Question: After a computer failure, you are trying

> Your company provides a variety of delivery services. Management wants to know the volume of a particular delivery that would generate $10,000 per month in operating profits before taxes. The company charges $20 per delivery. The controllerâ€&

> The Business School at Eastern College is collecting data as a first step in the preparation of next year’s budget. One cost that is being looked at closely is administrative staff as a function of student credit hours. Data on administ

> Why are accurate cost estimates important?

> Your company is preparing an estimate of its production costs for the coming period. The controller estimates that direct materials costs are $45 per unit and that direct labor costs are $21 per hour. Estimating overhead, which is applied on the basis of

> Provide a business example illustrating opportunity costs.

> Cost allocation bases are ideally based on a cause-and-effect basis, but they are used to allocate fixed overhead. Is this inconsistent?

> Brodie Company’s advertising manager wants to know whether the company’s advertising program is successful. The manager used a spreadsheet program to estimate the relation between advertising expenditures (the independent variable) and sales dollars. Mon

> LM Enterprises produces a single part for sale. The part sells for $12 per unit. Fixed costs are $1,700,000 annually. Production and sales of 540,000 units annually results in profit before taxes of $1,000,000. Required What is the unit variable cost?

> Refer to the data for Balance, Inc., in Exercise 3-27. Assume that the company plans to sell 600,000 units per month. Consider requirements (b), (c), and (d) independently of each other. In Exercise 3-27 Balance, Inc., is considering the introduction of

> Balance, Inc., is considering the introduction of a new energy snack with the following price and cost characteristics: Sales price . . . . . . . . . . . . . . . $ 1.00 per unit Variable costs . . . . . . . . . . . . . . 0.20 per unit Fixed costs . . . .

> Refer to the data for Cambridge, Inc. in Exercise 3-25. Assume that the projected number of units sold for the year is 7,000. Consider requirements (b ), (c) , and (d ) independently of each other. In Exercise 3-25 Cambridge, Inc., is considering the in

> Oak Island Amusements Center provides the following data on the costs of maintenance and the number of visitors for the last three years: Number of Visitors _____________Maintenance per Year: (thousands) ___________Costs ($000) 1,825 . . . . . . . . . .

> Cambridge, Inc., is considering the introduction of a new calculator with the following price and cost characteristics: Sales price . . . . . . . . . . . . . . . . . . . . $ 27 per unit Variable costs . . . . . . . . . . . . . . . . . . . 15 per unit Fix

> Mark Ting desperately wants his proposed new product, DNA-diamond, to be accepted by top management. DNA-diamond is a piece of jewelry that contains the DNA of a boy or girl friend, spouse, or other loved one. Top management will not approve this product

> The manager of Kima’s Food Mart estimates operating costs for the year will include $900,000 in fixed costs. Required a. Find the break-even point in sales dollars with a contribution margin ratio of 40 percent. b. Find the break-even point in sales dol

> The cost accountant for Angie’s Apparel has compiled the following information for last month’s operations: Administrative costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,000 Merchandise inventory, July 1 . . . . . . . . . . . .

> Anu’s Amusement Center has collected the following data for operations for the year: Total revenues . . . . . . . . . . . . . . . . . $1,600,000 Total fixed costs . . . . . . . . . . . . . . . . . $ 437,500 Total variable costs . . . . . . . . . . . . .

> Assume that you have been asked to paint the inside walls of an apartment. State specifically how you would estimate the cost of that job. Include payment for your own labor.

> Identify the letter of each profit equation component on the graph that follows. Line d Area e g Area f Volume %24

> Lomas Electronics manufactures a portable testing device for use in oil exploration. The product’s price and cost characteristics are: Selling price per unit . . . . . . . . . . . . . . $ 260 Variable cost per unit . . . . . . . . . . . . . . . 140 Fixed

> A local restaurant, Fred’s Fish Fry, is estimating nonfood kitchen costs (labor, supervision, utilities, etc.) based on food cost. Data were gathered for the past 24 months and analyzed using a spreadsheet program. The following output was generated: Equ

> Identify each of the following profit equation components on the graph presented below: a. The total cost line. b. The total revenue line. c. The total variable costs area. d. Variable cost per unit. e. The fixed costs area. f. The break-even point. g.

> What is the difference between gross margin and contribution margin.

> A January 1, 2009, news report on msn.com included the following sentence: “A report put out by brokerage house CLSA about Jet Airways said that the fall in ATF [fuel] prices has brought down the load factors (flight occupancy) required for the airline t

> A manager of a retailing firm says that he can lower his operating leverage by renting his stores rather than buying. Would you recommend this? Explain.

> How does the accountant know what to record for direct materials for a job or a client? For direct labor cost?

> Accounting records for NIC Enterprises (NICE) for September show the following (each entry is the total of the actual entries for the account for the month): Note a: This entry does not include any over- or underapplied overhead. Over- or underapplied

> Frightproof Commuter Airlines is considering adding a new flight to its current schedule from Metro to Hicksville. This route has the following prices and costs: Selling price per passenger per flight . . . . . . . . . . . . . $ 80 Variable cost per pass

> Odd Wallow Drinks is considering adding a new line of fruit juices to its merchandise products. This line of juices has the following prices and costs: Selling price per case (24 bottles) of juice . . . . . . . . . . . . . . . . . . . $ 75 Variable cost

> A consulting firm’s accounting records show the following costs for year 1: Direct materials supplies . . . . . . . . . . . . . . $ 540,000 Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . 3,870,000 Total overhead . . . . . . . . . . . . .

> What are the similarities between the Direct Materials Inventory account of the manufacturer and the Merchandise Inventory account of the merchandiser? Are there any differences between the two accounts? If so, what are they?

> Cesar’s Bottlers bottles soft drinks in a factory that can operate either one shift, two shifts, or three shifts per day. Each shift is eight hours long. The factory is closed on weekends. The sales price of $2 per case bottled and the

> Sam’s Sushi serves only a fixed-price lunch. The price of $10 and the variable cost of $4 per meal remain constant regardless of volume. Sam can increase lunch volume by opening and staffing additional check-out lanes. Sam has three cho

> Suburban Bus Lines operates as a not-for-profit organization providing local transit service. As a not-for-profit, it refers to an excess of revenues over costs as a “surplus” and an excess of costs over revenues as a “deficit.” Suburban charges $1.00 pe

> Consider a class in a business school where volume is measured by the number of students in the class. Would you say the operating leverage is high or low? Why?

> Durant Manufacturers has performed extensive studies on its costs and production and estimates the following annual costs based on 150,000 units (produced and sold): _________________________Total Annual Costs __________________________(150,000 units) D

> Scholes Systems supplies a particular type of office chair to large retailers such as Target, Costco, and Office Max. Scholes is concerned about the possible effects of inflation on its operations. Presently, the company sells 80,000 units for $60 per un

> The following data refers to one month. Fill in the blanks. A C 1 Direct materials inventory, March 1 2 Direct materials inventory, March 31 3 Work-in-process inventory, March 1 4 Work-in-process inventory, March 31 5 Finished goods inventory, March

> BS&T Partners has developed a new hubcap with the model name Spinnin’ Wheel. Production and sales started August 3. As of August 2, there were no direct materials in inventory. Data for the month of August include the following: Direct labor cost per uni

> Cortez Company is planning to introduce a new product that will sell for $96 a unit. The following manufacturing cost estimates have been made on 20,000 units to be produced the first year: Direct materials . . . . . . . . . . . . . . . . . . . . . . . .

> Global Partners is a manufacturing company that produces parts both for inventory and to custom specifications. Parts produced for inventory are sold at prices determined in the market. Custom parts are sold at a price equal to production cost plus a pro

> What criteria are important in determining the choice of an allocation base?

> Mary’s Mugs produces and sells various types of ceramic mugs. The business began operations on January 1, year 1, and its costs incurred during the year include these: Variable costs (based on mugs produced): Direct materials cost . . . . . . . . . . . .

> San Ysidro Company manufactures hiking equipment. The company’s administrative and manufacturing operations share the company’s one building. Eighty percent of the building is used for manufacturing and the remainder i

> The City of Imperial Falls contracts with Evergreen Waste Collection to provide solid waste collection to households and businesses. Until recently, Evergreen had an exclusive franchise to provide this service in Imperial Falls, which meant that other wa

> Just before class starts, you realize that you have mistakenly recycled the second page of your cost accounting homework assignment. Fortunately, you still have the first page of the printout from your spreadsheet (shown below) and you remember that you

> Is “cost-of-goods” a product cost or a period cost?

> “I am going to work for a hospital, which is a not-for-profi t organization. Because there are no profits, I will not be able to apply any CVP analysis in my work.” Do you agree with this statement? Why or why not?

> Mission Foods produces two flavors of tacos, chicken and fish, with the following characteristics: Required The total fixed costs for the company are $117,000. a. What is the anticipated level of profits for the expected sales volumes? b. Assuming that

> The library at Pacific Business School (PBS) serves both undergraduate and graduate programs. The dean of PBS is interested in evaluating the profitability of the degree programs and has asked the head of the library, Rex Gilmore, to allocate the annual

> Wayne Casting, Inc., produces a product made from a metal alloy. Wayne buys the alloy from two different suppliers, Chillicothe Metals and Ames Supply, in approximately equal amounts because of supply constraints at both vendors. The material from Chilli

> Coastal Computer operates two retail outlets in Oakview, one on Main Street and the other in Lakeland Mall. The stores share the use of a central accounting department. The cost of the accounting department for last year was $180,000. Following are the o

> The business school dean has asked the accounting club to help with a product costing analysis for the school. How would we define the products? What questions would we ask the dean before we accept the task?

> The administrative offices and manufacturing plant of Oakdale Tool & Die share the same building. The following information (in $000s) appears in the accounting records for last year: Administrative costs . . . . . . . . . . . . . . . . . . . . . . . .

> Chuck Moore supervises two consulting jobs for the firm of Price and Waters, LLP, which is a consulting firm that helps organizations become more efficient. One of the consulting jobs is for the U.S. Department of Defense and the other is for General Mot

> Multiple regression results from the data of Adriana Corporation (Exercise 5-30) are as follows: Equation: Overhead = $124,570 + ($31.93 × Labor-hours) + ($41.10 × Machine-hours) Statistical data Correlation coefficient . . . . . . . . . . . . . . . . .

> Butte Components produces a variety of hardware products, primarily for the do-it-yourself (DIY) market. As part of your job interview as a summer intern at Butte, the cost accountant provides you with the following (fictitious) data for the year: Requ

> Pioneer Parts, a manufacturer of windows for commercial buildings, reports the following account information for last year (all costs are in thousands of dollars): Information on January 1 (Beginning): Direct materials inventory . . . . . . . . . . . . .

> Why does the accountant use a linear representation of cost and revenue behavior in CVP analysis? How is this justified?

> Sell Block prepares three types of simple tax returns: individual, partnerships, and (small) corporations. The tax returns have the following characteristics: The total fixed costs per year for the company are $3,690,000. Required a. What is the antic

> “The assumptions of CVP analysis are so simplistic that no firm would make a decision based on CVP alone. Therefore, there is no reason to learn CVP analysis.” Comment.

> The controller at Emporia Precision Parts asks for your help in sorting out some cost information. She is called to a meeting, but hands you the following information for June: Prime costs, June . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

> Argentina Partners is concerned about the possible effects of inflation on its operations. Presently, the company sells 60,000 units for $30 per unit. The variable production costs are $15, and fixed costs amount to $700,000. Production engineers have ad

> Is “cost-of-goods sold” an expense?

> Three entrepreneurs were looking to start a new brewpub near Sacramento, California, called Roseville Brewing Company (RBC). Brewpubs provide two products to customers—food from the restaurant segment and freshly brewed beer from the be

> Simple regression results from the data of Adriana Corporation are as follows: Equation: Overhead = $206,469 + ($45.83 × Machine-hours) Statistical data Correlation coefficient . . . . . . . . . . . . . . . . . . . . . . . . . .962 R2 . . . . . . . . .

> The following balances are from the accounts of Todd Machining Company: Direct materials purchased during the year amount to $598,000, and the cost of goods sold for the year was $2,172,400. Required Reconstruct a cost of goods sold statement and fill

> Lead! Inc. offers executive coaching services to small business owners. Lead!’s operating profits average 20 percent of revenues and its marketing and administrative costs average 25 percent of the cost of services sold. Required Lead! Inc. expects reve

> The following data are available for Jupiter Consultants for the year just ended: Gross margin ................................... $4,050,000 Operating profit .................................. 1,525,000 Revenues .........................................

> Where2 Services is a small service firm that advises high school students on college opportunities. Joseph Kapp, the founder and president, has collected the following information for March: Required Prepare an income statement for March for Where2 Ser

> Paul’s Limo Service has the following information for June: Required a. Using the traditional income statement format, prepare a value income statement. b. What value would there be to Paul from preparing the same information in July?

> Direct labor-hours and direct labor dollars are the most common allocation bases used in the United States (indeed, throughout the world). Why do you suppose they are used more than others?

> What are characteristics of companies that are likely to use a job cost system?

> Consider Question 7-15. What are some of the allocation bases you considered? Why did you choose the one you used? Question 7-15 Assume that you have been asked to paint the inside walls of an apartment. State specifically how you would estimate the cos

> In one of its divisions, an aircraft components manufacturer produces experimental navigational equipment for spacecraft and for private transportation companies. Although the products are essentially identical, they carry different product numbers. The

> Is a criminal trial a “job” for costing purposes?

> When is the basic cost flow model used? Give an example.

> Why might the operating profit calculated by CVP analysis differ from the net income reported in financial statements for external reporting?

> Would a dentist, an architect, a landscaper, and a lawyer use job costing or process costing? Explain.

> Interview the manager of a construction company (for example, a company that does house construction, remodeling, landscaping, or street or highway construction) about how the company bids on prospective jobs. Does it use cost information from former job

> Currently, generally accepted accounting principles (GAAP) in the United States require firms to expense research and development (R&D) costs as period costs. Therefore, when the resulting product is sold, R&D costs are not part of reported product costs

> Greg’s Diner has the following information for year 2, when several new employees were added to the waitstaff: Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,000,000 Cost of food serveda . . . . . . . . . . . .

> “Worrying about the choice of an overhead allocation base is a waste of time. In the end, all the overhead is charged to production.” Do you agree? Why?

> What are the costs of a product using normal costing?

> TechMaster is an information technology (IT) consulting company offering services to small firms. TechMaster bills clients for its various services based on the hours its professionals spend. In August, IT professionals billed 875 hours to clients and wo

> Chuck’s Brokerage Service (CBS) is a discount financial services firm offering clients investment advice, trading services, and a variety of mutual funds for investment. Chuck has collected the following information for October: Requi

> Allocation Busters (AB) is a dispute mediation firm offering services to firms in disputes about cost allocations with government agencies. For March, AB worked 440 hours for Massive Airframes and 660 hours for Gigantic Drydocks. AB bills clients at the

> For August, Royal Consulting and Mediation Practice (RCMP) worked 900 hours for Alberta Company and 2,100 hours for Ontario Corporation. RCMP bills clients at the rate of $400 per hour; labor cost for its consulting staff is $200 per hour. The total numb

> When designing a cost system, what points should you consider before starting the design?

> IYF Corporation manufactures miscellaneous parts for building construction and maintenance. IYF uses a normal job costing system. The system applies manufacturing overhead on the basis of direct labor cost. For managerial purposes, over- or underapplied

> Ross Enterprises maintains a fleet of agricultural equipment for rental to local farmers. Ross maintains all its equipment in a company-owned facility. Data on maintenance costs and operating hours of the equipment have been collected for the past 24 mon

> At the beginning of the month, Arthur’s Olde Consulting Corporation had two jobs in process that had the following costs assigned from previous months: During the month, Jobs SY-400 and SY-403 were completed but not billed to customer

> Carmen Beverages reports the following information for July: Units produced and sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,800 Per unit revenue and costs: Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

> Tony’s Textiles uses a predetermined factory overhead rate based on machine-hours. For May, Tony’s budgeted overhead was $210,000 based on a budgeted volume of 35,000 machine-hours. Actual overhead amounted to $227,500 with actual machine-hours totaling

> Turco Products uses a job order cost system. The following debits (credits) appeared in Work-in-Process Inventory for September: Turco applies overhead to production at a predetermined rate of 120 percent based on direct labor cost. Job 9-27, the only

> Mary’s Landscaping uses a job order cost system. The following debits (credits) appeared in Work-in-Process Inventory for August: Mary’s applies overhead to production at a predetermined rate of 80 percent based on d

> Prepare a scattergraph based on the overhead and labor-hour data in Exercise 5-30. In Exercise 5-30 Adriana Corporation manufactures football equipment. In planning for next year, the managers want to understand the relation between activity and overhea

> Refer to the information in Exercise 7-27. Prepare an entry to allocate over- or underapplied overhead to: a. Work in Process. b. Finished Goods. c. Cost of Goods Sold. In Exercise 7-27 Aspen Company estimates its manufacturing overhead to be $625,000 a

> Aspen Company estimates its manufacturing overhead to be $625,000 and its direct labor costs to be $500,000 for year 2. Aspen worked on three jobs for the year. Job 2-1, which was sold during year 2, had actual direct labor costs of $195,000. Job 2-2, wh

> Refer to the information in Exercise 7-25. Prepare an entry to allocate the under- or overapplied overhead. Overhead applied in each of the inventory accounts is as follows: Work-in-process inventory . . . . . . . . . . . . . $10,125 Finished goods inven