Differences in operating income between variable costing and absorption costing are due solely to accounting for fixed costs. Do you agree? Explain.
> What is cost-plus pricing?
> What are the three major influences on pricing decisions?
> What is a partial-productivity measure?
> How might the optimal solution of a linear programming problem be determined?
> Describe the three steps in solving a linear programming problem.
> What is downsizing?
> “Cost written off as depreciation on equipment already purchased is always irrelevant.” Do you agree? Why?
> DLN is an architectural firm that designs and builds buildings. It prices each job on a cost plus 20% basis. Overhead costs in 2017 are $8,100,000. DLN’s simple costing system allocates overhead costs to its jobs based on number of jobs
> Describe three alternative cost-plus pricing methods.
> “Management should always maximize sales of the product with the highest contribution margin per unit.” Do you agree? Why?
> Describe the five key forces to consider when analyzing an industry.
> Define opportunity cost.
> Define strategy.
> “Variable costs are always relevant, and fixed costs are always irrelevant.” Do you agree? Why?
> What is reengineering?
> What is a customer preference map, and why is it useful?
> “All future costs are relevant.” Do you agree? Why?
> Define relevant costs. Why are historical costs irrelevant?
> Sander Company produces mathematical and financial calculators and operates at capacity. Data related to the two products are presented here: Total manufacturing overhead costs are as follows: Total Machining costs…â€&brvb
> Outline the five-step sequence in a decision process.
> List the six steps in estimating a cost function on the basis of an analysis of a past cost relationship. Which step is typically the most difficult for the cost analyst?
> Describe the conference method for estimating a cost function. What are two advantages of this method?
> “High correlation between two variables means that one is the cause and the other is the effect.” Do you agree? Explain.
> What is the difference between a linear and a nonlinear cost function? Give an example of each type of cost function.
> Describe three alternative linear cost functions.
> “All the independent variables in a cost function estimated with regression analysis are cost drivers.” Do you agree? Explain.
> Discuss four frequently encountered problems when collecting cost data on variables included in a cost function.
> Define learning curve. Outline two models that can be used when incorporating learning into the estimation of cost functions.
> What two assumptions are frequently made when estimating a cost function?
> Acclaim Inc. makes two styles of trophies, basic and deluxe, and operates at capacity. Acclaim does large custom orders. Acclaim budgets to produce 10,000 basic trophies and 5,000 deluxe trophies. Manufacturing takes place in two production departments:
> Critics of absorption costing have increasingly emphasized its potential for leading to undesirable incentives for managers. Give an example.
> What are the factors that affect the breakeven point under (a) variable costing and (b) absorption costing?
> “Companies that make no variable-cost/fixed-cost distinctions must use absorption costing, and those that do make variable-cost/fixed-cost distinctions must use variable costing.” Do you agree? Explain.
> What is the IRS’s requirement for tax reporting regarding the choice of a denominator-level capacity concept?
> Describe how flexible-budget variance analysis can be used in the control of costs of activity areas.
> “Overhead variances should be viewed as interdependent rather than independent.” Give an example.
> Describe the downward demand spiral and its implications for pricing decisions.
> “The production-volume variance should always be written off to Cost of Goods Sold.” Do you agree? Explain.
> Provide one caveat that will affect whether a production-volume variance is a good measure of the economic cost of unused capacity.
> What are two ways of reducing the negative aspects associated with using absorption costing to evaluate the performance of a plant manager?
> Roadster Company (RC) designs and produces automotive parts. In 2017, actual variable manufacturing overhead is $280,000. RC’s simple costing system allocates variable manufacturing overhead to its three customers based on machine-hours
> Why is the flexible-budget variance the same amount as the spending variance for fixed manufacturing overhead?
> What are the steps in developing a budgeted fixed overhead rate?
> Explain the main conceptual issue under variable costing and absorption costing regarding the timing for the release of fixed manufacturing overhead as expense.
> Why is the term direct costing a misnomer?
> What are the factors that affect the spending variance for variable manufacturing overhead?
> What are the steps in developing a budgeted variable overhead cost-allocation rate?
> How does standard costing differ from actual costing?
> How does the planning of fixed overhead costs differ from the planning of variable overhead costs?
> Rob Kapito, the controller of Blackstar Paint Supply Company, has been exploring a variety of internal accounting systems. Rob hopes to get the input of Blackstar’s board of directors in choosing one. To prepare for his presentation to
> The Ride-On-Wave Company (ROW) produces a line of non-motorized boats. ROW uses a normal-costing system and allocates manufacturing overhead using direct manufacturing labor cost. The following data are for 2017: Budgeted manufacturing overhead cost&acir
> Tesla Motors assembles the fully electric Model S-85 automobile at its Fremont, California, plant. The standard variable manufacturing cost per vehicle in 2017 is $58,800, which consists of: Direct materials……&acir
> In 2018, only 876,000 Mealman meals were produced and sold to the hospitals. Wright suspects that hospital controllers had systematically inflated their 2018 meal estimates. Required: 1. Recall that Mealman uses the master-budget capacity utilization t
> Meals To Go operates a chain of 10 hospitals in the Los Angeles area. Its central food-catering facility, Mealman, prepares and delivers meals to the hospitals. It has the capacity to deliver up to 1,460,000 meals a year. In 2017, based on estimates from
> The Iron City Company started business on January 1, 2017. Iron City manufactures a specialty honey beer, which it sells directly to state-owned distributors in Pennsylvania. Honey beer is produced and sold in six-packs, and in 2017, Iron City produced m
> Planet Light First (PLF), a producer of energy-efficient light bulbs, expects that demand will increase markedly over the next decade. Due to the high fixed costs involved in the business, PLF has decided to evaluate its financial performance using absor
> Planet Light First (PLF), a producer of energy-efficient light bulbs, expects that demand will increase markedly over the next decade. Due to the high fixed costs involved in the business, PLF has decided to evaluate its financial performance using absor
> Market.com is about to enter the highly competitive personal electronics market with a new type of tablet. In anticipation of future growth, the company has leased a large manufacturing facility and has purchased several expensive pieces of equipment. In
> LLAP Company manufactures a specialized hoverboard. LLAP began 2017 with an inventory of 240 hoverboards. During the year, it produced 1,200 boards and sold 1,300 for $800 each. Fixed production costs were $319,000, and variable production costs were $37
> Magic Me is a manufacturer of magic kits. It uses absorption costing based on standard costs and reports the following data for 2017: There is no price, spending, or efficiency variances. Actual operating costs equal budgeted operating costs. The produc
> Castle Lager has just purchased the Jacksonville Brewery. The brewery is two years old and uses absorption costing. It will “sell” its product to Castle Lager at $47 per barrel. Peter Bryant, Castle Lagerâ€&
> Creative Solutions designs Web pages for clients in the education sector. The company’s job-costing system has a single direct cost category (Web-designing labor) and a single indirect cost pool composed of all overhead costs. Overhead costs are allocate
> Castle Lager has just purchased the Jacksonville Brewery. The brewery is two years old and uses absorption costing. It will “sell” its product to Castle Lager at $47 per barrel. Peter Bryant, Castle Lagerâ€&
> Mountain Press produces textbooks for high school accounting courses. The company recently hired a new editor, Jan Green, to handle production and sales of books for an introductory accounting course. Jan’s compensation depends on the gross margin associ
> Gammaro Company uses standard costing. Tim Sweeney, the new president of Gammaro Company, is presented with the following data for 2017: Required: 1. At what percentage of denominator level was the plant operating during 2017? 2. How much fixed manufac
> Carpenter Company uses standard costing. The company has a manufacturing plant in Georgia. Standard labor-hours per unit are 0.50, and the variable overhead rate for the Georgia plant is $3.50 per direct labor-hour. Fixed overhead for the Georgia plant i
> The Greenspace Company started business on January 1, 2017. The company adopted a standard costing system for the production of ergonomic backpacks. Greenspace chose direct labor as the application base for overhead and decided to use the proration metho
> Cavio is a cloud service provider that offers computing resources to handle enterprise-wide applications. For March 2017, Cavio estimates that it will provide 18,000 RAM hours of services to clients. The budgeted variable overhead rate is $6 per RAM hour
> Kathy’s Kettle Potato Chips produces gourmet chips distributed to chain sub shops throughout California. To ensure that their chips are of the highest quality and have taste appeal, Kathy has a rigorous inspection process. For quality control purposes, K
> The Beal Manufacturing Company’s costing system has two direct-cost categories: direct materials and direct manufacturing labor. Manufacturing overhead (both variable and fixed) is allocated to products on the basis of standard direct m
> The Gallo Company uses a flexible budget and standard costs to aid planning and control of its machining manufacturing operations. It’s costing system for manufacturing has two direct-cost categories (direct materials and direct manufacturing labor—both
> The Saluki Company specializes in making fraternity and sorority T-shirts for the college market. Due to the high setup costs for each batch printed, Saluki holds the T-shirt requests until demand is approximately 100 shirts. At that point Saluki will sc
> Cheney & Partners, a Quebec based public accounting partnership, specializes in audit services. Its job-costing system has a single direct-cost category (professional labor) and a single indirect-cost pool (audit support, which contains all costs of
> The Roller Bag Company manufactures extremely light and rolling suitcases. It was one of the first companies to produce rolling suitcases and sales have increased for the past several years. In 2017, Roller Bag budgeted to sell 150,000 suitcases for $80
> Audrina’s Fleet Feet, Inc., produces dance shoes for stores all over the world. While the pairs of shoes are boxed individually, they are crated and shipped in batches. The shipping department records both variable direct batch-level co
> Wilson Products uses standard costing. It allocates manufacturing overhead (both variable and fixed) to products on the basis of standard direct manufacturing labor-hours (DLH). Wilson Products develops its manufacturing overhead rate from the current an
> Consider the following two situations—cases A and B— independently. Data refer to operations for April 2017. For each situation, assume standard costing. Also assume the use of a flexible budget for control of variable
> Best Around, Inc., is a manufacturer of vacuums and uses standard costing. Manufacturing overhead (both variable and fixed) is allocated to products on the basis of budgeted machine-hours. In 2017, budgeted fixed manufacturing overhead cost was $17,000,0
> Cooking Whiz manufactures premium food processors. The following are some manufacturing overhead data for Cooking Whiz for the year ended December 31, 2017: Budgeted number of output units: 915 Planned allocation rate: 2 machine-hours per unit Actual
> Cooking Whiz manufactures premium food processors. The following are some manufacturing overhead data for Cooking Whiz for the year ended December 31, 2017: Budgeted number of output units: 915 Planned allocation rate: 2 machine-hours per unit Actual
> It is the end of 2017. Z-Var Corporation began operations in January 2016. The company is so named because it has no variable costs (Zero VARiable). All its costs are fixed; they do not vary with output. Z-Var Corp. is located on the bank of a river and
> ABC Inc. desires to maintain a capital structure of 80% equity and 20% debt. They currently have an effective tax rate of 30%. The company’s cost of equity capital is 12%. To obtain their debt financing, they issue bonds with an interest rate of 10%. Wha
> The Long Haul Trucking Company is developing metrics for its drivers. The company computes variable costs of each load based upon miles driven and allocates fixed costs based upon time consumed. Load costing standards consider safe driving speeds and Dep
> Rowan Company produces pipes for concert quality organs. Each job is unique. In April 2016, it completed all outstanding orders, and then, in May 2016, it worked on only two jobs, M1 and M2: Direct manufacturing labor is paid at the rate of $25 per hour
> If ROI is used to evaluate a manager’s performance for a relatively new division, which of the following measures for assets (or investment) will increase ROI? a. Gross book value used instead of net book value. b. Net book value using accelerated rather
> Assuming an increase in price levels over time, which of the following asset valuations will produce the highest return on assets? a. Net book value b. Gross book value c. Replacement cost d. Depreciated replacement cost
> During the current year, a strategic business unit (SBU) within Roke Inc. saw costs increase by $2 million, revenues increase by $4 million, and assets decrease by $1 million. SBUs are set up by Roke as follows I. Cost SBU II. Revenue SBU III. Profit S
> Nick’s Enterprises has purchased a new machine tool that will allow the company to improve the efficiency of its operations. On an annual basis, the machine will produce 20,000 units with an expected selling price of $10, prime costs of $6 per unit, and
> The following information pertains to the January 2, year 2 transaction replacing a print machine for Hidden Creek Enterprises, Inc. Net book value – old print machine…………. $20,000 Total cost of new machine……………………..$180,000 Down payment on new machine…
> Which of the following statements is true if the NPV of a project is –$4,000 (negative $4,000) and the required rate of return is 5 percent? a. The project’s IRR is less than 5 percent. b. The required rate of return is lower than the IRR. c. The NPV ass
> Which of the following items describes a weakness of the internal rate-of-return method? a. The internal rate of return is difficult to calculate and requires a financial calculator or spreadsheet tool such as Excel to calculate efficiently. b. Cash flow
> A company should accept for investment all positive NPV investment alternatives when which of the following conditions is true? a. The company has extremely limited resources for capital investment. b. The company has excess cash on its balance sheet. c.
> Just-in-time inventory assumes all of the following, except: 1. Zero defects. 2. Resources will only be introduced as they are needed. 3. Just-in-time inventory presumes first-in, first-out costing. 4. Production of components only occurs only when reque
> Lyle Co. has only one product line. For that line, the reorder point is 500 units, the lead time for production is three weeks, and the sales volume is estimated at 50 units per week. Lyle has established which of the following amounts as its safety stoc
> Donald Transport assembles prestige manufactured homes. Its job costing system has two direct-cost categories (direct materials and direct manufacturing labor) and one indirect-cost pool (manufacturing overhead allocated at a budgeted $31 per machine-hou
> Jill’s Custom Bags manufacturers and sells 12,000 customer designer bags per year, each requiring three yards of a specially manufactured fabric. These bags are sold evenly throughout the year. The materials for these bags require two months’ lead time.
> Jack’s Tracks sells 24,000 custom-designed GoKarts per year. These GoKarts are sold evenly throughout the year. The manufacturer charges Jack a $50 processing cost per order, and Jack incurs a carrying cost of $240 per year including storing each GoKart
> The order size associated with the economic-order-quantity (EOQ) model will necessarily decline if: a. Ordering costs rise b. Storage costs rise c. Insurance costs for materials in storage fall d. Stockout costs rise
> Six Sigma is a continuous quality improvement methodology that is designed to promote: 1. Improvements for existing products and business processes. 2. Development of new products or business processes. 3. Both existing product/process improvement and ne
> Rector Corporation is examining its quality control program. Which of the following statements is/are correct? I. Rework costs should be regarded as a cost of quality when the rework is caused by internal failure. II. Prevention costs are costs that are
