Chem-Melt produces and sells an ice-melting granular used on roadways and sidewalks in winter. The company annually produces and sells about 300,000 lbs of its granular. In its ten-year history, the company has never reported a net loss. Because of this year’s unusually mild winter, projected demand for its product is only 250,000 lbs. Based on its predicted production and sales of 250,000 lbs, the company projects the following income statement under absorption costing. Sales (250,000 lbs at $8 per lb.) . . . . . . . . . . . . . . . . . . . . . . . $ 2,000,000 Cost of goods sold (250,000 lbs at $6.80 per lb.) . . . . . . . . . 1,700,000 Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 Selling and administrative expenses . . . . . . . . . . . . . . . . . . . . . 450,000 Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (150,000) Its product cost information follows and consists mainly of fixed production cost because of its automated production process requiring expensive equipment. Variable direct labor and materials costs per lb. . . . . . . . . . . . . . . . $2.00 Fixed production cost per lb ($1,200,000/250,000 lbs.) . . . . . . . . 4.80 Total product cost per lb. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6.80 The company’s selling and administrative expenses are all fixed. The president is concerned about the adverse reaction from its creditors and shareholders if the projected net loss is reported. The controller suggests that since the company has large storage capacity, it can report a net income by keeping its production at the usual 300,000 lbs level even though it expects to sell only 250,000 lbs. The president was puzzledby the suggestion that the company can report a profit by producing more without increasing sales. Required 1. Can the company report a net income by increasing production to 300,000 lbs and storing the excess production in inventory? Your explanation should include an income statement (using absorption costing) based on production of 300,000 lbs and sales of 250,000 lbs. 2. Should the company produce 300,000 lbs given that projected demand is 250,000 lbs? Explain, and also refer to any ethical implications of such a managerial decision.
> Consider how your service product relates to each of the dimensions of service quality. Using Table 13.2 as a guide, develop the evaluation criteria and examples that are appropriate for your product. Table 13.2 Table 13.2 Dimensions of Service Qua
> Determine the search, experience, and credence qualities that customers are likely to use when evaluating your service product.
> How is American Express addressing the five dimensions customers use when evaluating service quality? Explain your answer.
> When American Express says its vision is to be “the world’s most respected service brand,” what are the implications for how it manages service expectations?
> Why must marketing objectives and pricing objectives be considered when making pricing decisions?
> For what type of products would price skimming be most appropriate? For what type of products would penetration pricing be more effective?
> Major League Bat Company manufactures baseball bats. In addition to its goods in process inventories, the company maintains inventories of raw materials and finished goods. It uses raw materials as direct materials in production and as indirect materials
> Several important assumptions underlie CVP analysis. Assumptions often help simplify and focus our analysis of sales and costs. A common application of CVP analysis is as a tool to forecast sales, costs, and income. Required Assume that you are actively
> Azule Company produces a single product. Its income statement under absorption costing for its first two years of operation follow. Additional Informationa. Sales and production data for these first two years follow: b. Its variable cost per unit and
> Leather Head Sports, launched by entrepreneur Paul Cunningham, produces balls for various sports. Selling prices typically range from $40 per ball to $295 per ball. Required 1. Identify at least two fixed costs that will not change regardless of how man
> Companies such as KTM commonly prepare a process cost summary. What purposes does a process cost summary serve?
> Refer to information about Dowell Company in Problem 6-1A. In the company’s planning documents, Kyra Dowell, the company’s president, reports that the break-even volume (in units) for the company is 24,000 units. This break-even point is computed as foll
> A local movie theater owner explains to you that ticket sales on weekends and evenings are strong, but attendance during the weekdays, Monday through Thursday, is poor. The owner proposes to offer a contract to the local grade school to show educational
> Farina Bay’s computer system generated the following trial balance on December 31, 2013. The company’s manager knows something is wrong with the trial balance because it does not show any balance for Goods in Process I
> Refer to the information in Exercise 3-20 and complete it for each of the two separate assumptions using the FIFO method for process costing. Information from Exercise 3.20: ProChem manufactures aspirin in a process operation. Details on production acti
> ProChem manufactures aspirin in a process operation. Details on production activity follow. Compute the department’s equivalent units of production with respect to direct materials under each of two separate assumptions. Beginning goods in process . . .
> Dowell Company produces a single product. Its income statement under absorption costing for its first two years of operation follow. Additional Information a. Sales and production data for these first two years follow. b. Variable cost per unit and t
> Assume a company sells a given product for $85 per unit. How many units must be sold to break even if variable selling costs are $27 per unit, variable production costs are $23 per unit, and total fixed costs are $700,000?
> The focus in a job order costing system is the job or batch. Identify the main focus in process costing.
> Refer to the information in Exercise 4-6 to answer the following requirements. Information from Exercise 4-6: Way Cool produces two different models of air conditioners. The company produces the mechanical systems in their components department. The mec
> Companies such as Piaggio apply process operations. List the four steps in accounting for production activity in a reporting period (for process operations).
> Arctic Cat produces snowmobiles for sale. Identify some of the variable and fixed product costs associated with that production. [Hint: Limit costs to product costs.]
> Arctic Cat produces snowmobiles with a multiple process production line. Identify and list some of its production processing steps and departments.
> In process costing, the process is analyzed first and then a unit measure is computed in the formof equivalent units for direct materials, direct labor, overhead, and all three combined. The same analysis applies to both manufacturing and service process
> How can Piaggiouse variable costing to help better understand its operations and to make better pricing decisions?
> An accounting professional requires at least two skill sets. The first is to be technically competent. Knowing how to capture, manage, and report information is a necessary skill. Second, the ability to assess manager and employee actions and biases for
> Each of two similar companies has sales of $20,000 and total costs of $15,000 for a month. Company A’s total costs include $10,000 of variable costs and $5,000 of fixed costs. If Company B’s total costs include $4,000 of variable costs and$11,000 of fixe
> Are the journal entries that match cost flows to product flows in process costing primarily the same or much different than those in job order costing? Explain.
> How does assuming that operating activity occurs within a relevant range affect cost-volume-profit analysis?
> Laffer Lumber produces bagged bark for use in landscaping. Production involves packaging bark chips in plastic bags in a bagging department. The following information describes production operations for October. The company’s revenue
> Access and review the entrepreneurial information at Business Owner’s Toolkit [Toolkit.com]. Access and review its New Business Cash Needs Checklist under the Start Up menu bar or similarworksheets related to controls of cash and costs. Required Write a
> Widmer Watercraft’s predetermined overhead rate for year 2013 is 200% of direct labor. Information on the company’s production activities during May 2013 follows. a. Purchased raw materials on credit, $200,000. b. Paid $126,000 cash for factory wages. c.
> What two arguments tend to justify classifying all costs as either fixed or variable even though individual costs might not behave exactly as classified?
> Describe how the following items are computed: a. Gross margin, and b. Contribution margin
> Describe the contribution margin ratio in layperson’s terms.
> After all labor costs for a period are allocated, what balance should remain in the Factory Payroll account?
> Are there situations where Polariscan use process costing? Identify at least one and explain it.
> Explain a hybrid costing system. Identify a product or service operation that might well fit a hybrid costing system.
> Grand Garden is a luxury hotel with 150 suites. Its regular suite rate is $250 per night per suite. The hotel’s cost per night is $140 per suite and consists of the following. Variable direct labor and materials cost . . . . . . . . . . . . . . . . . .
> How do step-wise costs and curvilinear costs differ?
> Refer to Vijay Company’s data in QS 6-4. Compute its production cost per unit under variable costing.
> Refer to the information in Exercise 4-6 to answer the following requirements. Information from 4-6: Way Cool produces two different models of air conditioners. The company produces the mechanical systems in their components department. The mechanical sy
> Piaggiois thinking of expanding sales of its most popular scooter model by 65%. Should we expect its variable and fixed costs for this model to stay within the relevant range? Explain.
> Trez Company began operations this year. During this first year, the company produced 100,000 units and sold 80,000 units. The absorption costing income statement for its first year of operations follows. Sales (80,000 units 3 $50 per unit) . . . . . .
> What is a cost object?
> Polaris offers extended service contracts that provide repair and maintenance coverage over its products. As you complete the following requirements, assume that the Polaris services department uses many of Polaris’s existing resources such as its facili
> D’Souza Company sold 10,000 units of its product at a price of $80 per unit. Total variable cost is $50 per unit, consisting of $40 in variable production cost and $10 in variable selling and administrative cost. Compute the manufacturing (production) ma
> Access and review Piaggio’s Website (www.piaggio.com) to answer the following questions. Required 1. Do you believe that Piaggio’s managers use single product CVP analysis or multiproduct break-even analysis? Explain. 2. How does the addition of a new p
> A recent annual report for McDonald’s reports the following operating income for its United States and APMEA (Asia-Pacific, Middle East, and Africa) geographic segments: Required1. Is operating income growing faster in the United Stat
> Multiproduct break-even analysis is often viewed differently when actually applied in practice. You are to visit a local fast-food restaurant and count the number of items on the menu. To apply multiproduct break-even analysis to the restaurant, similar
> Is it possible to have under- or overapplied overhead costs in a process cost accounting system? Explain.
> Following are activities in providing medical services at Healthsmart Clinic. A. Registering patients B. Cleaning beds C. Stocking examination rooms D. Washing linens E. Ordering medical equipment F. Heating the clinic G. Providing security services H.
> E’Lonte Company began operations this year. During this first year, the company produced 300,000 units and sold 250,000 units. Its income statement under absorption costing for its first year of operations follows. Additional Informat
> Diaz Company reports the following variable costing income statement for its single product. Thiscompany’s sales totaled 50,000 units, but its production was 80,000 units. It had no beginning finished goods inventory for the current per
> Labor costs of an auto repair mechanic are seldom based on actual hours worked. Instead, the amount paid a mechanic is based on an industry average of time estimated to complete a repair job. The repair shop bills the customer for the industry average am
> Assume that a company produces a single product by processing it first through a single production department. Directlabor costs flow through what accounts in this company’s process cost system?
> Laval produces lamps and home lighting fixtures. Its most popular product is a brushed aluminum desk lamp. This lamp is made from components shaped in the fabricating department and assembled in its assembly department. Information related to the 35,000
> Both Polaris and Arctic Cat sell motorized vehicles, and each of these companies has a different product mix. Required1. Assume the following data are available for both companies. Compute each company’s break-even point in unit sales.
> The usefulness of a single plantwide overhead rate is based on two assumptions. What are those assumptions?
> Refer to the information in Exercise 4-9. Information from Exercise 4-9: Textra Plastics produces parts for a variety of small machine manufacturers. Most products go through two operations, molding and trimming, before they are ready for packaging. Exp
> Aces Inc., a manufacturer of tennis rackets, began operations this year. The company produced 6,000 rackets and sold 4,900. Each racket was sold at a price of $90. Fixed overhead costs are $78,000 and fixed selling and administrative costs are $65,200. T
> After reading an article about activity-based costing in a trade journal for the furniture industry,Adria Lopez wondered if it was time to critically analyze overhead costs at Success Systems. In a recent month, Adria found that setup costs, inspection c
> KTM’s managers rely on reports of variable costs. How variable costing reports can prepared using the contribution margin format help managers in computing break-even volume in units?
> Toyota embraces lean techniques, including lean accounting. What are the two key components of lean accounting?
> A list of activities that generate quality costs is provided below. For each activity, indicate whether it relates to a prevention activity (P), appraisal activity (A), internal failure activity (I), or external failure activity (E). a. Inspecting raw ma
> Piaggiois a manufacturer. “Activity-based costing is only useful for manufacturing companies.” Is this a true statement? Explain.
> This chapter’s opener featured Neal Gottlieb and his company Three Twins Ice Cream. Required 1. Neal recently built a large manufacturing facility. Explain how his company’s process cost summary report would differ after his new manufacturing facility i
> How can absorption costing lead to incorrect short-run pricing decisions?
> What is the main factor for a company in choosing between the job order costing and process costing accounting systems? Give two likely applications of each system.
> A company uses activity-based costing to determine the costs of its three products: A, B, and C. The budgeted cost and cost driver activity for each of the company’s three activity cost pools follow. Compute the activity rates for eac
> Identify the control document for materials flow when a materials requisition slip is not used.
> Explain why equivalent units of production for both direct labor and overhead can be the same as, and why they can be different from, equivalent units for direct materials.
> Refer to information about Azule Company in Problem 6-1B. In the company’s planning documents,Roberta Azule, the company president, reports that the company’s break-even volume in unit sales is 55,715 units. This break-even point is computed as follows.
> Aziz Company sells two types of products, Basic and Deluxe. The company provides technical support for users of its products, at an expected cost of $250,000 per year. The company expects to process 10,000 customer service calls per year. Required 1. De
> 1. If management wants the most accurate product cost, which of the following costing methods should be used? a. Volume-based costing using departmental overhead rates b. Volume-based costing using a plantwide overhead rate c. Normal costing using a plan
> Manufacturers and merchandisers can apply just-in-time (JIT) to their inventory management. Both Polaris and Arctic Cat want to know the impact of a JIT inventory system for their operating cash flows. Review each company’s statement of cash flows in App
> Refer to the information in QS 4-7. Compute the activity rate for each activity, assuming the company uses activity-based costing. Information from 4-7: Xie Company identified the following activities, costs, and activity drivers. The company manufactur
> Ciolino Co.’s March 31 inventory of raw materials is $80,000. Raw materials purchases in April are $500,000, and factory payroll cost in April is $363,000. Overhead costs incurred in April are: indirect materials, $50,000; indirect labo
> Refer to the information in QS 4-5. What are the company’s departmental overhead rates if the assembly department assigns overhead based on direct labor hours and the finishing department assigns overhead based on machine hours? Inform
> Can services be delivered by means of process operations? Support your answer with an example.
> What are the two main inventory methods used in process costing? What are the differences between these methods?
> Many contractors work on custom jobs that require a job order costing system. Required Access the Website AMSI.com and click on Construction Management Software, and then on star builder. Prepare a one-page memorandum for the CEO of a construction compa
> Refer to the information in Exercise 3-15. Prepare a process cost summary using the FIFO method. (Round cost per equivalent unit calculations to two decimal places.) Information from Exercise 3-15: The following partially completed process cost summary
> The following partially completed process cost summary describes the July production activities of AshadCompany. Its production output is sent to its warehouse for shipping. All direct materials are added to products when processing begins. Beginning goo
> Consider the following data for two products of Gitano Manufacturing. Required1. Using direct labor hours as the basis for assigning overhead costs, determine the total production cost per unit for each product line.2. If the market price for Product A
> The following flowchart shows the August production activity of the Spalding Company. Use the amounts shown on the flowchart to compute the missing four numbers identified by blanks. Production Beginning goods in process $17,250 Factory overhead $51,
> Refer to the information in Exercise 3-12 and complete it for each of the three separate assumptions using the FIFO method for process costing. Information from Exercise 3-12: The production department in a process manufacturing system completed 80,000
> Why is it possible for direct labor in process operations to include the labor of employees who do not work directly on products or services?
> The production department in a process manufacturing system completed 80,000 units of product and transferred them to finished goods during a recent period. Of these units, 24,000 were in process at the beginning of the period. The other 56,000 units wer
> Describe how use of absorption costing in determining income can lead to over-production and a buildup of inventory. Explain how variable costing can avoid this same problem.
> Refer to the information in Exercise 3-9 and complete its parts (1) and (2) using the FIFO method. (Round cost per equivalent unit to two decimal places.) Information from Exercise 3-9: The production department described in Exercise 3-8 had $850,000 of
> Refer to the information in Exercise 3-8 to compute the number of equivalent units with respect to both materials used and labor used in the production department for April using the FIFO method. Information from Exercise 3-8: During April, the productio
> Kenzi Kayaking, a manufacturer of kayaks, began operations this year. During this first year, the company produced 1,050 kayaks and sold 800 at a price of $1,050 each. At the current year-end, the company reported the following income statement informati
> Blazer Chemical produces and sells an ice-melting granular used on roadways and sidewalks in winter. It annually produces and sells about 100 tons of its granular. In its nine-year history, the company has never reported a net loss. However, because of t
> Mortech had net income of $250,000 based on variable costing. Beginning and ending inventories were 50,000 units and 48,000 units, respectively. Assume the fixed overhead per unit was $0.75 for both the beginning and ending inventory. What is net income
> Describe the usefulness of variable costing for controlling company costs.
> Vijay Company reports the following information regarding its production costs. Compute its production cost per unit under absorption costing. Direct materials . . . . . . . . . . . . . . . . . . . $10 per unit Direct labor. . . . . . . . . . . . . . .
> Assume that you are preparing for a second interview with a manufacturing company. The company is impressed with your credentials but has indicated that it has several qualified applicants. You anticipate that in this second interview, you must show what
> Under absorption costing a company had the following per unit costs when 10,000 units were produced. Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2 Direct material . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Var
> The production department described in Exercise 3-8 had $850,000 of direct materials and $650,000 of direct labor cost charged to it during April. Also, its beginning inventory included $118,840 of direct materials cost and $47,890 of direct labor. Info
