Question: What special problems arise when evaluating

> As part of her annual review of her company’s budgets versus actuals, Mary Gerard isolates unfavorable variances with the hope of getting a better understanding of what caused them and how to avoid them next year. The variable overhead efficiency varianc

> Steed Co. budgets production of 150,000 units in the next year. Steed’s CFO expects that each unit will take 8 hours to produce at an hourly wage rate of $10 per hour. If factory overhead is applied on the basis of direct labor hours at $6 per hour, the

> Each of the following statements is correct regarding overhead variances except: a. Actual overhead greater than applied overhead is unfavorable. b. The efficiency overhead variance ignores the standard variable overhead rate. c. Variable overhead rates

> Wayne Mueller, financial analyst at CELL Corporation, is examining the behavior of quarterly utility costs for budgeting purposes. Mueller collects the following data on machine-hours worked and utility costs for the past 8 quarters: Required: 1. Estima

> Assume the same information for Northern Defense as in Exercise 10-33, except that Northern Defense uses an 85% incremental unit-time learning model as a basis for predicting direct manufacturing labor-hours. (An 85% learning curve means b = -0.234465.)

> Northern Defense manufactures radar systems. It has just completed the manufacture of its first newly designed system, RS-32. Manufacturing data for the RS-32 follow: Required: Calculate the total variable costs of producing 2, 4, and 8 units Home I

> May Blackwell is the new manager of the materials storeroom for Clayton Manufacturing. May has been asked to estimate future monthly purchase costs for part #696, used in two of Clayton’s products. May has purchase cost and quantity dat

> Linda Olson owns a professional character business in a large metropolitan area. She hires local college students to play these characters at children’s parties and other events. Linda provides balloons, cupcakes, and punch. For a stand

> Frontier Partners, a management consulting firm, has the following condensed budget for 2017: Frontier has a single direct-cost category (professional labor) and a single indirect-cost pool (client support). Indirect costs are allocated to jobs on the b

> Relling Corporation manufactures a drink bottle, model CL24. During 2017, Relling produced 210,000 bottles at a total cost of $808,500. Kraff Corporation has offered to supply as many bottles as Relling wants at a cost of $3.75 per bottle. Relling antici

> Dr. Young, of Young and Associates, LLP, is examining how overhead costs behave as a function of monthly physician contact hours billed to patients. The historical data are as follows: Required: 1. Compute the linear cost function, relating total overhe

> Lacy Dallas is examining customer-service costs in the southern region of Camilla Products. Camilla Products has more than 200 separate electrical products that are sold with a 6-month guarantee of full repair or replacement with a new product. When a pr

> Reisen Travel offers helicopter service from suburban towns to John F. Kennedy International Airport in New York City. Each of its 10 helicopters makes between 1,000 and 2,000 round-trips per year. The records indicate that a helicopter that has made 1,0

> Gower, Inc., a manufacturer of plastic products, reports the following manufacturing costs and account analysis classification for the year ended December 31, 2017. Gower, Inc., produced 75,000 units of product in 2017. Gower’s managem

> Stein Corporation wants to find an equation to estimate some of their monthly operating costs for the operating budget for 2018. The following cost and other data were gathered for 2017: Required: 1. Which of the preceding costs is variable? Fixed? Mixe

> Given here are a number of graphs. The horizontal axis of each graph represents the units produced over the year, and the vertical axis represents total cost or revenues. Required: Indicate by number which graph best fits the situation or item describ

> The vertical axes of the graphs below represent total cost, and the horizontal axes represent units produced during a calendar year. In each case, the zero point of dollars and production is at the intersection of the two axes. Select the graph that mat

> The Sunrise Corporation operates car rental agencies at more than 20 airports. Customers can choose from one of three contracts for car rentals of one day or less: ■ Contract 1: $45 for the day ■ Contract 2: $25 for the day plus $0.30 per mile travel

> The controller of the Javier Company is preparing the budget for 2018 and needs to estimate a cost function for delivery costs. Information regarding delivery costs incurred in the prior two months are: Required: 1. Estimate the cost function for deliver

> The Matthew Company uses a normal job-costing system at its Minneapolis plant. The plant has a machining department and an assembly department. Its job-costing system has two direct-cost categories (direct materials and direct manufacturing labor) and tw

> The Garvis Company uses an absorption-costing system based on standard costs. Variable manufacturing cost consists of direct material cost of $4.50 per unit and other variable manufacturing costs of $1.50 per unit. The standard production rate is 20 unit

> The Garvis Company uses an absorption-costing system based on standard costs. Variable manufacturing cost consists of direct material cost of $4.50 per unit and other variable manufacturing costs of $1.50 per unit. The standard production rate is 20 unit

> Camino, a leading firm in the sports industry, produces basketballs for the consumer market. For the year ended December 31, 2017, Camino sold 400,000 basketballs at an average selling price of $12 per unit. The following information also relates to 2017

> Thunder Bolt, Inc., is a manufacturer of the very popular G36 motorcycles. The management at Thunder Bolt has recently adopted absorption costing and is debating which denominator level concept to use. The G36 motorcycles sell for an average price of $8,

> Candyland uses standard costing to produce a particularly popular type of candy. Candyland’s president, Jack McCay, was unhappy after reviewing the income statements for the first three years of business. He said, “I w

> Horace Company manufactures a professional-grade vacuum cleaner and began operations in 2017. For 2017, Horace budgeted to produce and sell 25,000 units. The company had no price, spending, or efficiency variances and writes off production-volume varianc

> Miami, Inc., planned and actually manufactured 250,000 units of its single product in 2017, its first year of operation. Variable manufacturing cost was $19 per unit produced. Variable operating (nonmanufacturing) cost was $13 per unit sold. Planned and

> The Tomlinson Company manufactures trendy, high-quality, moderately priced watches. As Tomlinson’s senior financial analyst, you are asked to recommend a method of inventory costing. The CFO will use your recommendation to prepare Tomlinson’s 2017 income

> The variable manufacturing costs per unit of EntertainMe Corporation are as follows: Required: 1. Prepare income statements for EntertainMe in January, February, and March 2017 under throughput costing. 2. Contrast the results in requirement 1 of this

> EntertainMe Corporation manufactures and sells 50-inch television sets and uses standard costing. Actual data relating to January, February, and March 2017 are as follows: The selling price per unit is $3,300. The budgeted level of production used to ca

> Taylor Company uses normal costing. It allocates manufacturing overhead costs using a budgeted rate per machine-hour. The following data are available for 2017: Budgeted manufacturing overhead costs………$3,800,000 Budgeted machine-hours…………………………………. 200,0

> The variable manufacturing costs per unit of Nascar Motors are as follows: Required: 1. Prepare income statements for Nascar Motors in April and May 2017 under throughput costing. 2. Contrast the results in requirement 1 with those in requirement 1 of

> Nascar Motors assembles and sells motor vehicles and uses standard costing. Actual data relating to April and May 2017 are as follows: The selling price per vehicle is $24,000. The budgeted level of production used to calculate the budgeted fixed manufa

> Eric Williams is a cost accountant and business analyst for Diamond Design Company (DDC), which manufactures expensive brass doorknobs. DDC uses two direct-cost categories: direct materials and direct manufacturing labor. Williams feels that manufacturin

> Tred-America, Inc., manufactures tires for large auto companies. It uses standard costing and allocates variable and fixed manufacturing overhead based on machine-hours. For each independent scenario given, indicate whether each of the manufacturing vari

> Carlyle Capital Company offers financial services to its clients. Recently, Carlyle has experienced rapid growth and has increased both its client base and the variety of services it offers. The company is becoming concerned about its rising costs, howev

> Chart Hills Company makes customized golf shirts for sale to golf courses. Each shirt requires 3 hours to produce because of the customized logo for each golf course. Chart Hills uses direct labor-hours to allocate the overhead cost to production. Fixed

> Pampered Pets, Inc., makes embellished accessories primarily for dogs. For 2017, budgeted variable overhead is $70,000 for 10,000 direct labor-hours. Budgeted total overhead is $100,000 at 8,000 direct labor-hours. The standard costs allocated to the pro

> Meals Made Easy (MME) operates a meal home-delivery service. It has agreements with 20 restaurants to pick up and deliver meals to customers who place orders on MME’s website. MME allocates variable and fixed overhead costs on the basis

> The Brazil division of an American telecommunications company uses standard costing for its machine-paced production of telephone equipment. Data regarding production during June are as follows: Variable manufacturing overhead costs incurred…………………………………

> The Lopez Company uses standard costing in its manufacturing plant for auto parts. The standard cost of a particular auto part, based on a denominator level of 4,000 output units per year, included 6 machine-hours of variable manufacturing overhead at $8

> Atkinson Construction assembles residential houses. It uses a job-costing system with two direct-cost categories (direct materials and direct labor) and one indirect-cost pool (assembly support). Direct labor-hours is the allocation base for assembly sup

> ProChem, Inc., produces chemicals for large biotech companies. It has the following data for manufacturing overhead costs during August 2017: Fill in the blanks. Use F for favorable and U for unfavorable: Variable Fixed (1) Spending variance (2) Ef

> The Rotations Corporation is a manufacturer of centrifuges. Fixed and variable manufacturing overheads are allocated to each centrifuge using budgeted assembly-hours. Budgeted assembly time is 2 hours per unit. The following table shows the budgeted amou

> The Sourdough Bread Company also allocates fixed manufacturing overhead to products on the basis of standard direct manufacturing labor-hours. For 2017, fixed manufacturing overhead was budgeted at $3.00 per direct manufacturing labor-hour. Actual fixed

> The Sourdough Bread Company bakes baguettes for distribution to upscale grocery stores. The company has two direct-cost categories: direct materials and direct manufacturing labor. Variable manufacturing overhead is allocated to products on the basis of

> Esquire Clothing allocates fixed manufacturing overhead to each suit using budgeted direct manufacturing labor-hours per suit. Data pertaining to fixed manufacturing overhead costs for June 2017 are budgeted, $62,400, and actual, $63,916. Required: 1.

> Esquire Clothing is a manufacturer of designer suits. The cost of each suit is the sum of three variable costs (direct material costs, direct manufacturing labor costs, and manufacturing overhead costs) and one fixed-cost category (manufacturing overhead

> Why is it important to distinguish between the performance of a manager and the performance of the organization subunit for which the manager is responsible? Give an example.

> Distinguish between measuring assets based on current cost and historical cost.

> “RI is not identical to ROI, although both measures incorporate income and investment into their computations.” Do you agree? Explain.

> Dakota Products uses a job-costing system with two direct-cost categories (direct materials and direct manufacturing labor) and one manufacturing overhead cost pool. Dakota allocates manufacturing overhead costs using direct manufacturing labor costs. Da

> What are the three steps in designing accounting-based performance measures?

> Describe the four levers of control.

> Describe two disclosures required by the SEC with respect to executive compensation.

> Explain the incentive problems that can arise when employees must perform multiple tasks as part of their jobs.

> Explain the role of benchmarking in evaluating managers.

> “Managers should be rewarded only on the basis of their performance measures. They should be paid no salary.” Do you agree? Explain.

> Give examples of financial and nonfinancial performance measures that can be found in each of the four perspectives of the balanced scorecard.

> “Transfer pricing is confined to profit centers.” Do you agree? Explain.

> Name three benefits and two costs of decentralization.

> How should managers consider income tax issues when choosing a transfer-pricing method?

> In each of the following situations, determine whether job costing or process costing would be more appropriate. a. A CPA firm b. An oil refinery c. A custom furniture manufacturer d. A tire manufacturer e. A textbook publisher f. A home builder g.

> “Under the general guideline for transfer pricing, the minimum transfer price will vary depending on whether the supplying division has unused capacity or not.” Do you agree? Explain.

> “Cost and price information play no role in negotiated transfer prices.” Do you agree? Explain.

> Give two reasons why the dual-pricing system of transfer pricing is not widely used.

> What is one potential limitation of full-cost-based transfer prices?

> Under what conditions is a market-based transfer price optimal?

> “Let’s be more practical. DCF is not the gospel. Managers should not become so enchanted with DCF that strategic considerations are overlooked.” Do you agree? Explain.

> “The trouble with discounted cash flow methods is that they ignore depreciation.” Do you agree? Explain.

> Describe the accrual accounting rate-of-return method. What are its main strengths and weaknesses?

> What is the payback method? What are its main strengths and weaknesses?

> “Only quantitative outcomes are relevant in capital budgeting analyses.” Do you agree? Explain.

> The Walliston Group (WG) provides tax advice to multinational firms. WG charges clients for (a) direct professional time (at an hourly rate) and (b) support services (at 30% of the direct professional costs billed). The three professionals in WG and th

> “Relevant costs for pricing decisions are full costs of the product.” Do you agree? Explain.

> What is the essence of the discounted cash flow methods?

> List and briefly describe each of the five stages in capital budgeting.

> Distinguish the nominal rate of return from the real rate of return.

> How can capital budgeting tools assist in evaluating a manager who is responsible for retaining customers of a cellular telephone company?

> Describe three ways income taxes can affect the cash inflows or outflows in a motor-vehicle-replacement decision by a taxpaying company.

> Distinguish different categories of cash flows to be considered in an equipment-replacement decision by a taxpaying company.

> Bill Watts, president of Western Publications, accepts a capital budgeting project proposed by division X. This is the division in which the president spent his first 10 years with the company. On the same day, the president rejects a capital budgeting p

> “All overhead costs are relevant in NPV analysis.” Do you agree? Explain.

> What are three factors causing reductions in the cost to place purchase orders for materials?

> “JIT purchasing has many benefits but also some risks.” Do you agree? Explain briefly.

> Vineyard Test Laboratories does heat testing (HT) and stress testing (ST) on materials and operates at capacity. Under its current simple costing system, Vineyard aggregates all operating costs of $1,190,000 into a single overhead cost pool. Vineyard cal

> Why might goal-congruence issues arise when managers use an EOQ model to guide decisions on how much to order?

> What are the steps in computing the cost of a prediction error when using the EOQ decision model?

> Give three examples of opportunity costs that typically are not recorded in accounting systems, although they are relevant when using the EOQ model in the presence of demand uncertainty.

> What assumptions are made when using the simplest version of the economic-order-quantity (EOQ) decision model?

> Discuss the differences between lean accounting and traditional cost accounting.

> Describe three different versions of backflush costing.

> Distinguish inventory-costing systems using sequential tracking from those using backflush costing.

> What are the main features of JIT production, and what are its benefits and costs?

> What is supply-chain analysis, and how can it benefit manufacturers and retailers?

> “You should always choose the supplier who offers the lowest price per unit.” Do you agree? Explain.

> Roberta, Inc., manufactures elliptical machines for several well-known companies. The machines differ significantly in their complexity and their manufacturing batch sizes. The following costs were incurred in 2017: a. Indirect manufacturing labor costs

> Why do better decisions regarding the purchasing and managing of goods for sale frequently cause dramatic percentage increases in net income?

> Give two examples of nonfinancial measures of internal-business-process quality.

> Give two examples of nonfinancial measures of customer satisfaction relating to quality.