What is management by exception? What criteria may be used in identifying exceptions?
> Perine Company has 2,000 pounds of raw materials in its December 31, 2013, ending inventory. Required production for January and February of 2014 are 4,000 and 5,000 units, respectively. Two pounds of raw materials are needed for each unit, and the estim
> The following direct materials and direct labor data pertain to the operations of Laurel Company for the month of August. Instructions: (a) Compute the total, price, and quantity variances for materials and labor. (b) Provide two possible explanations
> Lewis Company’s standard labor cost of producing one unit of Product DD is 4 hours at the rate of $12.00 per hour. During August, 40,600 hours of labor are incurred at a cost of $12.15 per hour to produce 10,000 units of Product DD. Instructions: (a) Co
> Monte Services, Inc. is trying to establish the standard labor cost of a typical oil change. The following data have been collected from time and motion studies conducted over the past month. Actual time spent on the oil change ……………………………..1.0 hour Hou
> Kimm Company has gathered the following information about its product. Direct materials. Each unit of product contains 4.5 pounds of materials. The average waste and spoilage per unit produced under normal conditions is 0.5 pounds. Materials cost $5 per
> Alona Company’s overhead rate was based on estimates of $200,000 for overhead costs and 20,000 direct labor hours. Alona’s standards allow 2 hours of direct labor per unit produced. Production in May was 900 units, and actual overhead incurred in May was
> The loan department of Calgary Bank uses standard costs to determine the overhead cost of processing loan applications. During the current month, a fire occurred, and the accounting records for the department were mostly destroyed. The data shown below w
> The information shown below was taken from the annual manufacturing overhead cost budget of Samantha Company. Variable manufacturing overhead costs ………………………………..$34,650 Fixed manufacturing overhead costs ……………………………………$19,800 Normal production level in
> Data for Nona Inc. are given in E23-7. Data given in E23-7: Nona Inc., which produces a single product, has prepared the following standard cost sheet for one unit of the product. Direct materials (8 pounds at $2.50 per pound) ……………..20 Direct labor (3
> Stiller Company uses a standard cost accounting system. Some of the ledger accounts have been destroyed in a fire. The controller asks your help in reconstructing some missing entries and balances. Instructions: Answer the following questions. (a) Mater
> Vista Company installed a standard cost system on January 1. Selected transactions for the month of January are as follows. 1. Purchased 18,000 units of raw materials on account at a cost of $4.50 per unit. Standard cost was $4.40 per unit. 2. Issued 18,
> At Jaymes Company, it costs $30 per unit ($20 variable and $10 fixed) to make a product at full capacity that normally sells for $45. A foreign wholesaler offers to buy 3,000 units at $25 each. Jaymes will incur special shipping costs of $2 per unit. Ass
> The following is a list of terms related to performance evaluation. 1. Balanced scorecard 5. Customer perspective 2. Variance 6. Internal process perspective 3. Learning and growth perspective 7. Ideal standards 4. Nonfinancial measures
> Wallowa Company is considering a long-term investment project called ZIP. ZIP will require an investment of $120,000. It will have a useful life of 4 years and no salvage value. Annual revenues would increase by $80,000, and annual expenses (excluding de
> Wallowa Company is considering a long-term investment project called ZIP. ZIP will require an investment of $120,000. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $80,000, and annual cash outflows woul
> Wallowa Company is considering a long-term investment project called ZIP. ZIP will require an investment of $120,000. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $80,000, and annual cash outflows woul
> The standard cost of product 5252 includes 1.9 hours of direct labor at $14.00 per hour. The predetermined overhead rate is $22.00 per direct labor hour. During July, the company incurred 4,100 hours of direct labor at an average rate of $14.30 per hour
> The service division of Raney Industries reported the following results for 2013. Sales ………………………………………………………$500,000 Variable costs ……………………………………………300,000 Controllable fixed costs ………………………………. 75,000 Average operating assets …………………………..625,000 Man
> Mussatto Company expects to produce 50,000 units of product IOA during the current year. Budgeted variable manufacturing costs per unit are direct materials $7, direct labor $13, and overhead $18. Annual budgeted fixed manufacturing overhead costs are $9
> Ash Creek Company is preparing its budgeted income statement for 2014. Relevant data pertaining to its sales, production, and direct materials budgets can be found in Do it! 21-3. In addition, Ash Creek budgets 0.3 hours of direct labor per unit, labor
> Ash Creek Company is preparing its master budget for 2014. Relevant data pertaining to its sales, production, and direct materials budgets are as follows. Sales. Sales for the year are expected to total 1,000,000 units. Quarterly sales are 20%, 20%, 30%,
> Zeller Company estimates that 2014 unit sales will be 20,000 in quarter 1, 24,000 in quarter 2, and 29,000 in quarter 3, at a unit selling price of $20. Management desires to have ending finished goods inventory equal to 10% of the next quarter’s expecte
> Blake Romney became Chief Executive Officer of Peters Inc. two years ago. At the time, the company was reporting lagging profits, and Blake was brought in to “stir things up.” The company has three divisions, electronics, fiber optics, and plumbing suppl
> Batista Company management wants to maintain a minimum monthly cash balance of $20,000. At the beginning of April, the cash balance is $25,000, expected cash receipts for April are $245,000, and cash disbursements are expected to be $255,000. How much ca
> Gator Corporation manufactures several types of accessories. For the year, the gloves and mittens line had sales of $500,000, variable expenses of $370,000, and fixed expenses of $150,000. Therefore, the gloves and mittens line had a net loss of $20,000.
> Mesa Verde manufactures unpainted furniture for the do-it-yourself (DIY) market. It currently sells a table for $75. Production costs are $40 variable and $10 fixed. Mesa Verde is considering staining and sealing the table to sell it for $100. Variable c
> Rubble Company must decide whether to make or buy some of its components. The costs of producing 60,000 switches for its generators are as follows. Instead of making the switches at an average cost of $2.95 ($177,000 4 60,000), the company has an oppor
> The March 31, 2011, edition of the Wall Street Journal includes an article by Russell Gold entitled “Solar Gains Traction—Thanks to Subsidies.” Instructions: Read the article and answer the following questions. (a) What was the total cost of the solar p
> Refer back to E24-9 to address the following. Data in E24-9: Brady Service Center just purchased an automobile hoist for $35,000. The hoist has an 8-year life and an estimated salvage value of $3,000. Installation costs and freight charges were $3,300 a
> Do you think that standard costs are used only in making products like wheel bearings and hamburgers? Think again. Standards influence virtually every aspect of our lives. For example, the next time you call to schedule an appointment with your doctor, a
> From the time you first entered school many years ago, instructors have been measuring and evaluating you by imposing standards. In addition, many of you will pursue professions that administer professional examinations to attain recognized certification
> At Symond Company, production workers in the Painting Department are paid on the basis of productivity. The labor time standard for a unit of production is established through periodic time studies conducted by Douglas Management Consultants. In a time s
> The setting of standards is critical to the effective use of standards in evaluating performance. Instructions: Explain the following in a memo to your instructor. (a) The comparative advantages and disadvantages of ideal versus normal standards. (b) Th
> Chicksaw Company uses the following budgets: Balance Sheet, Capital Expenditure, Cash, Direct Labor, Direct Materials, Income Statement, Manufacturing Overhead, Production, Sales, and Selling and Administrative. Prepare a diagram of the interrelationship
> You might hear people say that they “need to learn to live within a budget.” The funny thing is that most people who say this haven’t actually prepared a personal budget, nor do they intend to. Instead, what they are referring to is a vaguely defined, po
> In order to get your personal finances under control, you need to prepare a personal budget. Assume that you have compiled the following information regarding your expected cash flows for a typical month. Instructions: Using the information above, prep
> You are an accountant in the budgetary, projections, and special projects department of Fernetti Conductor, Inc., a large manufacturing company. The president, Richard Brown, asks you on very short notice to prepare some sales and income projections cove
> In order to better serve their rural patients, Drs. Joe and Rick Parcells (brothers) began giving safety seminars. Especially popular were their “emergency-preparedness” talks given to farmers. Many people asked whether the “kit&rdquo
> You might hear people say that they “need to learn to live within a budget.” The funny thing is that most people who say this haven’t actually prepared a personal budget, nor do they intend to. Instead, what they are referring to is a vaguely defined, po
> In order to get your personal finances under control, you need to prepare a personal budget. Assume that you have compiled the following information regarding your expected cash flows for a typical month. Instructions: Using the information above, prep
> What are joint products? What accounting issue results from the production process that creates joint products?
> You are an accountant in the budgetary, projections, and special projects department of Fernetti Conductor, Inc., a large manufacturing company. The president, Richard Brown, asks you on very short notice to prepare some sales and income projections cove
> What is the decision rule in deciding whether to sell a product or process it further?
> Define the term “opportunity cost.” How may this cost be relevant in a make-or-buy decision?
> Emil Corporation has an opportunity to buy parts at $9 each that currently cost $12 to make. What manufacturing costs are relevant to this make-or-buy decision?
> What data are relevant in deciding whether to accept an order at a special price?
> Sydney Greene asks for your help concerning the relevance of variable and fixed costs in incremental analysis. Help Sydney with her problem.
> How do responsibility reports differ from budget reports?
> Distinguish between controllable and non-controllable costs.
> The flexible budget formula is fixed costs $50,000 plus variable costs of $4 per direct labor hour. What is the total budgeted cost at (a) 9,000 hours and (b) 12,345 hours?
> Cali Company has prepared a graph of flexible budget data. At zero direct labor hours, the total budgeted cost line intersects the vertical axis at $20,000. At 10,000 direct labor hours, the line drawn from the total budgeted cost line intersects the ver
> In order to better serve their rural patients, Drs. Joe and Rick Parcells (brothers) began giving safety seminars. Especially popular were their “emergency-preparedness” talks given to farmers. Many people asked whether the “kit&rdquo
> (a) What is budgetary control? (b) Fred Barone is describing budgetary control. What steps should be included in Fred’s description?
> “Incremental analysis involves the accumulation of information concerning a single course of action.” Do you agree? Why?
> Distinguish between a master budget and a sales forecast.
> Lori Wilkins maintains that the only difference between budgeting and long-range planning is time. Do you agree? Why or why not?
> What criteria are helpful in determining the length of the budget period? What is the most common budget period?
> Jane Gilligan asks your help in understanding the essentials of effective budgeting. Identify the essentials for Jane.
> Alou Company has 20,000 beginning finished goods units. Budgeted sales units are 160,000. If management desires 15,000 ending finished goods units, what are the required units of production?
> “The production budget shows both unit production data and unit cost data.” Is this true? Explain.
> What budget is the starting point in preparing the master budget? What may result if this budget is inaccurate?
> How may expected revenues in a service company be computed?
> School costs money. Is this an expenditure that you should have avoided? A year of tuition at a public four-year college costs about $8,655, and a year of tuition at a public two-year college costs about $1,359. If you did not go to college, you might av
> What is the formula for determining required merchandise purchases for a merchandiser?
> Noterman Company has credit sales of $600,000 in January. Past experience suggests that 40% is collected in the month of sale, 50% in the month following the sale, and 10% in the second month following the sale. Compute the cash collections from January
> Your roommate, Anna Polis, contends that accounting contributes to most of the steps in management’s decision-making process. Is your roommate correct? Explain.
> Identify the three sections of a cash budget. What balances are also shown in this budget?
> Indicate the supporting schedules used in preparing a budgeted income statement through gross profit for a manufacturer.
> For Goody Company, the budgeted cost for one unit of product is direct materials $10, direct labor $20, and manufacturing overhead 80% of direct labor cost. If 25,000 units are expected to be sold at $65 each, what is the budgeted gross profit?
> Everly Company’s variable selling and administrative expenses are 12% of net sales. Fixed expenses are $50,000 per quarter. The sales budget shows expected sales of $200,000 and $240,000 in the first and second quarters, respectively. What are the total
> Ortiz Company’s manufacturing overhead budget shows total variable costs of $198,000 and total fixed costs of $162,000. Total production in units is expected to be 150,000. It takes 20 minutes to make one unit, and the direct labor rate is $15 per hour.
> The production budget of Justus Company calls for 80,000 units to be produced. If it takes 45 minutes to make one unit and the direct labor rate is $16 per hour, what is the total budgeted direct labor cost?
> In preparing the direct materials budget for Quan Company, management concludes that required purchases are 64,000 units. If 52,000 direct materials units are required in production and there are 9,000 units of beginning direct materials, what is the des
> Managerial accounting techniques can be used in a wide variety of settings. As we have frequently pointed out, you can use them in many personal situations. They also can be useful in trying to find solutions for societal issues that appear to be hard to
> The executive team at Current Designs has gathered to evaluate the company’s operations for the last month. One of the topics on the agenda is the special order from Huegel Hollow, which was presented in BYP2-1. Recall that Current Designs had a special
> Huang Inc. has one product line that is unprofitable. What circumstances may cause overall company net income to be lower if the unprofitable product line is eliminated?
> Your roommate, Gale Dunham, is confused about sunk costs. Explain to your roommate the meaning of sunk costs and their relevance to a decision to retain or replace equipment.
> How are allocated joint costs treated when making a sell-or-process-further decision?
> What steps are frequently involved in management’s decision-making process?
> What simplifying assumptions were made in the chapter regarding calculation of net present value?
> What is the decision rule under the net present value method?
> Tom Wells claims the formula for the cash payback technique is the same as the formula for the annual rate of return technique. Is Tom correct? What is the formula for the cash payback technique?
> What are the advantages and disadvantages of the cash payback technique?
> Your classmate, Mike Dawson, is confused about the factors that are included in the annual rate of return technique. What is the formula for this technique?
> What advantages does the profitability index provide over direct comparison of net present value when comparing two projects?
> Hank Jewell is a production manager at a metal fabricating plant. Last night, he read an article about a new piece of equipment that would dramatically reduce his division’s costs. Hank was very excited about the prospect, and the first thing he did this
> How is the predetermined overhead rate determined when standard costs are used?
> “The objective in setting the direct labor quantity standard is to determine the aggregate time required to make one unit of product.” Do you agree? What allowances should be made in setting this standard?
> Distinguish between an ideal standard and a normal standard.
> Contrast the roles of the management accountant and management in setting standard costs.
> Alma Ortiz does not understand why the overhead volume variance indicates that fixed overhead costs are under- or over applied. Clarify this matter for Alma.
> What is the purpose of computing the overhead volume variance? What is the basic formula for this variance?
> If the $9 per hour overhead rate in Question 12 includes $5 variable, and actual overhead costs were $248,000, what is the overhead controllable variance for June? The normal capacity hours were 28,000. Is the variance favorable or unfavorable?
> Kerry James says that the balanced scorecard was created to replace financial measures as the primary mechanism for performance evaluation. He says that it uses only nonfinancial measures. Is this true?
> How often should variances be reported to management? What principle may be used with variance reports?
> Mikan Company’s standard predetermined overhead rate is $9 per direct labor hour. For the month of June, 26,000 actual hours were worked, and 27,000 standard hours were allowed. How much overhead was applied?
> Viera Corporation is considering investing in a new facility. The estimated cost of the facility is $2,045,000. It will be used for 12 years, then sold for $716,000. The facility will generate annual cash inflows of $400,000 and will need new annual cash
> In the direct labor variance matrix, there are three factors: (1) Actual hours x Actual rate, (2) Actual hours x Standard rate, and (3) Standard hours x Standard rate. Using the numbers, indicate the formulas for each of the direct labor variances.
> In each of the following formulas, supply the words that should be inserted for each number in parentheses. (a) (Actual quantity x (1)) - (Standard quantity x (2)) = Total materials variance (b) ((3) x Actual price) - (Actual quantity x (4)) =Materials p
> A static overhead budget based on 40,000 direct labor hours shows Factory Insurance $6,500 as a fixed cost. At the 50,000 direct labor hours worked in March, factory insurance costs were $6,300. Is this a favorable or unfavorable performance? Why?
