SkyChefs, Inc., prepares in-flight meals for a number of major airlines. One of the company’s products is grilled salmon in dill sauce with baby new potatoes and spring vegetables. During the most recent week, the company prepared 4,000 of these meals using 960 direct labor-hours. The company paid these direct labor workers a total of $9,600 for this work, or $10.00 per hour. According to the standard cost card for this meal, it should require 0.25 direct labor-hours at a cost of $9.75 per hour. Required: 1. What direct labor cost should have been incurred to prepare 4,000 meals? How much does this differ from the actual direct labor cost? 2. Break down the difference computed in (1) above into a labor rate variance and a labor efficiency variance.
> What is meant by the terms margin and turnover in ROI calculations?
> What effect, if any, would you expect poor-quality materials to have on direct labor variances?
> Why are product costs sometimes called inventoriable costs? Describe the flow of such costs in a manufacturing company from the point of incurrence until they finally become expenses on the income statement
> Lucido Products markets two computer games: Claim jumper and Makeover. A contribution format income statement for a recent month for the two games appears below: Required: 1. Compute the overall contribution margin (CM) ratio for the company. 2. Comput
> Huron Company produces a commercial cleaning compound known as Zoom. The direct materials and direct labor standards for one unit of Zoom are given below: During the most recent month, the following activity was recorded: a. Twenty thousand pounds of m
> Distinguish between (a) A variable cost, (b) A mixed cost, and (c) A step-variable cost. Plot the three costs on a graph, with activity plotted horizontally and cost plotted vertically.
> “Our workers are all under labor contracts; therefore, our labor rate variance is bound to be zero.” Discuss.
> Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income statement follows: Required: 1. Compute the company’s degree of operating leverage. 2. Using the degree of
> Describe how the inventory accounts of a manufacturing company differ from the inventory account of a merchandising company.
> Explain how a shift in the sales mix could result in both a higher break-even point and a lower net income.
> Should standards be used to identify whom to blame for problems?
> Describe the schedule of cost of goods manufactured. How does it tie into the income statement?
> Watkins Trophies, Inc., produces thousands of medallions made of bronze, silver, and gold. The medallions are identical except for the materials used in their manufacture. What costing system would you advise the company to use?
> What is meant by the term sales mix? What assumption is usually made concerning sales mix in CVP analysis?
> Olongapo Sports Corporation is the distributor in the Philippines of two premium golf balls—the Flight Dynamic and the Sure Shot. Monthly sales, expressed in pesos (P), and the contribution margin ratios for the two products follow: F
> Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the next month’s budget appear below: Selling price ..................................................... $30 per unit Variable expenses ......................
> Dawson Toys, Ltd., produces a toy called the Maze. The company has recently established a standard cost system to help control costs and has established the following standards for the Maze toy: Direct materials: 6 microns per toy at $0.50 per micron Dir
> What are the major limitations of activity-based costing?
> If the materials price variance is favorable but the materials quantity variance is unfavorable, what might this indicate?
> Describe how the income statement of a manufacturing company differs from the income statement of a merchandising company.
> What is meant by the term equivalent units of production when the weighted-average method is used?
> What is meant by the margin of safety?
> The Hartford Symphony Guild is planning its annual dinner-dance. The dinner-dance committee has assembled the following expected costs for the event: Dinner (per person) ............................................................... $18 Favors and prog
> Mauro Products distributes a single product, a woven basket whose selling price is $15 and whose variable expense is $12 per unit. The company’s monthly fixed expense is $4,200. Required: 1. Solve for the company’s break-even point in unit sales using t
> What are the three major ways in which activity-based costing improves the accuracy of product costs?
> The materials price variance can be computed at what two different points in time? Which point is better? Why?
> Explain the difference between a product cost and a period cost.
> Victoria Chocolates, Ltd., makes premium handcrafted chocolate confections in London. The owner of the company is setting up a standard cost system and has collected the following data for one of the company’s products, the Empire Truffle. This product i
> In response to a request from your immediate supervisor, you have prepared a CVP graph portraying the cost and revenue characteristics of your company’s product and operations. Explain how the lines on the graph and the break-even point would change if
> Outback Outfitters sells recreational equipment. One of the company’s products, a small camp stove, sells for $50 per unit. Variable expenses are $32 per stove, and fixed expenses associated with the stove total $108,000 per month. Required: 1. Compute
> Lin Corporation has a single product whose selling price is $120 and whose variable expense is $80 per unit. The company’s monthly fixed expense is $50,000. Required: 1. Using the equation method, solve for the unit sales that are required to earn a tar
> Assume that a company has two processing departments—Mixing followed by Firing. Explain what costs might be added to the Firing Department’s Work in Process account during a period.
> Why do overhead costs often shift from high-volume products to low-volume products when a company switches from a conventional costing method to activity-based costing?
> What costs are assigned to a segment under the contribution approach?
> Who is generally responsible for the materials price variance? The materials quantity variance? The labor efficiency variance?
> Define the following: (a) Direct materials (b) Indirect materials (c) Direct labor (d) Indirect labor, And (e) Manufacturing overhead
> Assume that a company has two processing departments—Mixing and Firing. Prepare a journal entry to show a transfer of work in process from the Mixing Department to the Firing Department.
> Why is activity-based costing described as a “two-stage” costing method?
> Logistics Solutions provides order fulfillment services for dot-com merchants. The company maintains warehouses that stock items carried by its dot-com clients. When a client receives an order from a customer, the order is forwarded to Logistics Solution
> What is meant by the term break-even point?
> Magic Realm, Inc., has developed a new fantasy board game. The company sold 15,000 games last year at a selling price of $20 per game. Fixed costs associated with the game total $182,000 per year, and variable costs are $6 per game. Production of the gam
> Data for Hermann Corporation are shown below: Required: 1. The marketing manager argues that a $5,000 increase in the monthly advertising budget would increase monthly sales by $9,000. Should the advertising budget be increased? 2. Refer to the origina
> What is a segment of an organization? Give several examples of segments.
> Why are separate price and quantity variances computed?
> What are the four hierarchical levels of activity discussed in the chapter?
> How many Work in Process accounts are maintained in a company that uses process costing
> What are the three major elements of product costs in a manufacturing company?
> What is meant by the term operating leverage?
> Due to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, Inc., has been experiencing difficulty for some time. The company’s contribution format income statement for the most recent month is given below: Sales (19,500 u
> Fill in the missing amounts in each of the eight case situations below. Each case is independent of the others. a. Assume that only one product is being sold in each of the four following case situations: b. Assume that more than one product is being s
> Last month when Holiday Creations, Inc., sold 50,000 units, total sales were $200,000, total variable expenses were $120,000, and fixed expenses were $65,000. Required: 1. What is the company’s contribution margin (CM) ratio? 2. Estimate the change in
> Distinguish between a cost center, a profit center, and an investment center.
> What is meant by the term management by exception?
> What are the major differences between financial and managerial accounting?
> In all respects, Company A and Company B are identical except that Company A’s costs are mostly variable, whereas Company B’s costs are mostly fixed. When sales increase, which company will tend to realize the greatest increase in profits? Explain.
> The Fashion Shoe Company operates a chain of women’s shoe shops around the country. The shops carry many styles of shoes that are all sold at the same price. Sales personnel in the shops are paid a substantial commission on each pair of
> Jaffre Enterprises distributes a single product whose selling price is $16 and whose variable expense is $11 per unit. The company’s fixed expense is $16,000 per month. Required: 1. Prepare a profit graph for the company up to a sales level of 4,000 uni
> Why is cost accumulation simpler in a process costing system than it is in a job-order costing system?
> From the standpoint of cost control, why is the FIFO method superior to the weighted-average method?
> Bandar Industries Berhad of Malaysia manufactures sporting equipment. One of the company’s products, a football helmet for the North American market, requires a special plastic. During the quarter ending June 30, the company manufactured 35,000 helmets,
> Why do departmental overhead rates sometimes result in inaccurate product costs?
> Distinguish between ideal and practical standards?
> Why is activity-based costing growing in popularity?
> What are the four steps in the planning and control cycle?
> Often the most direct route to a business decision is an incremental analysis. What is meant by an incremental analysis?
> On the cost reconciliation part of the production report, the weighted-average method treats all units transferred out in the same way. How does this differ from the FIFO method of handling units transferred out?
> Gold Star Rice, Ltd., of Thailand exports Thai rice throughout Asia. The company grows three varieties of rice—Fragrant, White, and Loonzain. (The currency in Thailand is the baht, which is denoted by B.) Budgeted sales by product and i
> Menlo Company distributes a single product. The company’s sales and expenses for last month follow: Required: 1. What is the monthly break-even point in units sold and in sales dollars? 2. Without resorting to computations, what is th
> Karlik Enterprises distributes a single product whose selling price is $24 and whose variable expense is $18 per unit. The company’s monthly fixed expense is $24,000. Required: 1. Prepare a cost-volume-profit graph for the company up to a sales level of
> In what ways are job-order and process costing similar?
> Martin Company manufactures a powerful cleaning solvent. The main ingredient in the solvent is a raw material called Echol. Information concerning the purchase and use of Echol follows: Purchase of Echol Echol is purchased in 15-gallon containers at a co
> What is meant by the term decentralization?
> What is a quantity standard? What is a price standard?
> Describe the three major activities of a manager.
> Under what conditions would it be appropriate to use a process costing system?
> What are the three common approaches for assigning overhead costs to products?
> What is meant by a product’s contribution margin ratio? How is this ratio useful in planning business operations?
> Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable costs are $8 per unit, and fixed costs total $180,000 per year. Required: Answer the following independent questions: 1. What is the product’s CM rat
> Miller Company’s most recent contribution format income statement is shown below: Required: Prepare a new contribution format income statement under each of the following conditions (consider each case independently): 1. The number of
> Whirly Corporation’s most recent income statement is shown below: Required: Prepare a new contribution format income statement under each of the following conditions (consider each case independently): 1. The sales volume increases by
> The questions in this exercise are based on JetBlue Airways Corporation. To answer the questions, you will need to download JetBlue’s Form 10-K/A for the year ended December 31, 2004 at www.sec.gov/edgar/searchedgar/companysearch.html. Once at this websi
> A business executive once stated, “Depreciation is one of our biggest sources of cash.” Do you agree that depreciation is a source of cash? Explain.
> The questions in this exercise are based on Dell, Inc. To answer the questions, you will needto download Dell’s Form 10-K for the fiscal year ended January 28, 2005 by going to www.sec.gov/edgar/searchedgar/companysearch.html. Input CIK code 826083 and h
> Java Source, Inc. (JSI), is a processor and distributor of a variety of blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. JSI offers a large variety of different coffees that it sells
> “A dollar of gross margin per briefcase? That’s ridiculous!” roared Art Dejans, president of CarryAll, Inc. “Why do we go on producing those standard briefcases when weâ€&
> Your team should visit and closely observe the operations at a fast-food restaurant. Required: Identify activities and costs at the restaurant that fall into each of the following categories: a. Unit-level activities and costs. b. Customer-level activit
> Gary Stevens and Mary James are production managers in the Consumer Electronics Division of General Electronics Company, which has several dozen plants scattered in locations throughout the world. Mary manages the plant located in Des Moines, Iowa, while
> You often provide advice to Maria Graham, a client who is interested in diversifying her company. Maria is considering the purchase of a small manufacturing company that assembles and packages its many products by hand. She plans to automate the factory
> You and your friends go to a restaurant as a group. At the end of the meal, the issue arises of how the bill for the group should be shared. One alternative is to figure out the cost of what each individual consumed and divide up the bill accordingly. An
> “I think we goofed when we hired that new assistant controller,” said Ruth Scarpino, president of Provost Industries. “Just look at this report that he prepared for last month for the Finishing Department. I can’t make heads or tails out of it.” Finishin
> How does the computation of equivalent units under the FIFO method differ from the computation of equivalent units under the weighted-average method?
> How do the direct and the indirect methods differ in their approach to computing the net cash provided by operating activities?
> What are the three major sections on a statement of cash flows, and what are the general rules that determine the transactions that should be included in each section?
> Assume that a company repays a $300,000 loan from its bank and then later in the same year borrows $500,000. What amount(s) would appear on the statement of cash flows?
> Why aren’t transactions involving accounts payable considered to be financing activities?
> If an asset is sold at a gain, why is the gain deducted from net income when computing the net cash provided by operating activities under the indirect method?
> Why is interest paid on amounts borrowed from banks and other lenders considered to be an operating activity while the amounts borrowed are financing activities?
> What is the difference between net cash provided by operating activities and free cash flow?
> Would a sale of equipment for cash be considered a financing activity or an investing activity? Why?
> If the Accounts Receivable balance increases during a period, how will this increase be recognized using the indirect method of computing the net cash provided by operating activities?
