Which of the following would not be relevant to a make-or-buy decision? (a) Allocated portion of depreciation expense on existing facilities. (b) Variable cost of labor used to produce products currently purchased from suppliers. (c) Warehousing costs for inventory of completed products (inventory levels will be constant regardless of whether products are purchased or produced). (d) Cost of materials used to produce the items currently purchased from suppliers. (e) Property taxes on the factory building.
> When the operating costs for Bill Smith’s production department were released, he was sure that he would be getting a raise. His costs were $20,000 less than the planned cost in the master budget. His supervisor informed him that the results look good bu
> The following financial statements and information are available for Blythe Industries Inc. Table Summary: The Balance Sheets as of December 31 show 3 columns. Column 1 has entries. Column 2 has year 3. Column 3 has year 2. Balance Sheets As of December
> Which individuals are normally held responsible for labor usage variances?
> John Jamail says that he doesn’t understand why companies have labor price variances because most union contracts or other binding agreements set wage rates that do not normally change in the short term. How could rate variances occur even when binding c
> Who is normally responsible for a materials price variance? Identify two factors that may be beyond this individual’s control that could cause an unfavorable price variance.
> What two factors affect the total materials and labor variance?
> Sara Anderson says that she is a busy woman with no time to look at favorable variances. Instead, she concentrates solely on the unfavorable ones. She says that favorable variances imply that employees are doing better than expected and need only quick c
> A processing department of Carmine Corporation experienced a high unfavorable materials quantity variance. The plant manager initially commented, “The best way to solve this problem is to fire the supervisor of the processing department.” Do you agree? E
> What is the primary benefit associated with using a standard cost system?
> So many variances,” exclaimed Carl, a production manager with Bonnyville Manufacturing. “How do I determine the variances that need investigation? I can’t possibly investigate all of them.” Which variances will lead to useful information?
> What is the difference between a static budget and a flexible budget? When is each used?
> What are the three ranges of difficulty in standard setting? What level of difficulty normally results in superior employee motivation?
> What three attributes are necessary for establishing the best standards? What information and considerations should be taken into account when establishing standards?
> Tesla Inc. began operations in 2003 but did not begin selling its stock to the public until June 28, 2010. It has lost money every year it has been in existence, and by December 31, 2019, it had total lifetime losses of approximately $6.1 billion. In add
> What is a master budget?
> Ken Shilov, manager of the marketing department, tells you that “budgeting simply does not work.” He says that he made budgets for his employees and when he reprimanded them for failing to accomplish budget goals, he got unfounded excuses. Suggest how Mr
> How may budgets be used as a measure of performance?
> What are the advantages of budgeting?
> What is the advantage of using a perpetual budget instead of the traditional annual budget?
> What is the primary factor that distinguishes the three different levels of planning from each other?
> What are the three levels of planning? Explain each briefly.
> Why does preparing the master budget require a committee?
> How does the pro forma statement of cash flows differ from the cash budget?
> Refer to the data in ATC 13-6. Required Construct a spreadsheet to conduct vertical analysis for both years, Year 4 and Year 3. Data from ATC 13-6: Tomkung Corporation’s income statements are presented in the following spreadsheet.
> What information does the pro forma income statement provide? How does its preparation depend on the operating budgets?
> The primary reason for preparing a cash budget is to determine the amount of cash to include on the budgeted balance sheet. Do you agree or disagree with this statement? Explain.
> What are the components of the cash budget? Describe each.
> How does the level of inventory affect the production budget? Why is it important to manage the level of inventory?
> What is the normal starting point in developing the master budget?
> Budgets are useful only for small companies that can estimate sales with accuracy. Do you agree with this statement?
> A manager is faced with deciding whether to replace Machine A or Machine B. The original cost of machine A was $20,000 and that of Machine B was $30,000. Because the two cost figures differ, they are relevant to the manager’s decision. Do you agree? Expl
> A local bank advertises that it offers a free noninterest-bearing checking account if the depositor maintains a $500 minimum balance in the account. Is the checking account truly free?
> What is an opportunity cost? How does it differ from a sunk cost?
> Carmon Company invested $300,000 in the equity securities of Mann Corporation. The current market value of Carmon’s investment in Mann is $250,000. Carmon currently needs funds for operating purposes. Although interest rates are high, Carmon’s president
> Tomkung Corporation’s income statements are presented in the following spreadsheet. Required Construct a spreadsheet to conduct horizontal analysis of the income statements for Year 4 and Year 3.
> The Parent Teacher Association (PTA) of Meadow High School is planning a fund-raising campaign. The PTA is considering the possibility of hiring Eric Logan, a world-renowned investment counselor, to address the public. Tickets would sell for $28 each. Th
> It all comes down to the bottom line. The numbers never lie.” Do you agree with this conclusion? Explain your position.
> Describe the relationship between relevance and accuracy.
> Identify the four hierarchical levels used to classify costs. When can each of these levels of costs be avoided?
> Identify some of the constraints that limit a business’s ability to satisfy the demand for its products or services.
> Are variable costs always relevant? Explain.
> Why would a supervisor choose to continue using a more costly old machine instead of replacing it with a less costly new machine?
> The managers of Wilcox Inc. are suggesting that the company president eliminate one of the company’s segments that is operating at a loss. Why may this be a hasty decision?
> Identify some qualitative factors that should be considered in addition to quantitative costs in deciding whether to outsource.
> Chris Sutter, the production manager of Satellite Computers, insists that the drives used in the company’s upper-end computers be outsourced since they can be purchased from a supplier at a lower cost per unit than the company is presently incurring to p
> Why would a company consider outsourcing products or services?
> J. Talbot is the accounting manager for Kolla Waste Disposal Corporation. Kolla is having its worst financial year since its inception. The company is expected to report a net loss. In the midst of such bad news, Ms. Talbot surprised the company presiden
> What level(s) of costs is (are) relevant in special order decisions?
> What two factors should be considered in deciding how to allocate shelf space in a retail establishment?
> Identify two qualitative considerations that could be associated with special order decisions.
> Are all fixed costs unavoidable?
> Identify the primary qualities of revenues and costs that are relevant for decision making.
> To facilitate cost tracing, a company’s activities can be subdivided into four hierarchical categories. What are these four categories? Describe them and give at least two examples of each category.
> Tom Rehr made the following comment: “Facility-level costs should not be allocated to products because they are irrelevant for decision-making purposes.” Do you agree or disagree with this statement? Justify your response.
> Briefly describe the activity-based costing allocation process.
> Martinez Manufacturing makes two products, one of which is produced at a significantly higher volume than the other. The low-volume product consumes more of the company’s engineering resources because it is technologically complex. Even so, the company’s
> The following ratios are for four companies in different industries. Some of these ratios have been discussed in the textbook and others have not, but their names explain how the ratio was computed. These data are for the companies’ 201
> When would it be appropriate to use volume-based cost drivers in an activity-based costing system?
> Why do activity-based cost drivers provide more accurate allocations of overhead in an automated manufacturing environment?
> What is the difference between volume-based cost drivers and activity-based cost drivers?
> Why are labor hours ineffective as a companywide allocation base in many industries today?
> What is the relationship between activity-based management and just-in-time inventory?
> Issacs Corporation produces two lines of pocket knives. The Arrowsmith product line involves very complex engineering designs; the Starscore product line involves relatively simple designs. Since its introduction, the low-volume Arrowsmith products have
> Alisa Kamuf’s company has reported losses from operations for several years. Industry standards indicate that prices are normally set at 30 percent above manufacturing cost, which Ms. Kamuf has done. Assuming that her other costs are in line with industr
> Why would machine hours be an inappropriate allocation base for batch-level costs?
> Milken Manufacturing has three product lines. The company’s new accountant, Marvin LaSance, is responsible for allocating facility-level costs to these product lines. Mr. LaSance is finding the allocation assignment a daunting task. He knows there have b
> If each patient in a hospital is considered a cost object, what are examples of unit-, batch-, product-, and facility-level costs that would be allocated to this object using an activity-based costing system?
> Abbott Laboratories develops and manufactures a broad and diversified line of health care products. On January 4, 2017, Abbott Laboratories completed its $23.6 billion acquisition of St. Jude Medical, Inc., a medical device manufacturer. In 2015, the las
> Beth Nelson, who owns and runs a small sporting goods store, buys most of her merchandise directly from manufacturers. Ms. Nelson was shocked at the $7.50 charge for a container of three ping-pong balls. She found it hard to believe that it could have co
> Why did traditional costing systems base allocations on a single companywide cost driver?
> In a manufacturing environment, which costs are direct and which are indirect in product costing?
> How is an allocation rate determined? How is an allocation made?
> What are the important factors in determining the appropriate cost driver to use in allocating a cost?
> Give an example of why the statement “All direct costs are avoidable” is incorrect.
> Why are the terms direct cost and indirect cost independent of the terms fixed cost and variable cost? Give an example to illustrate.
> What is a direct cost? What criteria are used to determine whether a cost is a direct cost?
> If the cost object is a manufactured product, what are the three major cost categories to accumulate?
> Why is cost accumulation imprecise?
> Presented here is selected information from the 2018 fiscal-Year 10-K reports of four companies. The four companies, in alphabetical order, are: Advance Auto Parts, Inc., a retail auto parts company. AT&T, Inc., a company that provides communication
> What are the three methods used for allocating service center costs? How do the methods differ?
> Larry Kwang insists that the costs of his school’s fund-raising project should be determined after the project is complete. He argues that only after the project is complete can its costs be determined accurately and that it is a waste of time to try to
> Respond to the following statement: “The allocation base chosen is unimportant. What is important in product costing is that overhead costs be assigned to production in a specific period by an allocation process.”
> On January 31, the managers of Integra, Inc., seek to determine the cost of producing their product during January for product pricing and control purposes. The company can easily determine the costs of direct materials and direct labor used in January p
> What is the objective of allocating indirect manufacturing overhead costs to the product?
> Why are some manufacturing costs not directly traceable to products?
> What is a cost object? Identify four different cost objects in which an accountant would be interested.
> If a company is trying to find the break-even point for multiple products that sell simultaneously, what consideration must be taken into account?
> What is the equation method for determining the break-even point? Explain how the results of this method differ from those of the contribution margin approach.
> What are three alternative approaches to determine the break-even point? What do the results of these approaches show?
> The following information relates to The Kroger Co., and Publix Super Markets Inc., for their 2019 and 2018 fiscal years. Table Summary: The Selected Financial Information with amounts in millions except per share amounts of The Kroger Company shows thre
> When would the customer be willing to pay a premium price for a product or service? What pricing strategy would be appropriate under these circumstances?
> What variables affect profitability? Name two methods for determining profitability when simultaneous changes occur in these variables.
> If Company A has a projected margin of safety of 22 percent while Company B has a margin of safety of 52 percent, which company is at greater risk when actual sales are less than budgeted?
> In what three ways can the contribution margin be useful in cost-volume-profit analysis?
> How does a contribution margin income statement differ from the income statement used in financial reporting?
> What is the relationship between cost-volume-profit analysis and the relevant range?
> Setting the sales price is easy: Enter cost information and desired profit data into one of the cost-volume-profit formulas, and the appropriate sales price can be computed mathematically. Do you agree with this line of reasoning? Explain.
> How would the algebraic formula used to compute the break-even point under the equation method be changed to solve for a desired target profit?
> Mary Hartwell and Jane Jamail, college roommates, are considering the joint purchase of a computer that they can share to prepare class assignments. Ms. Hartwell wants a particular model that costs $2,000; Ms. Jamail prefers a more economical model that
> What assumptions are inherent in cost-volume-profit analysis? Since these assumptions are usually not wholly valid, why do managers still use the analysis in decision making?
