Question: Pilgrim Fitness makes various devices for personal
Pilgrim Fitness makes various devices for personal fitness tracking. One of its well-established products is a low-cost band, the PF-24, meant to compete with more sophisticated smart watches and other expensive devices. The PF-24 has been on the market for 18 months, and the managers at Pilgrim Fitness believe it has at least another 24 months before it becomes obsolete at any price. Recently, Pilgrim Fitness was approached by Banneker Ltd., an international electronics company. Banneker proposed that it produce the PF-24 for Pilgrim Fitness. Banneker would be responsible for the total production effort, from purchasing materials to shipping the finished devices to various Pilgrim warehouses around the country. Because Pilgrim leases the manufacturing facility where the PF-24 is made and because that facility has no other use for Pilgrim, it could avoid all manufacturing costs of the PF-24, both direct costs and all overhead, if it purchased the PF-24 from Banneker. Banneker has stated that it would be willing to sell the PF-24 to Pilgrim for $15 per unit, for up to 200,000 units per month. The special studies team in the controller’s office at Pilgrim has been charged with making a recommendation to senior management regarding the Banneker proposal. Engineers at the manufacturing facility report that the direct costs (materials and labor) for the PF-24 amount to $5 per unit. After some internal discussion with the operations team at the manufacturing facility, the special studies team agreed that data from the last 12 months of manufacturing would be representative of the overhead cost for the PF-24. The data the team collected follow: 
Required Prepare a report for the senior management at Pilgrim Fitness recommending a decision on the Banneker proposal. Be sure to include a discussion of the analysis that led to your recommendation along with any visual materials you have to help support your conclusions.
> Chandler Packaged Treats (CPT) sells a specialty pet food to pet stores. CPT management prides itself on its scientific management methods. Applying those methods, the controller estimates the following monthly costs based on 6,000 units (produced and so
> Refer to the information in Problem 1-55. Prepare a report to communicate your findings. Emily tells you that Adam Mercer, the president, prefers graphics that help him understand the analysis. Required Prepare appropriate graphics to communicate the con
> Emily Cho, the consultant for The AM Bakery shows you the following table with district profitability and asks for a report on which district is most profitable, along with a brief explanation. Required Write a short report with your conclusions. Be sure
> Henderson Designs provides basic interior design services in a small town in the Rocky Mountain area. Lately, the growth in the business has slowed considerably and the managers have been looking at new services that might improve their prospects. The sa
> Pierson Landscape Architects (PLA) develops and sells plans for various types of gardens and outdoor spaces. Customers buy the plans and then install the garden, the water feature, or other installation by themselves or by hiring a contractor who will ta
> Frederick’s Motivational Workshops (FMW) offers hands-on workshops by noted experts on various business and life-skill topics, such as sales techniques, negotiation, and leadership. FMW works exclusively with corporate clients, so that
> An online news report stated that a fall in airline fuel prices brought down the load factors necessary for one particular airline to break even from 78 percent to 63 percent. What important assumptions and limitations should be considered when using thi
> Luce Original Baking Supplies (LOBS) sells equipment to homes and small businesses for baking. There are two distribution channels. Customers can shop and purchase at a retail outlet located near the company warehouse. Alternatively, they can order onlin
> Refer to Exhibit 1.6, which shows budgeted versus actual costs. Assume that The AM Bakery is preparing a budget for the month ending December 31. Management prepares the budget for the month ending December 31 by starting with the actual results for Augu
> Refer to Exhibit 1.6. Assume that The AM Bakery is preparing a budget for the month ending November 30. Management prepares the budget by starting with the actual results for August that appear in Exhibit 1.6. Then, management considers what the differen
> Holborn Appliance Shop is a small business located on the coast. It specializes in appliance repair and is known in the area for fast, reliable, and friendly service. Katie Holborn, the owner and primary repair specialist, has been working with appliance
> Langholm Bistro is a popular restaurant in a small, coastal village. Brian Langholm, who opened the restaurant five years ago, has seen it grow steadily. Currently, Langholm’s is only open for dinner, but many of the regular customers h
> Forman’s Services is a small accounting firm that offers payroll and bookkeeping services to small businesses and individuals. A local merchant has approached Will Forman, the owner, about taking over his payroll disbursements but is co
> Lindsay Mobility manufactures two versions of e-scooters: L-4 and L-36. Both models go through the same assembly process and are produced in the same plant. The difference between the models is in quality and cost of the parts (direct materials). The fol
> Larned Recreational builds two models of dune buggies: Sport and Custom. Both models require the same assembly and finishing process and are assembled in the same factory. They differ in the quality and detail of the materials. The following data reflect
> Refer to the information in Exercise 6-46 and Problem 6-69. An accounting student from the local college, working on a related project at HRS as a part of a course, suggested a further revision after an analysis of the general operating accounts. Specifi
> Refer to the information in Exercise 6-46 for Harmon Recycling Services (HRS). The company is considering using a two-stage cost allocation system and wants to assess the effects on reported product profits. More detailed financial information for HRS fo
> Refer to the Business Application discussion of accounting choices. In the case of Tesco, managers made choices about the timing of revenues and expenses that led to fraud charges. In order to avoid that, perhaps accountants should always assume the wors
> Refer to the information in Problem 6-67. Required Prepare a report for the managers at Hall, Inc. explaining the differences in the estimated product costs under the current cost system and the system proposed by the analyst. Include cost flow diagrams
> Hall, Inc. manufactures two components, Standard and Ultra, that are designed for the same function, but are made of different metals for operational performance reasons. The metal used in Standard is easy to work with and there are few quality issues or
> Refer to the data in Exercise 6-44 and Problems 6-64 and 6-65. Required The chief marketing officer (CMO) of Kilbourne Appliances, who uses product cost analyses to make decisions about pricing and promotion, would like an explanation about how it is pos
> Refer to the data in Exercise 6-44. Required a. Compute the individual product costs per unit assuming that Kilbourne Appliances uses direct labor-hours to allocate overhead to the products. b. Compute the individual product costs per unit assuming that
> Refer to the data in Exercise 6-44. Required a. Compute the individual product costs per unit assuming that Kilbourne Appliances uses the number of units to allocate overhead to the products. b. Compute the individual product costs per unit assuming that
> Refer to the data in Exercise 6-38 and the results in Problems 6-61 and 6-62. Required The CEO of Redfern Audio is confused by the number of different possible unit costs and how it is possible that “reasonable” accoun
> Refer to the data in Exercise 6-38. Required a. Compute the individual product costs per unit assuming that Redfern Audio uses direct labor costs to allocate overhead to the products. b. Compute the individual product costs per unit assuming that Redfern
> Refer to the data in Exercise 6-38. Required a. Compute the individual product costs per unit assuming that Redfern Audio uses the number of units to allocate overhead to the products. b. Compute the individual product costs per unit assuming that Redfer
> Sunnyside Systems, Inc. is in an industry with rapidly evolving technology. With every change in production processes, Sunnyside has to build new design and measurement monitors. Sunnyside uses five of these monitors for production. Engineers at the comp
> Prest Metal Products manufactures and sells various products. The products are manufactured at one of a few plants (depending on the product) and then shipped to a distribution center for eventual delivery to customers. The Auburn Distribution Center (AD
> What are some complications that can arise when collecting data for cost estimation?
> Recall the analysis for Mendota Foods in Problem 5-67. During a discussion of those results, one of the cost analysts suggests that length of the calls (total hours) is probably a better driver of call center costs. The managers asked the analyst to coll
> Refer to the information in Problem 5-74. Required a. Estimate the labor costs assuming 700 clients for the month using the results of a simple regression based on the 30 months of available data. b. How confident are you in the estimate using the regres
> Genesee Fishing Tours (GFT) offers small group fishing expeditions off the local coast. The managers of the company are considering expanding the business to another city and want to put together a financial plan. As a part of that effort, the financial
> The Cary Plant produces a part for agricultural equipment. The plant produces to demand rather than maintaining significant inventories, so there can be significant fluctuation in monthly output. One of the significant cost items is maintenance and repai
> Aurora Town Museum is a small town historical and cultural museum specializing in artifacts from early settlers and local residents. The town council is interested in understanding the costs of the museum given the other demands on the limited funds. Aft
> The Hereford Plant produces a single part used in airplane hydraulic systems. The plant manager has asked the plant controller to determine the monthly volume that would result in the plant meeting its monthly operating profit goal. Operating profits at
> Jordan’s Gym is located in a popular vacation spot with much higher demand in the summer than in the winter. The gym has both annual memberships and individual visit prices, which makes it a popular alternative for seasonal visitors. Th
> Bradford Fabric Shops is a chain of retail stores offering fabrics, accessories, and machines for sewing, knitting, and so on. The company’s 13 retail stores are managed by employees, most of whom started working on the sales floor and
> Goulburn, Inc. produces parts for heavy equipment used in mining and construction. The plant that produces one part common to many vehicles is highly automated, so all labor is considered part of factory overhead. The plant manager, who has just been pro
> Mendota Foods sells a variety of food products around the world. The company engages directly with individuals with an interest in cooking by offering ideas and recipes in various staff blogs and podcasts. The management team at Mendota believes this dri
> Consider the Business Application item “Outsourcing and the Effect of Corporate Culture.” Would the impact on company culture show up in a differential cost analysis? If so, how? If not, should we ignore it?
> Willis Cosmetics produces a variety of cosmetics and hair care products. One popular shampoo is produced at the company’s Genoa Street Plant (GSP). The financial staff are in the process of revising the estimates for overhead and are lo
> Fordson Bank operates a branch in a relatively small rural community. Fordson has a strong customer service focus and knows that branch visits can be important in fostering a reputation for good customer service. However, as Internet banking increases in
> Belden Frozen Foods packages a variety of frozen meals and vegetables. In its Saratoga Street plant, the company packages frozen corn only. The cost analyst at the Saratoga plant has conducted an analysis of the plant overhead cost accounts. Partial info
> The Customer Support Department at Wadsworth Supply is analyzing the costs of its services. A cost analyst has collected monthly data on the three main functions of the department and the total costs for the last year, which follow. The cost analyst also
> Refer to the information in Problem 4-77. Required a. A local engineering firm claims it can revise the production process such that the Gamma product only requires 20 machine minutes on the shared machine. How much would Oxley be willing to pay per peri
> Oxley, Inc. manufactures three products (Alpha, Beta, and Gamma) utilizing, in one of the processes, a single machine for all products. Data on the individual products follow: The single machine used for all three products has a maximum capacity of 480,0
> Pierson Products manufactures furniture, primarily for institutional use, such as for furniture rental companies, college dorm rooms, and budget hotel and motel chains. The company’s Verne Valley plant manufactures one of the desk produ
> You were appointed the manager of Storage Solutions Section (S3) at Milbank Technologies, a manufacturer of mobile computing parts and accessories, late last year. S3 manufactures a drive assembly for the company’s most popular product.
> Ferry Electronics produces a wide variety of video and audio systems for home entertainment. One of the Ferry plants (Lakeview) produces home theatre systems. The plant produces three models, Silver, Gold, and Platinum, which differ in the quality of the
> Hostess Brands makes a variety of baked goods just like The AM Bakery. In what ways are the cost accounting issues the same? In what ways are they different?
> For each of the following statements, indicate whether it is true, false, or uncertain. Explain why. Give examples in your answer. a. Cost accountants should be concerned with both product and period costs. b. Opportunity costs tend to be easier to ident
> John Deere Company manufactures farm equipment. Managers at assembly plants must make many decisions, and for this, they use cost accounting information. Required For each of the following managers, identify a decision that they might make for which cost
> Belleterre Tiles makes tiles for flooring and other applications. The CFO of the company provides you with the following information for the period October through December, the company’s third quarter: Required a. What is the average s
> Rowe Tool and Die (RTD) produces metal fittings as a supplier to various manufacturing firms in the area. The following is the forecasted income statement for the next quarter, which is the typical planning horizon used at RTD. RTD expects to sell 45,000
> Fill in the missing items for the following inventories:
> One of the major activities of the City Art Museum (CAM) is a Neighborhood Outreach Program, which was developed both as a public service and to market the museum and its other programs. One of the Outreach offerings, which is popular with both city and
> Swain Athletic Gear (SAG) operates six retail outlets in a large Midwest city. One is in center city on Cornwall Street and the others are scattered around the perimeter of the city. Management at SAG is concerned about declining sales and profitability
> Lessing Toy and Hobby (LTH) is a chain of hobby and craft stores in the Southeast. LTH operates multiple stores and is organized into two divisions: Northern and Southern. Individual stores are placed in one or the other division based on geography. Rece
> Westover Travel offers travel packages using both air and ocean travel. Westover offers two packages, Tourist and Premier, that differ in the accommodations, class of travel, and so on. Westover has a call center, which handles customer queries and compl
> Tacoma Accessories makes two laptop cases, Plastic and Leather, that require direct materials, direct labor, and overhead. The following data refer to operations expected for next quarter: Tacoma uses a two-stage cost allocation system: It uses direct-ma
> Goodyear Tire and Rubber Company manufactures a well-known automotive tire. They are produced in Goodyear plants and sold to consumers in many outlets including auto parts retail chains such as Pep Boys. Both Goodyear and Pep Boys need to calculate the c
> How are job order, process, and operations costing the same? How are they different?
> Why is a process costing system not appropriate for companies that produce items that are distinctly different from one another?
> How is depreciation on manufacturing equipment recorded in ledger accounts? How is this depreciation assigned to the items produced in a job-order costing system and in a process costing system?
> To what types of products is a job-order costing system best suited? Provide examples.
> What do the terms overapplied overhead and underapplied overhead mean?
> Al Carmon says that his company has a difficult time establishing a predetermined overhead rate because the number of units of product produced during a period is difficult to measure. What are two measures of production other than the number of units of
> Why is the salary of a production worker capitalized while the salary of a marketing manager is expensed?
> X Company recorded the payment for utilities used by the manufacturing facility by decreasing Cash and increasing Manufacturing Overhead. Why was the increase made to Manufacturing Overhead instead of Work in Process Inventory?
> At the end of the accounting period, an adjustment is made for the accrued wages of production workers. How would this entry affect assets, liabilities, and equity? What is the effect on the income statement?
> Goods that cost $2,000 to make were sold for $3,000 on account. How does their sale affect assets, liabilities, and equity? What is the effect on the income statement?
> How do manufacturing costs flow through inventory accounts?
> The management team of Magnificent Modems Inc. (MMI) wants to investigate the effect of several different growth rates on sales and cash receipts. Cash sales for the month of January are expected to be $10,000. Credit sales for January are expected to be
> Direct raw materials were purchased on account, and the costs were subsequently transferred to Work in Process Inventory. How would the transfer affect assets, liabilities, equity, and cash flows? What is the effect on the income statement? Would your an
> Under what circumstance is a variable costing statement format used? What potential problem could it eliminate?
> How is profitability affected by increases in productivity under the variable and absorption costing approaches?
> How does the variable costing approach differ from the absorption costing approach? Explain the different income statement formats used with each approach.
> For what purpose is the schedule of cost of goods manufactured and sold prepared? Do all companies use the statement?
> What is the purpose of the Manufacturing Overhead account?
> Because of seasonal fluctuations, Buresch Corporation has a problem determining the unit cost of its products. For example, high heating costs during the winter months cause the cost per unit to be higher than the per-unit cost in the summer months even
> Why are actual overhead costs not used in determining periodic product cost?
> How does the adjustment to close an insignificant amount of overapplied overhead to the Cost of Goods Sold account affect net income?
> What are product costs and selling, general, and administrative costs? Give examples of product costs and of selling, general, and administrative costs.
> Use the same transaction data for Magnificent Modems Inc. Required 1. One of Magnificent Modems’ sales representatives receives a special offer to sell 1,000 modems at a price of $72 each. Should the offer be accepted? 2. Magnificent Modems has the oppor
> What is the difference between direct and indirect raw materials costs?
> How can present value “what-if” analysis be enhanced by using software programs?
> Define the term annuity. What is one example of an annuity receipt?
> Why are present value tables frequently used to convert future values to present values?
> If you wanted to have $100,000 one year from today and desired to earn a 6 percent return, what amount would you need to invest today? Which amount has more value, the amount today or the $100,000 a year from today?
> How does a company establish its minimum acceptable rate of return on investments?
> Define the term return on investment. How is the return normally expressed? Give an example of a capital investment return.
> A dollar today is worth more than a dollar in the future.” “The present value of a future dollar is worth less than one dollar.” Are these two statements synonymous? Explain.
> What is a postaudit? How is it useful in capital budgeting?
> How do capital investments affect profitability
> To this point, we have assumed that Magnificent Modems produced only one type of modem. Suppose instead we assume the company produces several different kinds of modems. The production process differs for each type of product. Some require more setup tim
> What are the advantages and disadvantages associated with the unadjusted rate of return method for evaluating capital investments?
> The payback method cannot be used if the cash inflows occur in unequal patterns.” Do you agree or disagree? Explain.
> What are three reasons that cash is worth more today than cash to be received in the future?
> I always go for the investment with the shortest payback period.” Is this a sound strategy? Why or why not?
> What typical cash inflow and outflow items are associated with capital investments?
