Question: Edlie Accessories (EA) makes travel bags, both
Edlie Accessories (EA) makes travel bags, both for sale under their own label (“Brandedâ€) and for other resellers to put their label on the bags (“Private-Labelâ€). The bags sold through the two channels are similar, but they differ slightly in the quality of materials and detail in the manufacturing process.
The manufacturing plant at EA has two departments. Department A-101 was the original manufacturing facility, and many of the machines are original. Department A-102 is new, with state-of-the-art equipment. The new equipment facilitates the additional care taken with the Branded product.
The following information presents financial results for the two models from last year:
The product costing system at EA allocates manufacturing overhead on the basis of direct labor costs.
Required
a. Compute the profit for each product using plantwide allocation.
b. Compute the profit for each product using department allocation.
c. Based on the information in the exercise, would you recommend that EA continue using plantwide allocation or switch to department allocation? Explain.
> Refer to Exercises 11-27, 11-29, and 11-32 (Woodstock Binding). Required a. Which method do you think is best? Why? b. How much would it be worth to the company to use the best method compared to the worst of the three methods? (Numbers are not required
> Ervin Equipment, a manufacturer of exercise and workout equipment for sale to institutions, uses job costing. The following transactions occurred in January: 1. Purchased $76,000 of materials. 2. Paid $81,000 cash for utilities, power, equipment maintena
> Refer to the data for Memorial Services, Inc. in Exercise 11-33. Required Use the reciprocal method to allocate the service department costs to the production departments. (Matrix algebra is not required.) Exercise 11-33:
> Refer to the data for Memorial Services, Inc. in Exercise 11-33. Required Use the step method to allocate the service department costs to the two production departments. Allocate HR costs first, followed by IT, and then Accounting. Exercise 11-33:
> Refer to the data for Woodstock Binding in Exercise 11-27. Required Allocate the service department costs using the reciprocal method. (Matrix algebra is not required because there are only two service departments.) Exercise 11-27:
> Activity and selected costs for three production departments (Training, Independent, and Commercial) and two service departments (Accounting and Facilities) at DuBay Films for the past month follow: Required Allocate service department costs to Training,
> Refer to the data for Mack Precision Tool and Die in Exercise 11-25. Required Use the reciprocal method to allocate the service costs. (Matrix algebra is not required.) Exercise 11-25:
> Refer to the data for Woodstock Binding in Exercise 11-27. Required Use the step method to allocate the service costs, using the following: a. The order of allocation starts with IT. b. The order of allocation starts with HR. Exercise 11-27:
> You are the division president of Wood Division of Underwood Enterprises. The only other division at Underwood Enterprises is Plastics Division. Each division has 12,000 employees. Last year, Wood Division had a turnover of 2,500 employees (2,500 employe
> Consider adapting the cost of quality framework to financial reporting issues. Assign costs to one of four categories: prevention (P), appraisal (A), internal failure (IF), and external failure (EF), where the categories refer to financial reporting acti
> Many companies have adapted the cost of quality framework to environmental issues. They assign costs to one of four categories: prevention (P), appraisal (A), internal failure (IF), and external failure (EF), where the categories refer to environmental a
> Cairney, Inc. manufactures a specialized part used in internal combustion engines. The annual demand for the part is 225,000 units. The facility has a practical capacity of 240,000 units annually. The company leased the current facility because facilitie
> Barker Products is a job shop. The following events occurred in September: 1. Purchased $13,000 of materials. 2. Issued $14,500 in direct materials to the production department. 3. Purchased $11,000 of materials. 4. Issued $900 of supplies from the mater
> Which method, weighted-average or FIFO, better reflects the current cost of production when using process costing?
> Basil’s Framing manufactures picture frames in one workshop, which has a practical capacity of 40,000 frames. The variable cost of a frame is $24 per unit, and the fixed costs of the workshop are $392,000 annually. Current annual demand is 28,000 frames.
> Middle Industries produces a sensor for use in manufacturing. It produces the sensor in a plant with an annual practical capacity of 75,000 units. The variable cost of the sensor is $185.00 per unit, and the fixed costs of the plant are $12,375,000 annua
> Hosmer Industries provides the following information about resources and usage: Required a. Compute the cost driver rate for each resource. b. Describe what the term unused resource capacity means.
> Wykes Metal Working uses a special lathe to shape components. Data on the lathe and its usage follow: Required Compute the cost of unused resource capacity in energy and repairs for Wykes Metal Working.
> Ellery Products manufactures various components for the fashion industry. Ellery buys fabric from two vendors: Ewers Textiles and Bramford Materials. Ellery chooses the vendor based on price. Once the fabric is received, it is inspected to ensure that it
> Central State College (CSC) is a state-supported college with a large business school. The business school offers an undergraduate degree and training programs for a local manufacturer. The state does not support the training programs, which are paid for
> Lygon Food Distributors (LFD), introduced in the chapter, hired a consultant to update its system for reporting the cost of customers. The consultant showed Anjana Malik, the owner of LFD, an analysis that indicates that customer support costs are signif
> Refer to the data in Exercise 10-32. Required a. How can Northwestern Bank use the information from the activity-based costing analysis to manage its costs? b. What does Northwestern Bank need to consider before implementing your suggestions from require
> Northwestern Bank (NB) offers only checking accounts. Customers can write checks and use a network of automated teller machines. NB earns revenue by investing the money deposited; currently, it averages 4.1 percent annually on its investments of those de
> Rupert’s Appliance Warehouse (RAW) delivers appliances to retailers throughout the city. The firm adds 6 percent to the cost of the appliances to cover the delivery cost. The delivery fee is meant to cover the cost of delivery. The fina
> Under what conditions are the results from using the direct method of allocation the same as those from using the other two methods? Why?
> Alter’s Home Center (AHC) sells renovation and remodeling products to both contractors and individual home owners. One of the services AHC offers is delivery of the purchased products to the customer’s work site. Becau
> The following are various activities for EMS Law School. Required Suggest a feasible cost driver base for each of the following, and explain why each selected cost driver base is feasible. a. Course registration. b. Admissions: Attending recruiting fairs
> The following are various activities for Humphrey Insurance Agency. Required Suggest a feasible cost driver base for each of the following, and explain why each selected cost driver base is feasible. a. Consumer contract customer service. b. Consumer con
> Brentwood Disaster Relief (BDR) is a local not-for-profit organization working to help victims of disasters. Required The following are various resources and activities of the organization. Indicate whether each is likely to apply at the (1) unit level o
> Consider the following actions of a manufacturing firm trying to manage the costs of materials handling from the direct materials inventory to the production line. Required Match each of the process improvements listed with how it delivers cost reduction
> Consider the following actions of a college placement center trying to manage the costs of its placement services. Required Match each of the process improvements listed with how it delivers cost reductions.
> The manager of the Personnel Department at Binder City has been reading about time-driven ABC and wants to apply it to that department. The manager has identified four basic activities Personnel Department employees spend most of their time on: Interview
> Meadow Logistics, Inc. (MLI) distributes food purchased in bulk to small retailers. The firm is divided into two divisions: Purchasing and Distribution. Purchasing is responsible for ordering goods from the manufacturer, receiving them, and then moving t
> Exeter Group is a large retail company that has brick-and-mortar outlets throughout the Southeast. It has been in business for many years, but two years ago started an online sales channel to offset slowing in-store sales. The human resources (HR) depart
> Cathedral City Services (CCS) is a not-for-profit organization offering two services in a midsized city. The services are “Elder Meals” and “Jobs4U.” Elder Meals is a meals-on-wheels
> What argument(s) could be given in support of the reciprocal method as the preferred method for distributing the costs of service departments?
> Spencer’s Sports manufactures outdoor equipment at three regional plants. The Freeway Plant produces two models of fishing reels, the Stream and the Surf. The Surf model is heavier and more durable. Overhead costs are currently allocate
> Shady Fabrication Group (SFG) manufactures components for manufacturing equipment at several facilities. The company produces two, related, parts at its Park River Plant, the models SF-08 and SF-48. The differences in the models are the quality of the ma
> Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model.
> Richard’s Events provides catering services, among other services. The company has adopted activity-based costing (ABC) for the catering services. The ABC system classifies activities into two groups based on the cost driver used: diner
> Refer to the data in Exercise 9-38. Required a. Compute the unit (per visitor) costs for the two tour types (public and donor) assuming PCHS uses the current cost system. b. Compute the unit (per visitor) costs for the two tour types (public and donor) a
> The Philip County Historical Society (PCHS) collects and displays historical artifacts from the local area. One of its services is dedicated tours. PCHS offers dedicated tours to two groups: the general public (generally tourists and local residents) and
> Refer to the information in Exercise 9-34. Required a. Compute the unit costs for the two products, Standard and Premium, using the current costing system at Benton (using direct labor costs as the allocation basis for overhead). b. Compute the unit cost
> Benton Corporation manufactures computer microphones, which come in two models: Standard and Premium. Data for a representative quarter for the two models follow: Manufacturing overhead in the plant has three main functions: supervision, setup labor, and
> After reviewing the new activity-based costing system that Nancy Chen has implemented at IVC’s CenterPoint manufacturing facility, Tom Spencer, the production supervisor, believes that he can reduce production costs by reducing the time spent on machine
> Refer to the information in Exercise 9-31. The manager of the Los Angeles office is now unhappy with the results of the controller’s study. The manager asks the controller to develop separate rates for fixed and variable costs in the Pe
> As the representative of the local accounting club, you have been asked by the dean to help them understand the costs of the different degrees offered at the school. You decide to use an activity-based costing system. Write a report outlining the first t
> Trombly Travel Products (TTP) manufactures and sells travel bags and accessories. TTP produces backpacks at its West Street plant. The different backpack models are identified by the primary material used: canvas, nylon, or leather. The company uses a pl
> West State Furniture (WSF) manufactures desks and desk chairs using two departments within a single facility. The West Department produces the desks, and the State Department produces the chairs. WSF uses plantwide allocation to allocate its overhead to
> Wakefield Instruments manufactures three digital piano models, which differ only in the components included: Solo, Recital, and Concert. Production takes place in two departments, Assembly and Finishing. The Solo and Recital models are complete after the
> McClellan Recreation manufactures and sells two models of paddle boards: Starter and Pro. The Starter model is a basic board used for instruction and purchased by novices. The Pro model is made with premium materials and comes with several accessories. T
> Refer to the information in Exercise 8-51. Required a. Prepare a production cost report using the FIFO method. b. Is the ending inventory higher using FIFO or the weighted-average method? Why? c. Would you recommend that Beverly Plastics use the FIFO met
> Lincolnshire Lumber sells boards for many uses including wood floors. For floors, the boards are sold to local installers or do-it-yourself homeowners. The boards go through up to four processes, although only the first two are completed for all sales. L
> Refer to the information in Exercise 8-49. Required a. Prepare a production cost report for August using the weighted-average method. b. Is the ending inventory higher using FIFO or the weighted-average method? Why? c. Would you recommend that Terminal I
> Armada Shipping is a global logistics company. The company is organized into two divisions: Contracts and Retail. The Contracts Division, which is by far the larger division, handles customers who have regular shipping requirements and have signed contra
> Fulton Construction is a general contractor for large construction projects. The budget costs and the time to reach a particular percentage of completion (in months) follow. Also shown are the actual results (cost and months) up to the latest report, whi
> Customers don’t cost money; they bring in revenue.” Do you agree? Why?
> Clarita Contracting builds roads, tunnels, bridges, and other transportation infrastructure. The following are the budgeted costs and time (months) to a given stage of completion for a project to upgrade a bridge to current standards. The project was ori
> Queenston Professional Support (QPS) provides professional services (IT, payroll and billing, and so on) to firms requiring temporary help in those areas. QPS bills clients for its various services based on the hours its professionals spend. In January,
> Farnsworth Executive Coaching (FEC) offers services to firms in advising executives on improving productivity and leadership. For August, FEC worked 660 hours for Grace Corporation and 390 hours for Temple Construction. In addition, FEC had small engagem
> In October, Temptations Event Planners (TEP) planned events for two clients. TEP worked 140 hours for Ward Corporation and 240 hours for Girardin Industries. TEP bills clients at the rate of $350 per hour; labor cost for its planning staff is $140 per ho
> Heidt Cleaning Services (HCS) is a local custodial service company serving both the residential and commercial markets. The owner is considering dropping the commercial clients because that business seems only marginally profitable. Twenty-five employees
> Refer to the information in Exercise 7-41. The controller at Wanda Instrumentation chose direct materials cost as the allocation base in Year 2, based on what the financial staff thought reflected the relation between overhead and direct labor cost. Year
> Wanda Instrumentation produces navigational equipment for ships, aircraft (both staffed and drones), and land vehicles. The parts are produced to specification by their customers. Depending on the customer and the type of job, the customer pays according
> Audubon, Inc. uses a predetermined factory overhead rate based on machine-hours. For October, Audubon recorded $4,500 in overapplied overhead, based on 34,100 actual machine-hours worked and actual manufacturing overhead incurred of $583,725. Audubon est
> Jason’s Custom Tooling (JCT) uses a job order cost system and applies overhead using a predetermined overhead rate based on direct labor costs. The following debits (credits) appeared in Workin- Process Inventory for November: Job 13-11
> Brunswick Home Remodelers (BHM) uses a job order cost system. The following debits (credits) appeared in Work-in-Process Inventory for April: BHM applies overhead to production at a predetermined rate of 65 percent based on direct materials cost. Job BH-
> You are working at a hotel in a resort location. The manager says that the hotel must raise the rates in the winter when it has fewer tourists because the cost per room is much higher. How would you respond?
> Regular Company produces audio equipment, specifically headphones and speakers. A new CEO has just been hired and announces a new policy that if a product cannot earn a markup of at least 25 percent, it will be dropped. The markup is computed as product
> Heidelberg Fabrication manufactures two products, G-09 and G-35: Production at the plant is automated and any labor cost is included in overhead. Data on manufacturing overhead at the plant follow: Required a. Heidelberg currently applies overhead on the
> In what ways is joint cost allocation similar to the allocation of fixed costs? In what ways is it different?
> How is joint cost allocation like service department cost allocation?
> This chapter indicated that joint costing is used for inventory valuation and regulatory purposes. Under what conditions might the method of joint cost allocation have an impact on other decisions?
> Consider a firm with three service departments (S1–S3) with a pattern of usage as follows: That is, service department S2 uses 10 percent of the service from S1, service department S3 uses 30 percent, and production departments use 60 p
> Surf Beach State College (SBSC) has a business school with three products: undergraduate degrees, graduate degrees, and executive education. SBSC has three service departments: Computer Support, Career Development, and the Library. The dean would like to
> What are some of the factors that a company needs to consider in addition to cost savings when deciding whether to outsource a service department, such as Information Services?
> Consider a company with two producing departments and one service department. The service department distributes its costs to the producing departments on the basis of the number of employees in each department. If the costs in the service department are
> Consider the Business Application “Managing Excess Capacity Resources—The Case of Employees.” In a related article, the authors write that manufacturers would “probably not try to pass them [excess capacity costs] along to the consumer, at least in the s
> Would process costing work well for a service firm? Why or why not?
> I have to pay for capacity whether it is used or not. Therefore, excess or idle capacity really doesn’t cost me anything.” Do you agree? Why?
> Consider the Business Application feature “Technology, Data Analysis, Customer Profitability, and Cost of Quality.” What does it mean to “fire a customer”? Why would a firm want to do this? How would a firm do this?
> The cost accounting manager at your business says that he is trying to choose between a job costing system and an ABC system. How would you respond?
> One of the issues we identified with traditional costing systems is that all costs are allocated using volume-related drivers, such as direct labor-hours. How is time-driven ABC, which relies on minutes, different?
> Consider the Business Application “Fraudulent Reporting of Project Completion to Improve Financial Performance.” Would a solution to the problem of misreporting in the case of projects be solved by writing the contract to make payment when the project is
> How might a manufacturing system differ under a quality-based view versus the traditional view of managing quality?
> Can you think of any products for which one or several of the elements of service, quality, and cost are not important to the customer? If so, explain why.
> Many if not most schools in the United States have large excess capacity cost because they are underutilized in the summer months. The dean at the local business school is developing a cost of customer system to assess costs of students in different degr
> A firm produces a product by sending it through three production departments (A, B, and C). A uses job costing, B uses operations costing, and C uses process costing. Is this possible? Why? Is this likely? Why?
> Consider two firms in the same industry. Is it possible that one uses job costing and the other uses process costing? Explain.
> Consider a manufacturing firm with multiple departments all using continuous production processes and process costing. Suppose Department A transfers product to Department B for completion to the final product. Is it necessary that both departments use t
> In the chapter, we said that the costs from a prior department are often excluded when comparing a department’s cost with its standards or budgets. However, when a department buys materials from an outside firm, those costs would almost always be part of
> Consider the Business Application feature “Technology, Data Analysis, Customer Profitability, and Cost of Quality.” Do you think it is easier to estimate the cost savings from adapting a lean manufacturing system or to estimate the costs from a disaster
> Throughout the chapter, we treated conversion costs (direct labor and manufacturing overhead) as a single resource. Why could we do this without distorting the resulting costs? When would we need to treat them separately?
> Service department cost allocation is the first stage in a two-stage system. Suppose a company has a purchasing department that is responsible for buying all materials, including miscellaneous supplies for the company’s three production departments. Each
> If the reciprocal method is conceptually superior, why don’t all firms use it?
> One critic of cost allocation noted, “You can avoid the problem of arbitrary cost allocations by not allocating any common costs to other cost objects.” What are your thoughts on this comment?
> If cost allocations are arbitrary and potentially misleading, why do companies, including successful ones, continue to allocate costs?
> What is the difference between resources supplied and resources consumed? Why is the difference important?
> In what ways does quality affect cost?
> Under what conditions should the cost of excess capacity be assigned to products or customers? When should excess capacity costs not be assigned to products or customers?
