You are the advisor of a Junior Achievement group in a local high school. You need to help the group make a decision about fees that must be paid to sell gardening tools at the Home and Garden Show. The group sells a set of tools for $20. The manufacturing cost (all variable) is $6 per set. The Home and Garden Show coordinator allows the following three payment options for groups exhibiting and selling at the show: A. Pay a fixed booth fee of $5600. B. Pay a fee of $3800 plus 10 per cent of all revenue from tool sets sold at the show. C. Pay 15 per cent of all revenue from tool sets sold at the show. Required (a) Calculate the breakeven number of tool sets for each option. (b) Which payment plan has the highest degree of operating leverage? (c) Which payment plan has the lowest risk of loss for the organisation? Explain. (d) At what level of revenue should the group be indifferent to options A and B? (e) Which option should Junior Achievement choose, assuming sales are expected to be 1000 sets of tools? Explain.
> Shane’s Shovels produces small, custom earth-moving equipment for landscaping companies. Manufacturing overhead is allocated to work in process using an estimated overhead rate. During April, transactions for Shane’s S
> One Glass Brewery estimates the following activity for the coming year: At the end of the financial period the following information was collected: Required (a) What was the predetermined manufacturing overhead rate calculated at the beginning of t
> Outline the meaning of structural cost drivers.
> A college student, Brad Worth, plans to sell atomic alarm clocks with CD players over the internet and by mail order to help pay his expenses during the summer semester. He buys the clocks for $32 and sells them for $50. If payment by check accompanies t
> Play Time Toys is organised into two major divisions: marketing and production. The production division is further divided into three departments: puzzles, dolls and video games. Each production department has its own manager. The entityâ€
> Maryborough Manufacturing has projected sales in units for four months of operations as follows: The product sells for $18 per unit. Twenty-five per cent of the customers are expected to pay in the month of sale and take a 3 per cent discount; 70 per c
> The Zel Company operates at local flea markets. It has budgeted the following sales for the indicated months. Zel’s success in this specialty market is due in large part to the extension of credit terms and the budgeting techniques im
> Ken Martin, manager of Lonnie Car Repairers, has requested that you prepare a cash budget for the months of December and January. He has provided the following information to assist in this task. * Projected cash balance at the end of November is $30 000
> Organic Industries intends to start business on the first of January. Production plans for the first four months of operations are as follows: Each unit requires 2 kilograms of material. The entity would like to end each month with enough raw material
> Data for the Stove Division of Appliances Now, which produces and sells a complete line of kitchen stoves, are as follows. The budget, set at the beginning of the year, was based upon estimates of sales and costs. Administrative expenses include charge
> Bullen & Company makes and sells upmarket carry bags for laptop computers. John Crane, controller, is responsible for preparing Bullen’s master budget and has assembled the following data for next year. The direct labour rate includ
> Seer Manufacturing has projected sales of its product for the next six months as follows: The product sells for $100, variable expenses are $70 per unit, and fixed expenses are $1500 per month. The finished product requires 3 units of raw material and
> Suppose a friend asks you to help her prepare a budget for the next semester. Required (a) Assuming you followed a process similar to that presented in this chapter, which budgets would you help her prepare? Explain your choices. (b) Create a list of in
> In your own words, explain the path to higher-quality decisions.
> The Organic Corn Company processes and distributes corn packed in 500-gram plastic bags that are sold to supermarkets for 50 cents each in boxes of 100 bags. The most recent income statement and key financial metrics of the Organic Corn Company are provi
> Continuing from exercise 5.23, the financial controller of Data Processors recently attended an accounting conference, which discussed the benefits of adopting kaizen budgeting within an activity-based budget. After meeting with operational managers at D
> Data Processors provides credit card services for the banking industry. It is preparing its budget for 2020, and, as it has been using activity-based costing, it intends to develop an activity-based budget for 2020. The table below provides the actual co
> The manager of the HR department of Nancy Accountants has been asked to prepare her annual budget on a zero-basis. Required Outline why this request for a zero-based budget may have been made.
> Discuss how a hospital could use activity-based budgeting to assist with planning for the coming year.
> Trinity Records is a company that finds and signs a new artist, develops a marketing strategy, records the music, and distributes the music to retailers. Data for the CD division of Trinity Records, which distributes CDs to large retailers, are shown bel
> Ange Pala, the chief financial officer of a national tourist company, has become increasingly dissatisfied with the current budget process in the organisation. Much of her dissatisfaction relates to the amount of time and resources consumed in the budget
> At a recent management meeting looking at the entity’s achievements against its strategic objectives, an operational manager was heard making the following comment: ‘I look after operations on a day-to-day basis. I have the operational budget for the com
> Stevan Donald, the marketing manager for Organic Brewing Company, has projected a 20 per cent increase in sales of hop beers next year. Required Comment on how this increase in sales will impact on profit, assets and cash flow.
> Jordy is the CEO of a scaffolding construction company. He is about to begin preparing the budget for the coming financial year for the entire organisation. Last year he was disappointed with the animosity he received from his divisional managers. They w
> What is a cost object?
> Janna Processing is a single-product entity, and provides the summary data shown relating to its product for 2016. Required (a)Calculate the breakeven in units and sales dollars for 2016. (b) Calculate the profit earned in 2016. (c) Janna Processing is
> Laraby Company produces a single product. It sold 25 000 units last year with the following results. In an attempt to improve its product, Laraby’s managers are considering replacing a component part that costs $2.50 with
> Madden Company projected its income before taxes for next year as shown here. Madden is subject to a 40 per cent income tax rate. Required (a) What is Madden’s breakeven point in units sold for the next year? (b) If Madden wants $4.5
> Data for the most recent three months of operations for the RainBeau Salon are as follows. A cost-of-living salary increase occurred at the beginning of May. Required (a) What is the total cost function for RainBeau Salon? (b) If the average fee per a
> The Martell Company has recently established operations in a competitive market. Management has been aggressive in its attempt to establish a market share. The price of the product was set at $5 per unit, well below that of the company’s major competitor
> Annalise Industries has provided the following information with respect to its current year’s activities: Required (a) Calculate the break-even point in total units and units per product based on the above data. (b) Calculate the pro
> Chloe Enterprises operates a single-product entity. Data relating to the product for 2016 were as follows: Required a. Calculate the break-even units for 2016. b. Calculate the profit achieved in 2016. c. Changes in marketing strategy are planned for 2
> Information for Melong Industries is provided below. Required (a) Calculate the number of units that need to be sold in 2016 to reach the after-tax profit target. (b) If the sales units in 2016 should be 25 per cent less than required to meet the afte
> Pamcar Industries sell IT equipment, specialising in printers and faxes. The following statement reflects the contribution margin of each activity, and overall profit levels: Required (a) Calculate the contribution margin ratios for each of the two area
> Ryans Music provides individual music lessons in the homes of clients. The following data is provided with respect to the last 12 months of activity ending 30 June 2016: Each unit is equal to one half-hour lesson. Required (a) Assuming selling prices
> Explain relevant information in a decision-making context.
> The Internet provides many resources to help small business owners successfully manage their businesses. These resources include information about common techniques used for planning and managing operations. Required (a) Why are small business owners of
> (a) The average cost per unit was $234 at a volume of 1200 units and $205 at a volume of 1400 units. The profit was $24 000 at the lower volume. Estimate the variable cost per unit. (b) Sparkle Car Wash Supplier sells a hose washer for $0.25 that it buys
> (a) Create a CVP graph using the information in exercise 4.16, part (a). Explain the information in the graph. (b) Create a CVP graph using the information in exercise 4.16, part (b). Explain the information in the graph.
> (a) The variable cost per gift basket is $2, fixed costs are $5000 per month, and the selling price of a basket is $7. How many baskets must be produced and sold in a month to earn a pre-tax profit of $1000? (b) The Community Clinic (a not-for-profit med
> Find the missing figure for each of the following independent cases:
> Find the missing figures for each of the following independent cases.
> SmallScale Publishing are considering offering eBooks. Market analysis has been undertaken and the breakdown of sales together with financial information follows. Due to the change in business model, fixed costs are expected to increase to $1 
> SmallScale Publishing has now been operating for a couple of years. Sales have been growing and management have been excited about business performance. Currently the business sells two very popular books that are gaining international recognition; &acir
> SmallScale Publishing has just commenced business and will sell only one title, “New to Business”. Market analysis has indicated that sales for the next 6 months should be 5 000 copies. The accountant has provided information that shows variable costs ar
> Vines and Daughter manufactures and sells swimsuits for $40 each. The estimated income statement for 2017 is as follows: Required (a) Calculate the contribution margin per swimsuit and the number of swimsuits that must be sold to break even. (b) What i
> What types of information in addition to cost accounting are needed for management decisions?
> Pike Street Fudge makes and sells fudge in a variety of flavours in a shop located in the local public market. Data for a recent week are as follows: All employees work standard shifts, no matter how much fudge is produced or sold. Required (a) Calcul
> The following budget data apply to Newberry’s Nutrition: Direct labour workers are paid hourly wages and go home when there is no work. The marketing and administration costs include $50 000 that varies proportionately wit
> All-Day Lolly Company is a wholesale distributor of confectionery. The entity services grocery and convenience stores in the metropolitan area. Small but steady growth in sales has been achieved by the All-Day Lolly Company over the past few years, but c
> The management of Kayla Industries has been aggressive in trying to build market share. The price was set at $5 per unit, well below the existing market price. Variable costs were $4.50 per unit, and annual fixed costs in the first year were $600 000. To
> For each of the following activities undertaken to bake pastries and cakes, identify a suitable cost driver to allocate costs. (a) Mixing ingredients (b) Baking pastries and cakes (c) Decorating cakes (d) Packing pastries and cakes on trays (e) Sales (f)
> Your sister turned her hobby into a small business called Glazed Over. She is a potter and manufactures and sells bowls that can be used for decoration or for birdbaths. She has one employee who works 40 hours a week no matter how many bowls are made. Sh
> Frida’s Tax Practice has two departments, tax and audit. The tax department has two product lines, business returns and individual returns. A list of costs and three cost objects from Frida’s Tax Practice follow. Requ
> Kovacik manufactures two types of piggy banks in two different departments: a kangaroo-shaped piggy bank and a platypus-shaped piggy bank. The plant is highly automated and contains only two other departments: (1) engineering and design, and (2) informat
> Direct, step-down, and reciprocal methods; assign costs to departments. Cost information for Lake County Library is as follows. In addition to directly traceable costs, the library incurred $24,000 for a building lease. Required a. Allocate to departm
> List three types of internal reports and explain how each is used. List three types of external reports and explain how each is used.
> Software Plus Ltd produces flight and driving simulations and games for personal computers. The company's president has a complaint about the accounting for support department costs. He points to the following table describing the use of various support
> Paul’s Valley Protection Service has three support departments (S1, S2 and S3) and three operating departments (P1, P2, and P3). The direct costs of each department are $30 000 for S1, $20 000 for S2, and $40&Aci
> A department within a processing operation has some finished units physically on hand. Should they be counted as completed units or as ending inventory in the department? Explain.
> Suppose the percent completion of ending WIP is overestimated at the end of year 1. How does this measurement error affect the process costing results in year 1 and year 2?
> Although process costing appears to use precise measurements, it requires several estimates. Discuss where judgement is needed in collecting information for process costing.
> In a continuous processing situation (such as an oil refinery), the beginning and ending WIP inventories are frequently the same. How does this simplify determination of equivalent units completed?
> ‘We treat spoiled units as fully completed regardless of when the spoiled units are detected. This method makes unit costing much simpler.’ What is wrong with this approach?
> The Brown and Brinkley Brokerage firm is organised into two major sales divisions: institutional clients and retail clients. The firm also has two support departments: research and administration. The research department’s costs are all
> Under what conditions could a process complete more units during the period than it started?
> Under what conditions will weighted average and FIFO process costing consistently produce similar equivalent unit costs?
> Explain the difference between the weighted average and FIFO methods for process costing. Explain why an entity might choose one method over the other.
> List three factors that managers might consider in deciding whether to expend resources to reduce spoilage.
> List two factors that could affect managers’ choices for the number of times and points in processing to inspect units.
> An entity has one machine through which is drawn a standard type of wire to make nails. With minor adjustments, different sized nails are produced with different sized wire. Would you recommend that the entity employ job or process costing methods?
> When units are transferred from one department to another, how are normal spoilage costs recorded?
> In processes involving pipeline operations or assembly line operations, if the pipeline or assembly line is always full, then beginning and ending WIP inventories are always 50 per cent complete with regard to conversion costs. Explain.
> Describe the differences between mass production and custom production of goods and services. Explain how these differences influence the costing method.
> Exquisite Furniture designs and manufactures custom furniture from exotic materials. Explain why spoilage is sometimes recorded as a cost for a specific job and other times as overhead for this entity.
> Mercy Hospital uses a costing system for all patients who have surgery. The hospital uses a budgeted overhead rate for allocating overhead to patient stays. In March, the operating room had a budgeted allocation base of 1000 operating hours. The budgeted
> Part of a contract between a union and a company guarantees that all manufacturing employees earn five hours of overtime each week. In the company’s job costing system, should overtime be treated as a direct or indirect cost?
> Within the area where you live, work, or attend school, name three businesses that would likely use job costing.
> Will underapplied and overapplied overhead arise under both actual and normal costing? Explain your answer.
> Compare actual and normal cost systems. Discuss the ways in which they are similar and the ways they differ.
> List several different sources of information used in job costing, and explain why this information is required.
> List three examples of job cost records you would receive if you were building a new home.
> Describe an inventoriable product cost.
> To what extent do the costs used to value inventories for external financial reporting support internal management decisions on issues such as whether to accept a special, one-off order or whether to outsource part or all of the production process?
> List the most common allocation bases used in job costing and explain under what circumstances each base would be most appropriate.
> Explain how manufacturing overhead cost pools and cost allocation are related.
> Devon Ltd allocates support department costs using the direct method and estimated costs. The support department costs are budgeted at $88Â 000 for department A, $63Â 000 for department B, and $40Â 000 for department C. T
> Describe the procedures used in job costing.
> What are some of the challenges that organisations face when allocating budget authority and responsibility?
> What adjustments should be made to static budgets before they are used for management performance evaluation?
> What methods do organisations use to minimise budgetary slack?
> What are the objectives of participative budgeting?
> How can budgeting assist an entity to efficiently use its human resources?
> Explain how the following budgets relate to each other: the revenue budget, the production budget, and the direct materials budget.
> How are the master budget and flexible budget related?
> Describe the types of information that managers use to develop budgets.
> Whilst preparing the cash budget for next year, the accountant at Mines Ltd. identified a $20 million shortfall. This shortfall was due to a capital expenditure item of the same value. The CEO has identified that the purchase must be made to ensure compe
> A local hospital is required to account for the total cost of patient care, including support costs. Patients are assigned all direct costs. Support costs are $240 000 per month plus $90 per patient day. This 120-bed hospital averages 80 per cent occupan
> Blowervacs produces and sells leaf blowers. Production levels are high in the summer and beginning of autumn and then taper off through the winter. Sales are high in autumn and early winter and then taper off in the spring. Explain why preparing a cash b
> How are budgets related to organisational strategies?
