What is a cost object? Give some examples.
> Bellati Inc. produces large industrial machinery. Bellati has a machining department and a group of direct laborers called machinists. Each machinist can machine up to 500 units per year. Bellati also hires supervisors to develop machine specification pl
> Alisha Incorporated manufactures medical stents for use in heart bypass surgery. Based on past experience, Alisha has found that its total maintenance costs can be represented by the following formula: Maintenance Cost = $1,750,000 + $125X, where X = Num
> Adriana Alvarado has decided to purchase a personal computer. She has narrowed the choices to two: Drantex and Confiar. Both brands have the same processing speed, 6.4 gigabytes of hard-disk capacity, two USB ports, a DVDRW drive, and each comes with the
> Alisha Incorporated manufactures medical stents for use in heart bypass surgery. Based on past experience, Alisha has found that its total maintenance costs can be represented by the following formula: Maintenance Cost = $1,750,000 + $125X, where X = Num
> Smith Concrete Company owns enough ready-mix trucks to deliver up to 100,000 cubic yards of concrete per year (considering each truck’s capacity, weather, and distance to each job). Total truck depreciation is $200,000 per year. Raw materials (cement, gr
> What follows are a number of resources that are used by a manufacturer of futons. Assume that the output measure or cost driver is the number of futons produced. All direct labor is paid on an hourly basis, and hours worked can be easily changed by manag
> Gordon Company’s controller, Eric Junior, estimated the following formula, based on monthly data, for overhead cost: Overhead Cost = $150,000 + ($52 × Direct Labor Hours) Required: 1. Link each term in column A to the corresponding term in column B.
> What are the advantages of the scatter graph method over the high-low method? The high low method over the scatter graph method?
> Describe how the scatter graph method breaks out the fixed and variable costs from a mixed cost. Now describe how the high-low method works. How do the two methods differ?
> Explain why the concept of relevant range is important when dealing with step costs.
> Explain the difference between committed and discretionary fixed costs. Give examples of each.
> Some firms assign mixed costs to either the fixed or variable cost categories without using any formal methodology to separate them. Explain how this practice can be defended.
> Bill Lewis, manager of the Thomas Electronics Division, called a meeting with his controller, Brindon Peterson, and his marketing manager, Patty Fritz. The following is a transcript of the conversation that took place during the meeting: Bill: Brindon, t
> Briefly explain the practice of enterprise risk management and the role that can be played by managerial accountants in enterprise risk management.
> For the past 5 years, Garner Company has had a policy of producing to meet customer demand. As a result, finished goods inventory is minimal, and for the most part, units produced equal units sold. Recently, Garner’s industry entered a
> Jean Erickson, manager and owner of an advertising company in Charlotte, North Carolina, arranged a meeting with Leroy Gee, the chief accountant of a large, local competitor. The two are lifelong friends. They grew up together in a small town and attende
> Gateway Construction Company, run by Jack Gateway, employs 25 to 30 people as subcontractors for laying gas, water, and sewage pipelines. Most of Gateway’s work comes from contracts with city and state agencies in Nebraska. The company&
> Five to six times a year, Kicker puts on tent sales in various cities throughout Oklahoma and the surrounding states. The tent sales are designed to show Kicker customers new products, engender enthusiasm about those products, and sell soon to be out-of-
> Melissa Vassar has decided to open a printing shop. She has secured two contracts. One is a 5-year contract to print a popular regional magazine. This contract calls for 5,000 copies each month. The second contract is a 3-year agreement to print tourist
> Luisa Giovanni is a student at New York University. To help pay her way through college, Luisa started a dog walking service. She has 12 client dogs—six are walked on the first shift (6:30 A.M. and 5:00 P.M.), and six are walked on the second shift (7:30
> W. W. Phillips Company produced 4,000 leather recliners during the year. These recliners sell for $400 each. Phillips had 500 recliners in finished goods inventory at the beginning of the year. At the end of the year, there were 700 recliners in finished
> Berry Company is an architectural firm located in Detroit, Michigan. The company works with small and medium-size construction businesses to prepare building plans according to the client’s contract. The following data are provided for the previous year:
> Following is a list of cost terms described in the chapter as well as a list of brief descriptive settings for each item. Cost terms: a. Opportunity cost b. Period cost c. Product cost d. Direct labor cost e. Selling cost f. Conversion cost g. Prime cost
> Describe the method of least squares. Why is this method better than either the high-low method or the scatter graph method?
> Explain why today’s managerial accountant must have a cross-functional perspective.
> La world Inc. manufactures small camping tents. Last year, 200,000 tents were made and sold for $60 each. Each tent includes the following costs: Direct materials ……………………………………………. $18 Direct labor …………………………………………………….. 12 Manufacturing overhead ……………
> Bisby Company manufactures fishing rods. At the beginning of July, the following information was supplied by its accountant: Raw materials inventory …………………………………………………… $40,000 Work-in-process inventory …………………………………………………… 21,000 Finished goods invent
> Harry Whipple, owner of an inkjet printer, has agreed to allow Mary and Natalie, two friends who are pursuing master’s degrees, to print several papers for their graduate courses. However, he has imposed two conditions. First, they must supply their own
> Pop’s Drive-Thru Burger Heaven produces and sells quarter-pound hamburgers. Each burger is wrapped and put in a ‘‘burger bag,’’ which also includes a serving of fri
> Ivano Company has collected cost accounting information for the following subset of items for Years 1 and 2. Required: Calculate the values of the missing Items a through e. Year 1 Year 2 Item: Direct materials used in production Direct materials:
> Pizza Vesuvio makes specialty pizzas. Data for the past eight months were collected: Assume that this information was used to construct the following formula for monthly labor cost. Total Labor Cost = $5,237 + ($7.40 × Employee Hours) Req
> Jasper Company provided the following information for last year: Sales in units ………………………………………………. 280,000 Selling price ………………………………………………………. $ 12 Direct materials …………………………………………… 180,000 Direct labor …………………………………………………. 505,000 Manufacturing over
> Pizza Vesuvio makes specialty pizzas. Data for the past eight months were collected: Pizza Vesuvio’s controller wants to calculate the fixed and variable costs associated with labor used in the restaurant. Required: Using the high-lo
> In March, Chilton Company purchased materials costing $25,000 and incurred direct labor cost of $10,000. Overhead totaled $42,000 for the month. Information on inventories was as follows: Required: What was the cost of goods sold for March? March 1
> Big Thumbs Company manufactures portable flash drives for computers. Big Thumbs incurs monthly depreciation costs of $15,000 on its plant equipment. Also, each drive requires materials and manufacturing overhead resources. On average, the company uses 10
> Define prime cost and conversion cost. Why can’t prime cost be added to conversion cost to get total product cost?
> Pizza Vesuvio makes specialty pizzas. Data for the past eight months were collected: Vesuvio on the previous page. Assume that this information was used to construct the following formula for monthly labor cost. Total Labor Cost = $5,237 + ($7.40 &Atil
> Hannah Banana Bakers makes chocolate chip cookies for cafe restaurants. In June, Hannah Banana purchased $15,500 of materials. On June 1, the materials inventory was $3,700. On June 30, $1,600 of materials remained in materials inventory. Required: 1. W
> Grin Company manufactures digital cameras. In January, Grin produced 4,000 cameras with the following costs: Direct materials …………………………….. $400,000 Direct labor ……………………………………….. 80,000 Manufacturing overhead …………………. 320,000 There were no beginning o
> Holmes Company produces wooden playhouses. When a customer orders a playhouse, it is delivered in pieces with detailed instructions on how to it together. Some customers prefer that Holmes put the playhouse together. Therefore, these customers purchase t
> A factory manufactures jelly. The jars of jelly are packed six to a box, and the boxes are sold to grocery stores. The following types of cost were incurred: Jars Sugar Fruit Pectin (thickener used in jams and jellies) Boxes Depreciation on the factory b
> Loring Company incurred the following costs last year: Direct materials ……………………â€
> The sales staff of Central Media (a locally owned radio and cable television station) consists of two salespeople, Derek and Law anna. During March, the following salaries and commissions were paid: Derek spends 100% of his time selling advertising. La
> Hummer Company uses manufacturing cells to produce its products (a cell is a manufacturing unit dedicated to the production of subassemblies or products). One manufacturing cell produces small motors for lawn mowers. Suppose that the motor manufacturing
> What is the difference between the income statement for a manufacturing firm and the income statement for a service firm?
> What is the difference between cost of goods manufactured and cost of goods sold?
> Explain the meaning of customer value. How is focusing on customer value changing managerial accounting?
> How do managerial accounting and financial accounting differ?
> Describe the connection between planning, feedback, and controlling.
> What is a direct cost? An indirect cost? Can the same cost be direct for one purpose and indirect for another? Give an example.
> Who are the users of managerial accounting information?
> What is the difference between accumulating cost and assigning cost?
> Why is knowledge of cost behavior important for managerial decision making? Give an example to illustrate your answer.
> Solemon Company has total fixed cost of $15,000, variable cost per unit of $6, and a price of $8. If Solemon wants to earn a targeted profit of $3,600, how many units must be sold? a. 2,500 b. 7,500 c. 9,300 d. 18,600 e. 18,750
> If a company’s total fixed cost decreases by $10,000, which of the following will be true? a. The break-even point will increase. b. The variable cost ratio will increase. c. The break-even point will be unchanged. d. The variable cost ratio will be unc
> All-star Exposure designs and sells advertising services to small, relatively unknown companies. Last month, All-star had sales commissions costs of $50,000, technology costs of $75,000, and research and development costs of $200,000. Selling expenses we
> Dartmouth Company produces a single product with a price of $12, variable cost per unit of $3, and total fixed cost of $7,200. The variable cost ratio and the contribution margin ratio for Dartmouth are e. The contribution margin ratio cannot be determ
> Dartmouth Company produces a single product with a price of $12, variable cost per unit of $3, and total fixed cost of $7,200. Dartmouth’s break-even point in units a. is 600. b. is 480. c. is 1,000. d. is 800. e. cannot be determined from the informati
> The contribution margin is the a. amount by which sales exceed total fixed cost. b. difference between sales and total cost. c. difference between sales and operating income. d. difference between sales and total variable cost. e. difference between var
> If the margin of safety is 0, then a. the company is precisely breaking even. b. the company is operating at a loss. c. the company is earning a small profit. d. the margin of safety cannot be less than or equal to 0; it must be positive. e. none of the
> The use of fixed costs to extract higher percentage changes in profits as sales activity changes involves a. margin of safety. b. operating leverage. c. degree of operating leverage. d. sensitivity analysis. e. variable cost reduction.
> An important assumption of cost-volume-profit analysis is that a. both costs and revenues are linear functions. b. all cost and revenue relationships are analyzed within the relevant range. c. there is no change in inventories. d. the sales mix remains
> In the cost-volume-profit graph, a. the break-even point is found where the total revenue curve crosses the x-axis. b. the area of profit is to the left of the break-even point. c. the area of loss cannot be determined. d. both the total revenue curve a
> Break-even revenue for the multiple-product firm can a. be calculated by dividing total fixed cost by the overall contribution margin ratio. b. be calculated by dividing segment fixed cost by the overall contribution margin ratio. c. be calculated by di
> The amount of revenue required to earn a targeted profit is equal to a. total fixed cost divided by contribution margin. b. total fixed cost divided by the contribution margin ratio. c. targeted profit divided by the contribution margin ratio. d. total
> If the variable cost per unit goes down, Contribution margin Break-even point а. increases increases. b. increases c. decreases d. decreases decreases. decreases. increases. decreases remains unchanged. е.
> Slaps hot Company makes ice hockey sticks and sold 1,880 sticks during the month of June at a total cost of $433,000. Each stick sold at a price of $400. Slaps hot also incurred two types of selling costs: commissions equal to 10% of the sales price, and
> Why is a declining margin of safety over a period of time an issue of concern to managers?
> Explain what is meant by the term operating leverage. What impact does increased leverage have on risk?
> Define the term margin of safety. Explain how it can be used as a crude measure of operating risk.
> Explain how a change in sales mix can change a company’s break-even point.
> How does targeted profit enter into the break-even units equation?
> Since break-even analysis focuses on making zero profit, it is of no value in determining the units a firm must sell to earn a targeted profit. Do you agree or disagree with this statement? Why?
> Explain how CVP analysis developed for single products can be used in a multiple-product setting.
> Define the term sales mix. Give an example to support your definition.
> What is the variable cost ratio? The contribution margin ratio? How are the two ratios related?
> Define the term break-even point.
> Why do firms like to calculate a percentage column on the income statement (in which each line item is expressed as a percentage of sales)?
> Explain how CVP analysis can be used for managerial planning.
> Required: Classify each of the following costs for a jeans manufacturing company as a variable cost, committed fixed cost, or discretionary fixed cost. a. The cost of buttons b. The cost to lease warehouse space for completed jeans—the lease contract ru
> Explain the meaning of the coefficient of determination.
> What is meant by the best-fitting line?
> What is the scatter graph method, and why is it used? Why is a scatter graph a good first step in separating mixed costs into their fixed and variable components?
> Describe the cost formula for a strictly variable cost such as electrical power cost of $1.15 per machine hour (i.e., every hour the machinery is run, electrical power cost goes up by $1.15).
> Describe the cost formula for a strictly fixed cost such as depreciation of $15,000 per year.
> Why do mixed costs pose a problem when it comes to classifying costs into fixed and variable categories?
> What is a driver? Give an example of a cost and its corresponding output measure or driver.
> Which of the following is a period expense? a. Factory insurance b. CEO salary c. Direct labor d. Factory maintenance e. All of these.
> Slaps hot Company makes ice hockey sticks. During the month of June, 1,900 sticks were completed at a cost of goods manufactured of $437,000. Suppose that on June 1, Slaps hot had 350 units in finished goods inventory costing $80,000 and on June 30, 370
> Stone Inc. is a company that purchases goods (e.g., chess sets, pottery) from overseas and resells them to gift shops in the United States. Stone Inc. is which of the following? a. Wholesaler b. Retailer c. Service firm d. Manufacturing firm e. None of
> Target is which of the following? a. Wholesaler b. Retailer c. Service firm d. Manufacturing firm e. None of these.
> Kellogg’s makes a variety of breakfast cereals. Kellogg’s is which of the following? a. Wholesaler b. Retailer c. Service firm d. Manufacturing firm e. None of these.
> Bobby Dee’s is an owner-operated company that details (thoroughly cleans—inside and out) automobiles. Bobby Dee’s is which of the following? a. Wholesaler b. Retailer c. Service firm d. Manufacturing firm e. None of these.
> Which of the following is an indirect cost? a. The cost of denim in a jeans factory b. The cost of mixing labor in a factory that makes over-the-counter pain relievers c. The cost of bottles in a shampoo factory d. The cost of restriping the parking lot
> The accountant in a factory that produces biscuits for fast-food restaurants wants to assign costs to boxes of biscuits. Which of the following costs can be traced directly to boxes of biscuits? a. The cost of flour and baking soda b. The wages of the m
> Product (or manufacturing) costs consist of a. direct materials, direct labor, and selling costs. b. direct materials, direct labor, manufacturing overhead, and operating expense. c. administrative costs and conversion costs. d. prime costs and manufact
> Accumulating costs means that a. costs must be summed and entered on the income statement. b. each cost must be linked to some cost object. c. costs must be measured and tracked. d. costs must be allocated to units of production. e. costs have expired a
> What is the cost of goods manufactured?
> Define selling cost. Give five examples of selling cost.
> Slaps hot Company makes ice hockey sticks. During the month of June, the company purchased $132,000 of materials. Also during the month of June, Slaps hot Company incurred direct labor cost of $113,000 and manufacturing overhead of $187,000. Inventory in
