Question: College Supply Company (CSC) makes three types
College Supply Company (CSC) makes three types of drinking glasses: short, medium, and tall. It presently applies overhead using a predetermined rate based on direct labor-hours. A group of company employees recommended that CSC switch to activity-based costing and identified the following activities, cost drivers, estimated costs, and estimated cost driver units for year 5 for each activity center. 
In addition, management estimated 2,000 direct labor-hours for year 5. Assume that the following cost driver volumes occurred in February year 5: 
Direct labor costs were $30 per hour. Required a. Compute a predetermined overhead rate for year 5 for each cost driver recommended by the employees. Also compute a predetermined rate using direct labor-hours as the allocation base. b. Compute the production costs for each product for February using direct labor-hours as the allocation base and the predetermined rate computed in requirement (a). c. Compute the production costs for each product for February using the cost drivers recommended by the employees and the predetermined rates computed in requirement (a). (Do not assume that total overhead applied to products in February will be the same for activity-based costing as it was for the labor-hour-based allocation.) d. Management has seen your numbers and wants an explanation for the discrepancy between the product costs using direct labor-hours as the allocation base and the product costs using activity-based costing. Write a brief response to management.
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Recommended Cost Driver Estimated Estimated Cost Activity Cost Driver Units Setting up production Processing orders.. Handling materials Using machines Providing quality management. Number of inspections Packing and shipping Number of production runs $ 36,000 60,000 24,000 72,000 60,000 48,000 100 runs 200 orders 8,000 pounds 10,000 hours 40 inspections 20,000 units Number of orders Pounds of materials Machine-hours Units shipped $300,000
> Describe the transactions that are recorded in the following equation: Assets = Liabilities + Owner's Equity J. Onyx, + Receivable + Equipment = Payable + Capital J. Onyx, - Drawing + Revenue Accounts Асcounts Cash Еxpenses (а) +25,000 +4,500 +29,50
> Define chart of accounts and identify the categories of accounts.
> When an owner withdraws cash or goods from the business, why is this considered an increase to the Drawing account and not an increase to the Wages Expense account?
> What is the effect on the fundamental accounting equation if supplies are purchased on account? How will the fundamental accounting equation change if supplies are purchased with cash? Explain how this purchase will or will not change the owner’s equity.
> Determine the effect of the following errors on a company’s total revenue, total expenses, and net income. Indicate the effect by writing O for Overstated (too much), U for Understated (too little), or NA for Not Affected. Total To
> The bookkeeper for Nevado Company has prepared the following trial balance: The bookkeeper has asked for your help. In examining the company’s journal and ledger, you discover the following errors. Use this information to construct a
> Arrange the following steps in the posting process in correct order: a. The amount of the balance of the ledger account is recorded in the Debit Balance or Credit Balance column. b. The amount of the transaction is recorded in the Debit or Credit column
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> Montoya Tutoring Service completed the following transactions. Journalize the transactions in general journal form, including brief explanations. Mar. 1 Bought equipment for $5,798 from Teaching Suppliers, paying $3,798 in cash and placing the balance on
> Describe two ways to increase owner’s equity and two ways to decrease owner’s equity.
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> In the following two-column journal, the capital letters represent where parts of a journal entry appear. Write the numbers 1 through 8 on a sheet of paper. After each number, match the capital letter where these items appear with the number of the item.
> Arrange the following steps in the posting process in correct order: a. Write the ledger account number in the Post. Ref. column of the journal. b. Write the amount of the transaction. c. Write the date of the transaction. d. Write the page number of the
> What does cross-referencing mean in the posting process?
> Why is a source document important? List some examples of source documents.
> List by account classification the order of the accounts in the general ledger.
> What is the purpose of providing a ledger account for each account?
> How does the journal differ from the ledger?
> Why is the journal called a book of original entry?
> How do Accounts Payable and Accounts Receivable differ?
> The financial statements for Baker Custom Catering fr the month of April are presented below. Required Solve for the missing information. Baker Custom Catering Income Statement (a) Revenue: Professional Fees $12,000 Expenses: Salary Expense $ 800 R
> The financial statements for Daniels’ Custom Haircuts for the month of October follow. Required Solve for the missing information. Daniels' Custom Haircuts Income Statement (a) Revenue: Professional Fees $25,000 Expenses: Salary E
> Would the following errors cause the trial balance to have equal or unequal totals? As a result of the errors, which accounts are overstated (by how much) or understated (by how much)? a. A purchase of office equipment for $380 was recorded as a debit to
> The following errors were made in journalizing transactions. In each case, calculate the amount of the error and indicate whether the debit or the credit column of the trial balance will be understated or overstated. Amount of Difference Debit or Cr
> During the first month of operations, Landish Modeling Agency recorded transactions in T account form. Foot and balance the accounts. Then prepare a trial balance, an income statement, a statement of owner’s equity, and a balance sheet
> Speedy Sewing Services, owned by T. Nguyen, hired a new bookkeeper who is not entirely familiar with the process of preparing a trial balance. All of the accounts have normal balances. Find the errors and prepare a corrected trial balance for December 31
> During the first month of operation, Graham Expeditions recorded the following transactions. Describe what has happened in each of the transactions (a) through (k). LD. Rakes, Drawing J. D. Rakes, Capital (a) 5,000 () 750 () 4,000 Income from Accoun
> R. Dalberg operates Dalberg’s Tours. The company has the following chart of accounts: Using the chart of accounts, record the following transactions in pairs of T accounts. Give the T account to be debited first and the account to be
> List the classification of each of the following accounts as A (asset), L (liability), OE (owner’s equity), R (revenue), or E (expense). Write Debit or Credit to indicate the increase side, the decrease side, and the normal balance side
> On a sheet of paper, draw the fundamental accounting equation with T accounts under each of the account classifications, with plus and minus signs and debit and credit on the appropriate side of each account. Under each of the classifications, draw T acc
> Explain the separate entity concept.
> Give an example of a slide and an example of a transposition. Explain how you might decide whether an error is a slide or a transposition.
> Explain why the term debit doesn’t always mean “increase” and why the term credit doesn’t always mean “decrease.”
> Explain how a trial balance and a balance sheet differ.
> What do we mean when we say that capital, drawing, revenue, and expense accounts are under the umbrella of owner’s equity?
> List two reasons why the debits and credits in the trial balance might not balance.
> What is a compound entry?
> How are the three financial statements shown in this chapter connected?
> What are footings in accounting?
> Describe a transaction that resulted in the following changes in accounts: a. Rent Expense is increased by $1,050, and Cash is decreased by $1,050. b. Advertising Expense is increased by $835, and Accounts Payable is increased by $835. c. Accounts Receiv
> Describe a transaction that resulted in each of the following entries affecting the accounting equation. Assets Liabilities + Owner's Equity Office Professional Ассounts Cash + Equipment + Equipment Payable + B. Lake, Capital (a) +18,200 +18,200 (b)
> Define assets, liabilities, owner’s equity, revenues, and expenses.
> California Circuits Company (3C) manufactures a variety of components. Its Valley plant specializes in two electronic components used in circuit boards. These components serve the same function and perform equally well. The difference in the two products
> ACE Industries is a manufacturer of machined parts located in the midwestern United States. Its primary customers are suppliers to the automobile industry, although it has diversified its customer base in recent years to reduce its dependence on any one
> Cawker Products has two manufacturing facilities—Lucas plant and Russell plant—that produce the same product. Until recently, the production process in both plants has been the same. Last year, the Russell production supervisor, Ann Tyler, determined tha
> Refer to Problem 9-45. The intern decides to look more closely at the manufacturing activity and determines that it can be broken down into two activities: production and engineering. Production covers the costs of on-going manufacturing while engineerin
> Cain Components manufactures and distributes various plumbing products used in homes and other buildings. Over time, the production staff has noticed that products they considered easy to make were difficult to sell at margins considered reasonable while
> Utica Manufacturing (UM) was recently acquired by MegaMachines, Inc. (MM), and organized as a separate division within the company. Most manufacturing plants at MM use an ABC system, but UM has always used a traditional product costing system. Bob Miller
> Refer to Problem 9-38. Assume that you have prepared financial statements that show the operating profit for each of the two baskets manufactured by Bob’s Baskets. Further assume that under the activity-based costing approach (requireme
> Bob’s Baskets, Inc., manufactures and sells two types of baskets, deluxe and standard. Last year, Bob’s Baskets had the following costs and revenues: Bob’s Baskets currently uses labor costs to allo
> EZ-Seat, Inc., manufactures two types of reclining chairs, Standard and Ergo. Ergo provides support for the body through a complex set of sensors and requires great care in manufacturing to avoid damage to the material and frame. Standard is a convention
> The management of a liquid cleaning product company is trying to decide whether to install a job or process costing system. The manufacturing vice president has stated that job costing gives the best control because it is possible to assign costs to spec
> John’s Custom Computer Shop (JCCS) assembles computers for both individual and corporate customers. The company is organized into two divisions: Personal and Business. Once a computer is built, it is shipped to the customer. Billing for
> The Personnel Department at LastCall Enterprises handles many administrative tasks for the two divisions that make up LastCall: LaidBack and StressedOut. LaidBack division manages the company’s traditional business line. This business,
> Carolina Fashions, a shirt manufacturer, recently switched to activity-based costing from the department product costing method. The manager of Building S, which manufactures the shirts, has identified the following cost drivers and rates for overhead:
> Delta Parts, Inc., recently switched to activity-based costing from the department allocation method. The Fabrication Department manager has estimated the following cost drivers and rates: Direct materials costs were $300,000 and direct labor costs wer
> Wendy Chen established Windy City Coaching (WCC) to provide teen counseling and executive coaching services to its clients. WCC charges a $300 fee per hour for each service. The revenues and costs for the year are shown in the following income statement:
> Isadore’s Implements, Inc., manufactures pens and mechanical pencils often used for gifts. Overhead costs are currently allocated using direct labor-hours, but the controller has recommended an activity-based costing system using the fo
> We-Clean, Inc., is a home-cleaning service. It originally specialized in serving small residential clients but recently started contracting for work in large apartment and office buildings. Julie Lodge, the owner, believes that the commercial sector has
> Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces the company’s two versions of a special reel used for river fishing. The two models are the M-008, a basic reel, and the M-123, a new a
> Rodent Corporation produces two types of computer mice, wired and wireless. The wired mice are designed as low-cost, reliable input devices. The company only recently began producing the higher-quality wireless model. Since the introduction of the new pr
> Cathy, the manager of Cathy’s Catering, Inc., uses activity-based costing to compute the costs of her catered parties. Each party is limited to 20 guests and requires four people to serve and clean up. Cathy offers two types of parties,
> Give examples of cost drivers commonly used to allocate overhead costs to products and services.
> After reviewing the new activity-based costing system that Janis McGee has implemented at Joplin Industries’s Port Arthur manufacturing facility, Kris Kristoff, the production supervisor, believes that he can reduce production costs by
> Refer to exercise 9-24. Kurt, the manager of the Ohio unit, is unhappy with the results of the controller’s study. He asks the controller to develop separate rates for fixed and variable costs in the Personnel Department. The controller
> The Personnel Department at Drumm Corporation is centralized and provides services to the two operating units: Illinois and Ohio. The Illinois unit is the original unit of Drumm and is well established. The Ohio unit is new, much like a start-up company.
> Main Street Ice Cream Company uses a plantwide allocation method to allocate overhead based on direct labor-hours at a rate of $3 per labor-hour. Strawberry and vanilla flavors are produced in Department SV. Chocolate is produced in Department C. Sven ma
> Munoz Sporting Equipment manufactures baseball bats and tennis rackets. Department B produces the baseball bats, and Department T produces the tennis rackets. Munoz currently uses plantwide allocation to allocate its overhead to all products. Direct labo
> A manager tells you that her company’s cost accounting system divides overhead into two pools: (1) Inspect material and (2) Assemble product. The inspect material pool is allocated on the basis of direct material dollars and the assemble product pool is
> Select an administrative function commonly found in a fi rm. Examples include personnel, accounts payable, purchasing, and so on. Outline an activity-based costing system for the function, including major activities, potential cost drivers, and relevant
> “We all know that cost allocation can distort decision making. We should stop doing this and just report direct costs.” Do you agree? Explain.
> Jim, the vice president of marketing, says the company should not adopt activity-based costing because it will result in the costs of some of the products going up but the market will not allow for raising prices. How would you respond?
> “Activity-based costing could not be applied in a business school.” Do you agree? Explain.
> The more important individual unit costs are used for decisions, the more likely it is that process costing will be preferred to job costing. Do you agree?
> “Activity-based costing does a better job of allocating both direct and indirect cost than traditional methods do.” Is this statement true, false, or uncertain? Explain.
> In what ways is implementing an activity-based costing system in a manufacturing firm’s personnel department the same as implementing it in the plant? In what ways is it different?
> What type of organization is most likely to benefit from using activity-based costing for product costing? Why?
> What are the basic steps in computing costs using activity-based costing?
> What are the costs of moving to an activity-based cost system? What are the benefits?
> Why do companies commonly use direct labor-hours or direct labor cost but not the number of units to allocate overhead?
> The product costs reported using either plantwide or department allocation are the same. The only difference is in the number of cost drivers used. True or false? Explain.
> Howard Rockness was worried. His company, Rockness Bottling, showed declining profits over the past several years despite an increase in revenues. With profits declining and revenues increasing, Rockness knew there must be a problem with costs. Rockness
> “Activity-based costing is just another inventory valuation method. It isn’t relevant for making operating decisions.” Do you agree with this statement? Explain.
> You have been asked to determine whether a company uses an activity-based cost system. What information would you look for to answer the question?
> It has been said that a prior department’s costs behave similarly to direct materials costs. Under what conditions are the costs similar? Why account for them separately?
> “Activity-based costing breaks down the indirect costs into several activities that cause costs (cost drivers). These should be the same for each department in an organization.” Is this true, false, or uncertain? Explain.
> “One of the lessons learned from activity-based costing is that all costs are really a function of volume of output.” Is this true, false, or uncertain? Explain.
> “It is clear after reading this chapter that activity-based costing is the best system. Whenever someone asks, I’ll recommend its adoption.” Do you agree? Explain.
> Bouwens Corporation manufactures a solvent used in airplane maintenance shops. Bouwens sells the solvent to both U.S. military services and commercial airlines. The solvent is produced in a single plant in one of two buildings. Although the solvent sold
> Vermont Company uses continuous processing to produce stuffed bears and FIFO process costing to account for its production costs. It uses FIFO because costs are quite unstable due to the volatile price of fi ne materials it uses in production. The bears
> Pacific Siding Incorporated produces synthetic wood siding used in the construction of residential and commercial buildings. Pacific Siding’s fiscal year ends on March 31, and the weighted-average method is used for the companyâ&#
> Miller Outdoor Equipment (MOE) makes four models of tents. The model names are Rookie, Novice, Hiker, and Expert. MOE manufactures the tents in two departments: Stitching and Customizing. All four models are processed initially in Stitching where all mat
> “Activity-based costing is the same as department costing.” Is this true, false, or uncertain? Explain.
> For each of the following independent cases, determine the units or equivalent units requested (assuming weighted-average costing). a. The WIP Inventory account had a beginning balance of $11,400 for conversion costs on items in process and, during the p
> For each of the following independent cases, use FIFO costing to determine the information requested. a. The ending inventory included $87,000 for conversion costs. During the period, 42,000 equivalent units were required to complete the beginning invent
> What is the distinction between equivalent units under the FIFO method and equivalent units under the weighted-average method?
> Refer to the information in Problem 8-47. Department R uses FIFO process costing to account for production. In January, beginning work-in-process inventory consisted of 50,000 units, 80 percent complete with respect to conversion. The cost of rubber pell
> Saline Solutions uses process costing to account for production of its unique compound BG at its River Plant. The River Plant has two departments: R and S. Raw materials are added at two points in the production of BG. First, rubber pellets are added at
> Why are cost drivers based on direct labor widely used?
