Wheelco, Inc. manufactures automobile and truck wheels. The company produces four basic, h ighvolume wheels used by each of the large automobile and pickup truck manufacturers. Wheelco also has two specialty wheel lines. These are fancy, complicated wheels used in expensive sports cars. Lately, Wheelco’s profits have been declining. Foreign competitors have been undercutting Wheelco’s prices in three of its bread-and-butter product lines, and Wheelco’s sales volume and market share have declined. In contrast, Wheelco’s specialty wheels have been selling steadily, although in relatively small numbers, in spite of three recent price increases. At a recent staff meeting, Wheelco’s president made the following remarks: “Our profits are going down the tubes, folks. It costs us 31 dollars to manufacture our DC16 wheel. That’s our best seller, with a volume last year of 19,000 units. But our chief competitor is selling basically the same wheel for 28 bucks. I don’t see how they can do it. I think it’s just one more example of foreign dumping. I’m going to write my senator about it! Thank goodness for our specialty wheels. I think we’ve got to get our sales people to push those wheels more and more. Take the JY16 model, for example. It’s a complicated thing to make, and we don’t sell many. But look at the profit margin. Those wheels cost us 52 dollars to make, and we’re selling them for 110 bucks each.” Required: What do you think is behind the problems faced by Wheelco? Comment on the president’s remarks. Do you think his strategy is a good one? What do you recommend, and why?
> Briefly explain two factors that tend to result in product cost distortion under traditional, volume-based product costing systems.
> How is the distinction between direct and indirect costs handled differently under volume-based versus activity based costing systems?
> Why do product-costing systems based on a single, volume-based cost driver tend to overcost high-volume products? What undesirable strategic effects can such distortion of product costs have?
> How can an activity-based costing system alleviate the problems Patio Grill Company’s management was having under its traditional, volume-based product-costing system?
> List and briefly describe the four broad categories of activities identified in stage one of an activity-based costing system.
> What are cost drivers? What is their role in an activity-based costing system?
> Explain how an activity-based costing system operates.
> Pinellas Printer Company manufactures printers for use with home computing systems. The firm currently manufactures both the electronic components for its printers and the plastic cases in which the devices are enclosed. Jim Cassanitti, the production ma
> Why was Patio Grill Company’s management being misled by the traditional product-costing system? What mistakes were being made?
> Briefly explain how a traditional, volume-based product-costing system operates.
> What is meant by customer-profitability analysis? Give an example of an activity that might be performed more commonly for one customer than for another.
> FiberCom, Inc., manufactures fiber optic cables for the computer and telecommunications industries. At the request of the company vice president of marketing, the cost management staff has recently completed a customer-profitability study. The following
> Contemporary Kitchen Furnishings, Inc. (CKF) manufactures a variety of housewares for the consumer market in the midwest. The company’s three major product lines are cooking utensils, tableware, and flatware. CKF implemented activity-based costing four y
> Refer to the information given in the preceding problem for Bodacious Bagels, Inc. Data from Bodacious Bagels, Inc.: Bodacious Bagels, Inc., manufactures a variety of bagels, which are frozen and sold in grocery stores. The production process consists o
> Bodacious Bagels, Inc., manufactures a variety of bagels, which are frozen and sold in grocery stores. The production process consists of the following steps. 1. Ingredients, such as flour and raisins, are received and inspected. Then they are stored unt
> Refer to the product costs developed in requirement (5) of Problem 5–60. Prepare a table showing how Gigabyte’s traditional, volume-based product-costing system distorts the product costs of gismos, thingamajigs, and w
> Refer to the new target prices calculated in the preceding problem for Gigabyte’s three products, based on the new activity-based costing system. Data from previous problem: Required: Write a memo to the company president commenting
> Gigabyte, Inc., manufactures three products for the computer industry: Gismos (product G): annual sales, 8,000 units Thingamajigs (product T): annual sales, 15,000 units Whatchamacallits (product W): annual sales, 4,000 units The company uses a tradition
> List two plausible goals for each of these organizations: Amazon.com, American Red Cross, General Motors, Walmart, the City of Seattle, and Hertz.
> Scott Manufacturing produces two items in its Virginia Beach plant: Tuff Stuff and Ruff Stuff. Since inception, Scott has used only one manufacturing-overhead cost pool to accumulate costs. Overhead has been allocated to products based on direct-labor ho
> Ultratech, Inc., manufactures several different types of printed circuit boards; however, two of the boards account for the majority of the company’s sales. The first of these boards, a television circuit board, has been a standard in t
> Queensland Electronics Company manufactures two large-screen television models, the Novelle, which has been produced for 10 years and sells for $910, and the Zodiac, a new model introduced in early 20x3, which sells for $1,160. Based on the following inc
> Pensacola Air Industries (PAI) manufactures aircraft parts for small aircraft. Over the past decade, PAI’s management has met its goal of reducing its reliance on government contract work to 50 percent of total sales. Thus, PAI’s sales are now roughly ev
> Gourmet Specialty Coffee Company (GSCC) is a distributor and processor of different blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. GSCC currently has 12 different coffees that it of
> Knickknack, Inc., manufactures two products: odds and ends. The firm uses a single, plantwide overhead rate based on direct-labor hours. Production and product-costing data are as follows: Manufacturing overhead budget: Machine-related costs. .........
> Refer to the original data given in the preceding problem for Rapid City Technology, Inc. Data from Rapid City Technology, Inc: An order for 1,000 boxes of a chemical product designated JLRP has the following production requirements. Machine setups....
> Rapid City Technology, Inc. manufactures chemicals used in agricultural pest control. The controller has established the following activity cost pools and cost drivers. An order for 1,000 boxes of a chemical product designated JLRP has the following pro
> John Patrick has recently been hired as controller of Valdosta Vinyl Company (VVC), a manufacturer of vinyl siding used in residential construction. VVC has been in the vinyl siding business for many years and is currently investigating ways to modernize
> Meditech, Inc. manufactures two types of medical devices, Medform and Procel, and applies overhead on the basis of direct-labor hours. Anticipated overhead and direct-labor time for the upcoming accounting period are $710,000 and 20,000 hours, respective
> Jay Maxey retired a few years ago at age 48, courtesy of the numerous stock options he had been granted while president of e-shops.com, an Internet start-up company. He soon moved to Montana to follow his dream of living in the mountains and Big-Sky coun
> Digital Light Corporation has just completed a major change in its quality control (QC) process. Previously, products had been reviewed by QC inspectors at the end of each major process, and the company’s 10 QC inspectors were charged a
> Wilmington Office Equipment Corporation manufactures two types of filing cabinets—Deluxe and Executive—and applies manufacturing overhead to all units at the rate of $80 per machine hour. Production information follows
> Refer to your solution to requirement (2) of the preceding problem. Exhibit 5-6: Required: Prepare an exhibit similar to Exhibit 5–6 in the text to explain the ABC calculations for the material-handling activity. Use your exhibit to e
> Kitchen King’s Toledo plant manufactures three product lines, all multi-burner, ceramic cook tops. The plant’s three product models are the Regular (REG), the Advanced (ADV), and the Gourmet (GMT). Until recently, the
> Clark and Shiffer LLP perform activities related to e-commerce consulting and information systems in Vancouver, British Columbia. The firm, which bills $140 per hour for services performed, is in a very tight local labor market and is having difficulty f
> Refer to the information given in the preceding problem for FiberCom, Inc., and two of its customers, Caltex Computer and Trace Telecom. Additional information for six of FiberCom’s other customers for the most recent year follows: Cust
> Since you have always wanted to be an industrial baron, invent your own product and describe at least five steps used in its production. Required: Explain how you would go about identifying non-value-added costs in the production process.
> Visit the website of a city, state, or Canadian province of your choosing (e.g., the City of Charlotte, www.charmeck.org ). Required: Read about the services offered to the public by this governmental unit. Then discuss how activity-based costing could
> Refer to the information given in the preceding exercise. For each of the activity cost pools identified, indicate whether it represents a unit-level, batch-level, product-sustaining-level, or facility-level activity. Information from previous exercise:
> Windy City Design Company specializes in designing commercial office space in Chicago. The firm’s president recently reviewed the following income statement and noticed that operating profits were below her expectations. She had a hunch
> Give an example of managerial accounting information that could help a manager make each of the following decisions. 1. The production manager in an automobile plant is deciding whether to have routine maintenance performed on a machine weekly or biweekl
> The customer-profitability analysis for Patio Grill Company, which is displayed in Exhibit 5–14 , ranks customers by operating income. An alternative, often-used approach is to rank customers by sales revenue. Exhibit 5-14: Exhibit
> Visit a restaurant for a meal or think carefully about a recent visit to a restaurant. List as many a activities as you can think of that would be performed by the restaurant’s employees for its customers. Required: For each activity on your list, indi
> List five activities performed by the employees of an airline on the ground. Required: For each of these activities, suggest a performance measure that could be used in activitybased management.
> Non-value-added costs occur in nonmanufacturing organizations, just as they do in manufacturing firms. Required: Identify four potential non-value-added costs in (1) an airline, (2) a bank, and (3) a hotel.
> United Technologies Corporation is using activity-based costing in two of its subsidiaries: Otis Elevator Company and Carrier Corporation. The following table shows 27 activities and eight accounts identified at Carrier, along with the classification det
> Zodiac Model Rocketry Company sells model rocketry kits and supplies to retail outlets and through its catalog. Some of the items are manufactured by Zodiac, while others are purchased for resale. For the products it manufactures, the company currently b
> Seneca Falls Winery is a small, family-run operation in upstate New York. The winery produces two varieties of wine: riesling and chardonnay. Among the activities engaged in by the winery are the following: 1. Trimming: At the end of a growing seas
> Refer to the description given for Wheelco, Inc., in the preceding exercise. Suppose the firm’s president has decided to implement an activity-based costing system. Description for Wheelco, Inc.: Wheelco, Inc. manufactures automobile and truck wheels.
> Rainbow Spray Paints, Inc. has used a traditional cost accounting system to apply quality-control costs uniformly to all products at a rate of 16 percent of direct-labor cost. Monthly direct-labor cost for the enamel paint line is $98,000. In an attempt
> SofTech, Inc., a developer and distributor of business applications software, has been in business for five years. SofTech’s sales have increased steadily to the current level of $25 million per year. The company has 250 employees. Jennifer Nolan joined
> What will happen to a company’s break-even point if the sales price and unit variable cost of its only product increase by the same dollar amount?
> Digitech, Ltd. manufactures various computer components in its Tokyo plant. The following costs are budgeted for January. (Yen is the Japanese monetary unit.) Insurance, plant ................................................................. 780,000 yen
> Precision Lens Company manufactures sophisticated lenses and mirrors used in large optical telescopes. The company is now preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the
> Service-industry firms can make effective use of ABC systems as well as manufacturers. For each of the following businesses, list five key activities that are important in the provision of the firm’s service. For each activity cost pool, suggest an appro
> Madison Electric Pump Corporation’s controller, Erin Jackson, developed new product costs for the three pump models using activity-based costing. It was apparent that the firm’s traditional product costing system had been under costing the advanced model
> Refer to the product costs developed in requirement (2) of the preceding problem. Prepare a table showing how Madison Electric Pump Corporation’s traditional, volume-based product-costing system distorts the product costs of the three p
> Madison Electric Pump Corporation manufactures electric pumps for commercial use. The company produces three models, designated as regular, advanced, and deluxe. The company uses a job-order cost accounting system with manufacturing overhead applied on t
> Cincinnati Cycle Company produces two subassemblies, JY-63 and RX-67, used in manufacturing motorcycles. The company is currently using an absorption costing system that applies overhead based on direct-labor hours. The budget for the current year ending
> Define the term equivalent unit and explain how the concept is used in process costing.
> List three nonmanufacturing businesses in which process costing could be used. For example, a public accounting firm could use process costing to accumulate the costs of processing clients' tax returns
> Distinguish between product costs and period costs.
> List five types of manufacturing in which process costing would be an appropriate product-costing system. What is the key characteristic of these products that makes process costing a good choice?
> Explain the concept of operation costing. How does it differ from process or job-order costing? Why is operation costing well suited for batch manufacturing processes?
> How would the process-costing computations differ from those illustrated in the chapter if overhead were applied on some activity base other than direct labor?
> How does process costing differ under normal or actual costing?
> Explain the reasoning underlying the name of the weighted-average method.
> A food processing company has two sequential production departments: mixing and cooking. The cost of the January 1 work in process in the cooking department is detailed as follows: Direct material .........................................................
> List and briefly describe the purpose of each of the four process-costing steps.
> What are the purposes of a product-costing system?
> Explain the primary differences between job-order and process costing.
> What is the purpose of a departmental production report prepared using process costing?
> The following cost data for the year just ended pertain to Heartstrings, Inc., a greeting card manufacturer: Required: 1. Compute each of the following costs for the year just ended: (a) total prime costs, (b) total manufacturing overhead costs, (c) to
> Moravia Company processes and packages cream cheese. The following data have been compiled for the month of April. Conversion activity occurs uniformly throughout the production process. Work in process, April 1—10,000 units: Direct material: 100% comple
> Toronto Titanium Corporation manufactures a highly specialized titanium sheathing material that is used extensively in the aircraft industry. The following data have been compiled for the month of June. Conversion activity occurs uniformly throughout the
> Orbital Industries of Canada, Ltd. manufactures a variety of materials and equipment for the aerospace industry. A team of R&D engineers in the firm's Winnipeg plant has developed a new material that will be useful for a variety of purposes in orbiti
> Plattsburg Plastics Corporation manufactures a variety of plastic products, including a series of molded chairs. The three models of molded chairs, which are all variations of the same design, are Standard (can be stacked), Deluxe (with arms), and Execut
> (Based on a problem contributed by Roland Minch.) Celestial Glass Company manufactures a variety of glass windows in its Charleston plant. In department I clear glass sheets are produced, and some of these sheets are sold as finished goods. Other sheets
> SolarTech Company manufactures a special lacquer, which is used in the aeronautical and space industries. Two departments are involved in the production process. In the Mixing Department, various chemicals are entered into production. After processing, t
> The following data pertain to the Canandaigua Carpet Company for January. Work in process, January 1 (in units) ........................... 25,000 Units started during January .................................................. ? Total units to account fo
> Beowulf and Grendel, a public accounting firm in London, is engaged in the preparation of income tax returns for individuals. The firm uses the weighted-average method of process costing for internal reporting. The following information pertains to Febru
> Lawncraft, Inc. manufactures wooden lawn furniture using an assembly-line process. All direct materials are introduced at the start of the process, and conversion cost is incurred evenly throughout manufacturing. An examination of the company's Work-in-P
> The following data pertain to the Fantasia Flour Milling Company for the month of October. Work in process, October 1 (in units) ..................................... ? Units started during October ........................................ 70,000 Total un
> You just started a summer internship with the successful management consulting firm of Kirk, Spock, and McCoy. Your first day on the job was a busy one, as the following problems were presented to you. Required: Supply the requested comments in each of
> Texarkana Corporation assembles various components used in the computer industry. The company's major product, a disk drive, is the result of assembling three parts: JR1163, JY1065, and DC0766. The following information relates to activities of April: •
> Circle D Fastener Corporation accumulates costs for its single product using process costing. Direct material is added at the beginning of the production process, and conversion activity occurs uniformly throughout the process. A partially completed prod
> Atlantic City Taffy Company produces various kinds of candy, but salt-water taffy is by far its most important product. The company accumulates costs for its product using process costing. Direct material is added at the beginning of the production proce
> Jupiter Corporation manufactures home security devices. During 20x4, 1,000,000 units were completed and transferred to finished-goods inventory. On December 31, 20x4, there were 310,000 units in work in process. These units were 48 percent complete as to
> Use the Internet to access the website for Weyerhaeuser (www.weyerhaeuser.com), International Paper ( www.internationalpaper.com ), or Boise Cascade (www.boisecascade.com Required: Skim over the information presented on the website about the company's
> Raleigh Textiles Company manufactures a variety of natural fabrics for the clothing industry. The following data pertain to the Weaving Department for the month of November. Equivalent units of direct material (weighted-average method............... 62,
> The following data pertain to Tuscaloosa Paperboard Company, a manufacturer of cardboard boxes. Work in process, March 1……………………..………. 10,000 units* Direct material ............................................................. $ 10,900 Conversion ......
> Montana Lumber Company grows, harvests, and processes timber for use in construction. The following data pertain to the firm's sawmill during June. Work in process, June 1 Direct material ............................................................. $ 74
> Refer to the preceding problem regarding Bandway Company. Complete the job-cost record for Job number T79. (Assume that all of the labor hours for job T79 occurred during the week of 10/8 through 10/12.) Job number T79: BANDWAY COMPANY JOB-COST RECO
> Duluth Glass Company manufactures window glass for automobiles. The following data pertain to the Plate Glass Department. Work in process, February 1 Direct material .......................................... $ 43,200 Conversion .........................
> According to some estimates, the volume of electronic commerce transactions exceeds $3 trillion. Business to-business transactions account for almost half of this amount. What changes do you believe are in store for managerial accounting as a result of t
> Bandway Company manufactures brass musical instruments for use by high school students. The company uses a normal-costing system, in which manufacturing overhead is applied on the basis of directlabor hours. The company’s budget for the current year incl
> Andromeda Glass Company manufactures decorative glass products. The firm employs a processcosting system for its manufacturing operations. All direct materials are added at the beginning of the process, and conversion costs are incurred uniformly through
> Conundrum, Inc. manufactures puzzles. Due to a fire in the administrative offices, the accounting records for September of the current year were partially destroyed. You have been able to piece together the following information from the ledger. Upon ex
> PetroTech Company refines a variety of petrochemical products. The following data are from the firm's Amarillo plant. Work in process, July 1................................................... 1,900,000 liters Direct material ........
> Rochester Heating Systems, Inc. calculates its predetermined overhead rate on a quarterly basis. The following estimates were made for the current year. The firm’s main product, part number SC71, requires $600 of direct material and 20
