use of cost-plus pricing. In other words, the contracted pri
> Bunker makes two types of briefcases, fabric and leather. The company is currently using a traditional costing system with labor hours as the cost driver but is considering switching to an activity-based costing system. In preparation for the possible sw
> Review recent issues of business publications (e.g., Bloomberg Businessweek, The Wall Street Journal) for information about companies that have implemented activity-based costing. Choose one company to research in detail. Required: Answer the following q
> Why is a production report important to a company?
> Go to www.YouTube.com and search for How It’s Made, a television show produced by the Discovery Channel that shows how thousands of products and services are created. Search for a product that provides a form of transportation, such as an automobile, ATV
> What are the five steps in preparing a weighted-average production report?
> Overnight package delivery is a multimillion-dollar industry that has grown steadily since it began. The four largest package carriers are the U.S. Postal Service (USPS), Federal Express (FedEx), United Parcel Service (UPS), and DHL. Suppose you have a d
> Explain the flow of costs in a process costing system, including the type of accounts used and the respective financial statement on which the cost appears.
> Consider the many different products a person might use or consume in a typical day from toothpaste to a slice of pizza. Required: Choose three items that you use regularly and whose manufacturer you believe is likely to use process costing. Investigate
> Explain the differences between Raw Materials Inventory, Work in Process Inventory, and Finished Goods Inventory accounts.
> Go to www.YouTube.com and search for How It’s Made, a television show produced by the Discovery Channel that shows how thousands of products and services are created. Find a product or service for which process costing would be appropriate, such as tooth
> Briefly explain the underlying logic of a process costing system and its assignment of costs to products.
> Refer to your solutions obtained in E4–9 and E4–10. Required: 1. Discuss the costs and benefits to Schell of moving from a traditional costing system to an ABC system. 2. Compare the results of each potential tradition
> Sampson Company uses a job order cost system with overhead applied to products based on direct labor hours. Based on previous history, the company estimated its total overhead for the coming year (2018) to be $720,000 and its total direct labor hours to
> What triggers the cost of manufacturing to be transferred from the balance sheet to the income statement?
> Assume you are going to become an entrepreneur and start your own business. Think about your talents and interests and come up with an idea for a small business venture that provides a unique product or service to local customers. You can select any busi
> What does a credit to the Work in Process Inventory account represent?
> When are the weighted-average and FIFO methods likely to arrive at different estimates of product cost?
> Go to www.YouTube.com and search for How It’s Made, a television show produced by the Discovery Channel that shows how thousands of products and services are created. Find a product or service for which job order costing would be appropriate, such as an
> What are the steps in preparing a FIFO production report? Are they different from the steps to prepare a weighted-average production report?
> The following example is adapted from a real-life case study developed by ENGIE Insight, a technology-enabled energy consulting company that helps companies identify opportunities to reduce energy consumption/spending and manage its energy resources.
> Is the weighted-average method or FIFO method usually more accurate? Why?
> How do the weighted-average and the FIFO methods treat beginning inventory?
> Suppose that Schell has conducted further research into its overhead and potential cost drivers. As a result, the company has compiled the following detailed information, breaking total overhead into three cost pools: Required: 1. Calculate the activity
> How can a unit be 100 percent complete with respect to materials but only partially complete in terms of conversion effort?
> Why must a company calculate equivalent units when using process costing?
