1. Calculate total prime costs and total conversion costs. 2. Calculate total inventoriable costs and period costs. 3. Design costs and R&D costs are not considered product costs for financial statement purposes. When might some of these costs be regarded as product costs? Give an example. 4. Suppose that both the direct materials used and the depreciation on plant and equipment are related to the manufacture of 2 million units of product. Determine the unit cost for the direct materials assigned to those units and the unit cost for depreciation on plant and equipment. Assume that yearly depreciation is computed on a straight-line basis. 5. Assume that the implied cost-behavior patterns in requirement 4 persist. That is, direct material costs behave as a variable cost and depreciation on plant and equipment behaves as a fixed cost. Repeat the computations in requirement 4, assuming that the costs are being predicted for the manufacture of 3million units of product. Determine the effect on total costs. 6. Assume that depreciation on the equipment (but not the plant) is computed based on the number of units produced because the equipment deteriorates with units produced. The depreciation rate on equipment is $1 per unit. Calculate the depreciation on equipment assuming (a) 2 million units of product are produced and (b) 3 million units of product are produced.
> Unified Chemical Company has a joint production process that converts Zeta into two chemicals: Alpha and Beta. The company purchases Zeta for $12 per pound and incurs a cost of $30 per pound to process it into Alpha and Beta. For every 10 pounds of Zeta,
> Barney Briggs owns a restaurant franchise that is part of a chain of “southern homestyle” restaurants. One of the chain’s popular breakfast items is biscuits and gravy. Central Warehouse makes and freezes the biscuit dough, which is then sold to the fran
> Easecom Company is a manufacturer of videoconferencing products. Regular units are manufactured to meet marketing projections, and specialized units are made after an order is received. Maintaining the videoconferencing equipment is an important area of
> The Scarborough Corporation manufactures and sells two products: Thingone and Thingtwo. In July 2011, Scarborough’s budget department gathered the following data to prepare budgets for 2012: The following direct materials are used in
> DryPool T-Shirt Factory manufactures plain white and solid colored T-shirts. Inputs include the following: Additionally, the colored T-shirts require 3 ounces of dye per shirt at a cost of $0.20 per ounce. The shirts sell for $15 each for white and $20
> Logo Specialties manufactures, among other things, woolen blankets for the athletic teams of the two local high schools. The company sews the blankets from fabric and sews on a logo patch purchased from the licensed logo store site. The teams are as foll
> Applewood Electronics, a division of Elgin Corporation, manufactures two large-screen television models: the Monarch, which has been produced since 2006 and sells for $900, and the Regal, a newer model introduced in early 2009 that sells for $1,140. Base
> The Tracy Corporation has a machining facility specializing in jobs for the aircraft-components market. Tracy’s previous simple job-costing system had two direct-cost categories (direct materials and direct manufacturing labor) and a si
> Nivag’s Netballs is a manufacturer of high quality basketballs and volleyballs. Setup costs are driven by the number of batches. Equipment and maintenance costs increase with the number of machine-hours, and lease rent is paid per squar
> Uppervale Health Center runs two programs: drug addict rehabilitation and aftercare (counseling and support of patients after release from a mental hospital). The center’s budget for 2010 follows: Muriel Clayton, the director of the c
> Pumpkin Bags (PB) is a designer of high quality backpacks and purses. Each design is made in small batches. Each spring, PB comes out with new designs for the backpack and for the purse. The company uses these designs for a year, and then moves on to the
> Pacific Décor, Inc., designs, manufactures, and sells contemporary wood furniture. Ling Li is a furniture designer for Pacific. Li has spent much of the past month working on the design of a high-end dining room table. The design has been we
> Pharmacare, Inc., a distributor of special pharmaceutical products, operates at capacity and has three main market segments: a. General supermarket chains b. Drugstore chains c. Mom-and-Pop single-store pharmacies Rick Flair, the new controller of Pharma
> Annie Warbucks runs a dance studio with childcare and adult fitness classes. Annie’s budget for the upcoming year is as follows: Other budget information follows: Required: 1. Determine which costs are direct costs and which costs a
> Roxbury’s Radiology Center (RRC) performs X-rays, ultrasounds, CT scans, and MRIs. RRC has developed a reputation as a top Radiology Center in the state. RRC has achieved this status because it constantly reexamines its processes and pr
> Allen’s Aero Toys makes two models of toy airplanes, fighter jets, and cargo planes. The fighter jets are more detailed and require smaller batch sizes. The controller has asked you to compare plant-wide, department, and activity-based
> Wigan has two classifications of professional staff: partners and associates. Hanley asks his assistant to examine the relative use of partners and associates on the recent Widnes Coal and St. Helen’s jobs. The Widnes job used 24 partne
> Hanley asks his assistant to collect details on those costs included in the $21,000 indirect-cost pool that can be traced to each individual job. After analysis, Wigan is able to reclassify $14,000 of the $21,000 as direct costs: Hanley decides to calc
> Kingston Company manufactures modular homes. The company has two main products that it sells commercially: a 1,000 square foot, one-bedroom model and a 1,500 square foot, two-bedroom model. The company recently began providing emergency housing (huts) to
> Tamden, Inc., prints custom marketing materials. The business was started January 1, 2010. The company uses a normal-costing system. It has two direct cost pools, materials and labor and one indirect cost pool, overhead. Overhead is charged to printing j
> Brady Company uses normal costing in its job-costing system. The company produces custom bikes for toddlers. The beginning balances (December 1) and ending balances (as of December 30) in their inventory accounts are as follows: Additional information
> Needham Company uses normal costing in its job-costing system. Partially completed T-accounts and additional information for Needham for 2011 are as follows: Additional information follows: a. Direct manufacturing labor wage rate was $15 per hour. b. M
> Parson Container Corporation is considering implementing a JIT production system. The new system would reduce current average inventory levels of $2,000,000 by 75%, but would require a much greater dependency on the company’s core suppliers for on-time d
> New Rise, Inc., produces porcelain figurines. The production is semi-automated where the figurine is molded almost entirely by operator-less machines and then individually hand-painted. The overhead in the molding department is allocated based on machine
> Gibson Manufacturing uses normal costing for its job-costing system, which has two direct-cost categories (direct materials and direct manufacturing labor) and one indirect-cost category (manufacturing overhead). The following information is obtained for
> The Zaf Radiator Company uses a normal-costing system with a single manufacturing overhead cost pool and machine-hours as the cost-allocation base. The following data are for 2011: Machine-hours data and the ending balances (before proration of under-
> Keating has just completed a review of its job-costing system. This review included a detailed analysis of how past jobs used the firm’s resources and interviews with personnel about what factors drive the level of indirect costs. Manag
> Keating & Associates is a law firm specializing in labor relations and employee-related work. It employs 25 professionals (5 partners and 20 associates) who work directly with its clients. The average budgeted total compensation per professional for 2011
> The Fasano Company uses a job-costing system at its Dover, Delaware, plant. The plant has a machining department and a finishing department. Fasano uses normal costing with two direct-cost categories (direct materials and direct manufacturing labor) and
> Agro Engine Company manufactures and sells diesel engines for use in small farming equipment. For its 2012 budget, Agro Engine Company estimates the following: Selling price …………………………………………..$ 3,000 Variable cost per engine ……………………………..$ 500 Annual fi
> PC Planet has just opened its doors. The new retail store sells refurbished computers at a significant discount from market prices. The computers cost PC Planet $100 to purchase and require 10 hours of labor at $15 per hour. Additional variable costs, in
> Stylewise Printing Company currently leases its only copy machine for $1,000 a month. The company is considering replacing this leasing agreement with a new contract that is entirely commission based. Under the new agreement Stylewise would pay a commiss
> Refer to requirement 3 of Problem 3-38. In this problem, assume the role of the owner of WalkRite. Required: 1. Calculate the number of units sold at which the owner of WalkRite would be indifferent between the original salary-plus-commissions plan for
> Exclusive Resorts (ER) operates a five-star hotel with a championship golf course. ER has a decentralized management structure, with three divisions: Lodging (rooms, conference facilities) Food (restaurants and in-room service) Recreation (golf course, t
> The WalkRite Shoe Company operates a chain of shoe stores that sell 10different styles of inexpensive men’s shoes with identical unit costs and selling prices. A unit is defined as a pair of shoes. Each store has a store manager who is
> The Brown Shoe Company produces its famous shoe, the Divine Loafer that sells for $60 per pair. Operating income for 2011 is as follows: Sales revenue ($60 per pair) ……………………$300,000 Variable cost ($25 per pair) …………………..……125,000 Contribution margin ……
> R. A. Ro and Company, a manufacturer of quality handmade walnut bowls, has had a steady growth in sales for the past five years. However, increased competition has led Mr. Ro, the president, to believe that an aggressive marketing campaign will be necess
> Technology Solutions sells a ready-to-use software product for small businesses. The current selling price is $300. Projected operating income for 2011 is $490,000 based on a sales volume of 10,000 units. Variable costs of producing the software are $120
> Snow Leopard Daycare provides daycare for children Mondays through Fridays. Its monthly variable costs per child are as follows: Lunch and snacks ……………………………………………………………$150 Educational supplies …………………………………………………………..60 Other supplies (paper products,
> Pure Water Products produces two types of water filters. One attaches to the faucet and cleans all water that passes through the faucet. The other is a pitcher-cum-filter that only purifies water meant for drinking. The unit that attaches to the faucet i
> Lifetime Escapes generates average revenue of $5,000 per person on its five-day package tours to wildlife parks in Kenya. The variable costs per person are as follows: Annual fixed costs total $520,000. Required: 1. Calculate the number of package tou
> Marston Corporation manufactures pharmaceutical products that are sold through a network of external sales agents. The agents are paid a commission of 18% of revenues. Marston is considering replacing the sales agents with its own salespeople, who would
> The following data are for Montgomery Retail Outlet Stores. The account balances (in thousands) are for 2011. Required: 1. Compute(a)the cost of goods purchased and (b)the cost of goods sold. 2. Prepare the income statement for 2011. $ 24,000 Marke
> Scott Hewitt, the new Plant Manager of Old World Manufacturing Plant Number 7, has just reviewed a draft of his year-end financial statements. Hewitt receives a year-end bonus of 10% of the plant’s operating income before tax. The year-end income stateme
> Garrett Manufacturing sold 410,000 units of its product for $68 per unit in 2011. Variable cost per unit is $60 and total fixed costs are $1,640,000. Required: 1. Calculate (a) contribution margin and (b) operating income. 2. Garrett’s current manufactu
> What criteria might be used to guide cost-allocation decisions? Which are the dominant criteria?
> Denver Office Equipment manufactures and sells metal shelving. It began operations on January 1, 2011. Costs incurred for 2011 are as follows (V stands for variable; F stands for fixed): Variable manufacturing costs are variable with respect to units p
> Ron Williams recently took over as the controller of Johnson Brothers Manufacturing. Last month, the previous controller left the company with little notice and left the accounting records in disarray. Ron needs the ending inventory balances to report fi
> Jim Anderson works in the production department of Midwest Steelworks as a machine operator. Jim, a long-time employee of Midwest, is paid on an hourly basis at a rate of $20 per hour. Jim works five 8-hour shifts per week Monday–Friday
> The following items (in millions) pertain to Calendar Corporation: Calendar’s manufacturing costing system uses a three-part classification of direct materials, direct manufacturing labor, and manufacturing overhead costs. Required:
> Required: 1. How would the answer to Problem 2-34 be modified if you were asked for a schedule of cost of goods manufactured and sold instead of a schedule of cost of goods manufactured? Be specific. 2. Would the sales manager’s salary (included in marke
> The Howell Corporation has the following account balances (in millions): Required: Prepare an income statement and a supporting schedule of cost of goods manufactured for the year ended December 31, 2011. (For additional questions regarding these facts
> Consider the following account balances (in thousands) for the Piedmont Corporation: Required: 1. Prepare a schedule for the cost of goods manufactured for 2011. 2. Revenues for 2011 were $600 million. Prepare the income statement for 2011. Beginni
> Consider the following account balances (in thousands) for the Canseco Company: Required: 1. Prepare a schedule for the cost of goods manufactured for 2011. 2. Revenues for 2011 were $300 million. Prepare the income statement for 2011. Home Insert
> Renka’s Heaters selected data for October 2011 are presented here (in millions): Required: Calculate the following costs: 1. Direct materials inventory 10/31/2011 2. Fixed manufacturing overhead costs for October 2011 3. Direct manufa
> Fill in the blanks for each of the following independent cases. Variable Contribution Operating Income Case Revenues Costs Fixed Costs Total Costs Margin Percentage $500 $ 800 $1,200 $ 200 a. $2,000 $1,000 $1,500 b. $300 С. $700 $1,000 d. $300 40%
> Deacon Publishing House is a publishing company that produces consumer magazines. The house and home division, which sells home-improvement and home-decorating magazines, has seen a 20% reduction in operating income over the past nine months, primarily d
> The following data are for Marvin Department Store. The account balances (in thousands) are for 2011. Required: 1. Compute(a)the cost of goods purchased and (b)the cost of goods sold. 2. Prepare the income statement for 2011. $ 37,000 Marketing, di
> Consider the following selected cost data for the Pittsburgh Forging Company for 2011. The company uses normal costing. Its job-costing system has a single manufacturing overhead cost pool. Costs are allocated to jobs using a budgeted machine-hour rate
> Splash Manufacturing produces outdoor wading and slide pools. The company uses a normal-costing system and allocates manufacturing overhead on the basis of direct manufacturing labor-hours. Most of the company’s production and sales occ
> Turner & Associates, a consulting firm, has the following condensed budget for 2011: Turner has a single direct-cost category (professional labor) and a single indirect-cost pool (client support). Indirect costs are allocated to jobs on the basis o
> The Lynn Company uses a normal job-costing system at its Minneapolis plant. The plant has a machining department and an assembly department. Its job-costing system has two direct-cost categories (direct materials and direct manufacturing labor) and two m
> Gammaro Company uses normal costing. It allocates manufacturing overhead costs using a budgeted rate per machine-hour. The following data are available for 2011: Required: 1. Calculate the budgeted manufacturing over head rate. 2. Calculate the manufac
> Amesbury Construction assembles residential houses. It uses a job-costing system with two direct-cost categories (direct materials and direct labor) and one indirect-cost pool (assembly support). Direct labor-hours is the allocation base for assembly sup
> Destin Products uses a job-costing system with two direct-cost categories (direct materials and direct manufacturing labor) and one manufacturing over head cost pool. Destin allocates manufacturing overhead costs using direct manufacturing labor costs. D
> In each of the following situations, determine whether job costing or process costing would be more appropriate. a. ACPA firm b. An oil refinery c. A custom furniture manufacturer d. A tire manufacturer e. A textbook publisher f. A pharmaceutical company
> Sweetum Candies manufactures jaw-breaker candies in a fully automated process. The machine that produces candies was purchased recently and can make 4,100 per month. The machine costs $9,000 and is depreciated using straight line depreciation over 10 yea
> Foodmart Corp, an international retail giant, is considering implementing a new business to business (B2B) information system for processing purchase orders. The current system costs Foodmart $2,500,000 per month and $50 per order. Foodmart has two optio
> Mirabella Cosmetics manufactures and sells a face cream to small ethnic stores in the greater New York area. It presents the monthly operating income statement shown here to George Lopez, a potential investor in the business. Help Mr. Lopez understand Mi
> Lurvey Men’s Clothing’s revenues and cost data for 2011 are as follows: Mr. Lurvey, the owner of the store, is unhappy with the operating results. An analysis of other operating costs reveals that it includes $30,000
> Monroe Classical Music Society is a not-for-profit organization that brings guest artists to the community’s greater metropolitan area. The Music Society just bought a small concert hall in the center of town to house its performances. The mortgage payme
> Bobbie’s Bagel Shop sells only coffee and bagels. Bobbie estimates that every time she sells one bagel, she sells four cups of coffee. The budgeted cost information for Bobbie’s products for 2011 follows: Required: 1
> Data 1-2-3 is a top-selling electronic spreadsheet product. Data is about to release version 5.0. It divides its customers into two groups: new customers and upgrade customers (those who previously purchased Data 1-2-3, 4.0 or earlier versions). Although
> Global Textiles, Inc., is considering three possible countries for the sole manufacturing site of its newest area rug: Singapore, Brazil, and the United States. All area rugs are to be sold to retail outlets in the United States for $250 per unit. These
> Color Rugs is holding a two-week carpet sale at Jerry’s Club, a local warehouse store. Color Rugs plans to sell carpets for $500 each. The company will purchase the carpets from a local distributor for $350 each, with the privilege of returning any unsol
> Suppose Doral Corp.’s breakeven point is revenues of $1,100,000. Fixed costs are $660,000. Required: 1. Compute the contribution margin percentage. 2. Compute the selling price if variable costs are $16 per unit. 3. Suppose 95,000 units are sold. Comput
> Hoot Washington is the newly elected leader of the Republican Party. Media Publishers is negotiating to publish Hoot’s Manifesto, a new book that promises to be an instant best-seller. The fixed costs of producing and marketing the book will be $500,000.
> Bredahl Logistics, a U.S. shipping company, has just begun distributing goods across the Atlantic to Norway. The company began operations in 2010, transporting goods to South America. The company’s earnings are currently trailing behind its competitors a
> The Express Banquet has two restaurants that are open 24-hours a day. Fixed costs for the two restaurants together total $459,000 per year. Service varies from a cup of coffee to full meals. The average sales check per customer is $8.50. The average cost
> Brooke Motors is a small car dealership. On average, it sells a car for $27,000, which it purchases from the manufacturer for $23,000. Each month, Brooke Motors pays $48,200 in rent and utilities and $68,000 for salespeople’s salaries. In addition to the
> The Super Donut owns and operates six doughnut outlets in and round Kansas City. You are given the following corporate budget data for next year: Revenues ………………..……………….$10,000,000 Fixed costs ……………………….……….$ 1,800,000 Variable costs ……………………………$ 8,000
> Sunny Spot Travel Agency specializes in flights between Toronto and Jamaica. It books passengers on Canadian Air. Sunny Spot’s fixed costs are $23,500 per month. Canadian Air charges passengers $1,500 per round-trip ticket. Required: Calculate the numbe
> he Fremont, California, plant of New United Motor Manufacturing, Inc. (NUMMI), a joint venture of General Motors and Toyota, assembles two types of cars (Corollas and Geo Prisms). Separate assembly lines are used for each type of car. Required: Classify
> Eva Manufacturing makes fashion products and competes on the basis of quality and leading-edge designs. The company has $3,000,000 invested in assets in its clothing manufacturing division. After-tax operating income from sales of clothing this year is $
> The Seaside Corporation manufactures similar products in the United States and Norway. The U.S. and Norwegian operations are organized as decentralized divisions. The following information is available for 2012; ROI is calculated as operating income divi
> Carter Corporation recently announced a bonus plan to be awarded to the manager of the most profitable division. The three division managers are to choose whether ROI or RI will be used to measure profitability. In addition, they must decide whether inve
> Performance Auto Company operates a new car division (that sells high performance sports cars) and a performance parts division (that sells performance improvement parts for family cars). Some division financial measures for 2011 are as follows: Requir
> Bleefl Corporation manufactures furniture in several divisions, including the patio furniture division. The manager of the patio furniture division plans to retire in two years. The manager receives a bonus based on the division’s ROI, which is currently
> Home Entertainment Center (HEC) operates a large store in San Francisco. The store has both a video section and a music (compact disks and tapes) section. HEC reports revenues for the video section separately from the music section. Required: Classify e
> Summit Equipment specializes in the manufacture of medical equipment, a field that has become increasingly competitive. Approximately two years ago, Ben Harrington, president of Summit, decided to revise the bonus plan (based, at the time, entirely on op
> Superior Motor Company makes electric cars and has only two products, the Simple green and the Superior green. To produce the Simple green, Superior Motor employed assets of $13,500,000 at the beginning of the period, and $13,400,000 of assets at the end
> Global Data, Inc., has two divisions: Test Preparation and Language Arts. Results (in millions) for the past three years are partially displayed here: Required: 1. Complete the table by filling in the blanks. 2. Use the DuPont method of profitability a
> Refer to Exercise 22-25. Assume that division A can sell the 1,000 units to other customers at $155 per unit, with variable marketing cost of $5 per unit. Required: Determine whether Allison-Chambers will benefit if division C purchases the 1,000 units
> The Allison-Chambers Corporation, manufacturer of tractors and other heavy farm equipment, is organized along decentralized product lines, with each manufacturing division operating as a separate profit center. Each division manager has been delegated fu
> Suppose that the U.S. division could sell as many units of Product 4A36 as it makes at $900 per unit in the U.S. market, net of all marketing and distribution costs. Required: 1. From the viewpoint of the Mornay Company as a whole, would after-tax opera
> The Mornay Company manufactures telecommunications equipment at its plant in Toledo, Ohio. The company has marketing divisions throughout the world. A Mornay marketing division in Vienna, Austria, imports 10,000 units of Product 4A36 from the United Stat
> British Columbia Lumber has a raw lumber division and a finished lumber division. The variable costs are as follows: Raw lumber division: $100 per 100 board-feet of raw lumber Finished lumber division: $125 per 100 board-feet of finished lumber Assume th
> Jackson Markets, a chain of traditional supermarkets, is interested in gaining access to the organic and health food retail market by acquiring a regional company in that sector. Jackson intends to operate the newly-acquired stores independently from its
> Adventure Parks Inc. (API) operates ten theme parks throughout the United States. The company’s slogan is “Name Your Adventure,” and its mission is to offer an exciting theme park experience to visitors of all ages. API’s corporate strategy supports this
> Consumer Focus is a marketing research firm that organizes focus groups for consumer-product companies. Each focus group has eight individuals who are paid $50per session to provide comments on new products. These focus groups meet in hotels and are led
