Question: Why are departmental predetermined OH rates more

> What is activity-based management (ABM), and what specific management tools are used in ABM?

> Significant hurdles, including a large time commitment, are often encountered in adopting ABC. What specific activities associated with ABC adoption require large investments of time?

> Are all companies likely to benefit to an equal extent from adopting ABC? Discuss.

> Ollie’s Olive Oil began business in 2010, during which it produced 104,000 quarts of olive oil. In 2010, the company sold 100,000 quarts of olive oil. Costs incurred during the year were as follows: Ingredients used …………………………………….$228,800 Direct labor …

> Once an activity-based costing system has been developed and implemented in a company, will that system be appropriate for the long term? Why or why not?

> Why do more traditional methods of overhead assignment “overload” standard high volume products with overhead costs. How does ABC improve overhead assignments?

> Do cost drivers exist in a traditional accounting system? Are they designated as such? How, if at all, does the use of cost drivers in a traditional accounting system differ from those in an activity-based costing system?

> If five people from the same organization calculated manufacturing cycle efficiency for one specific process, would each compute the same MCE? Why or why not?

> Moriarity Manufacturing produces two product models: Regular and Special. The following information was taken from the accounting records for the first quarter of 2010: Moriarity currently uses a traditional cost accounting system where total overhead co

> Bernie Lipscomb owns and manages a commercial cold-storage warehouse that has 100,000 cubic feet of storage capacity. Historically, he has charged customers a flat rate of $0.16 per pound per month for goods stored. In the past two years, Lipscomb has be

> West Virginia Concepts provides a wide range of engineering and architectural consulting services through its three offices in Charleston, Morgantown, and Martinsburg. The company allocates resources and bonuses to the three offices based on the net inco

> Casito Corp. manufactures multiple types of products; however, most of the company’s sales are from Product #347 and Product #658. Product #347 has been a standard in the industry for several years; the market for this product is compet

> Louisiana Leisure makes umbrellas, gazebos, and chaise lounges. The company uses a traditional overhead allocation scheme and assigns overhead to products at the rate of $30 per direct labor hour. The costs per unit for each product group in 2010 were as

> Illiad Inc. has a total of $2,362,500 in production overhead costs. The company’s products and related statistics follow. Additional data: The 330,000 pounds of material were purchased for $544,500. One direct labor hour costs $12. a. A

> Reese’s Tot Toy Boxes uses variable costing to manage its internal operations. The following data relate to the company’s first year of operation, when 25,000 units were produced and 21,000 units were sold. Variable costs per unit Direct material …………………

> Balfore Office makes metal five-drawer desks and, occasionally, takes custom orders. The company’s overhead costs for a month in which no custom desks are produced are as follows: Purchasing Department for raw material and supplies

> Shirtz Community Hospital has been under increasing pressure to be accountable for its patient charges. The hospital’s current pricing system is ad hoc, based on pricing norms for the geographical area; only direct costs for surgery, me

> As the chief executive officer of a large corporation, you have decided after discussion with production and accounting personnel to implement activity-based management concepts. Your goal is to reduce cycle time and, in turn, costs. A primary way to acc

> Companies that want to be more globally competitive can consider the implementation of activity-based management (ABM). Such companies often have used other initiatives that involve higher efficiency, effectiveness, or output quality. These same initiati

> Strategic Supply is a world leader in the production of electronic test and measurement instruments. The company experienced almost uninterrupted growth through the 1990s, but in the 2000s, the low-priced end of its Portables Division’s product line was

> Treffle Molding Company manufactures two products: large jar covers and small bottle caps. Large jar covers require special handling. Each cover must be individually sanded on a special machine to remove excess material (referred to as â€&#156

> Clare’s Super Cake Company makes very elaborate wedding cakes to order. The company’s owner, Clare Cole, has provided the following data concerning the activity rates in its activity-based costing system: Activity Cost

> Believing that its traditional cost system may be providing misleading information, Dover Corporation is considering an activity-based costing (ABC) approach. Dover Corporation employs a full-cost system and has been applying its manufacturing overhead o

> Hurley Corporation has identified the following overhead costs and cost drivers for the coming year: The following information was collected on three jobs that were completed during the year: Budgeted direct labor cost was $100,000, and budgeted direct m

> Elaydo Inc. makes flavored water and performs the following tasks in the beverage manufacturing process: Hours Receiving and transferring ingredients to storage …………………………….9.0 Storing ingredients ………………………………………………………………………270.0 Transferring the ingredi

> Pete’s Plant Stands manufactures wooden stands used by plant nurseries. In May 2010, the company manufactured 18,000 and sold 16,560 stands. The cost per unit for the 18,000 stands produced was as follows: Direct material ………………………………….$ 9.00 Direct labo

> Carpenter Inc. designs industrial tooling parts and makes the molds for those parts. The following activities take place when the company creates a new mold. Classify each cost as unit level (U), batch level (B), product/process level (P), or organizatio

> The following costs are incurred in a fast-food restaurant that relies on computer-controlled equipment to prepare customers’ food. Classify each cost as unit level (U), batch level (B), product/process level (P), or organizational level (O): a. Maintena

> Spice-a-licious produces creole seasoning using the following process for each batch: Function Time (Minutes) Receiving ingredients ………………………………………………....60 Moving ingredients to stockroom …………………………………80

> Log Cabins Unlimited constructs vacation houses in the North Carolina mountains. The company has developed the following value chart: Operations Average Number of Days Receiving materials ……………………………………………….2 Storing materials ………………………………………

> Farrah Westin plans to build a concrete walkway for her home during her vacation. The following schedule shows how project time will be allocated: Hours Purchase materials …………………………………………………....5 Obtain rental equipment …………………………………………….2 Remove sod an

> The Raleigh plant manager of Allentown Corp. has noticed the plant frequently changes the schedule on its production line. He has gathered the following information on the activities, estimated times, and average costs required for a single schedule chan

> The following activities take place in Usher’s Department Store. Upon receipt, Usher’s discounts all products 25 percent from the manufacturer’s suggested retail price. Only after the goods have been in stock for 90 days will additional discounts be give

> Many manufacturers are deciding to service only customers that buy $10,000 or more of products from the manufacturers annually. Manufacturers defend such policies by stating that they can provide better service to customers that handle more volume and mo

> The cost systems at many companies selling multiple products have become less than adequate in today’s global competition. Managers often make important product decisions based on distorted cost information because the cost systems have been primarily de

> Starshine Company is in the process of analyzing and updating its cost information and pricing practices. Since the company’s product line changed from general paints to specialized marine coatings, there has been tremendous overhead growth, including co

> Tom’s Shoe Repair provides a variety of shoe and repair services. Analysis of monthly costs revealed the following cost formulas when direct labor hours are used as the basis of cost determination: Supplies: y = $0 + $4.00X Production supervision and dir

> Rice Inc. manufactures lawn mowers and garden tractors. Lawn mowers are relatively simple to produce and are made in large quantities. Garden tractors are customized to individual wholesale customer specifications. The company sells 300,000 lawn mowers a

> Briones Books is concerned about the profitability of its regular dictionaries. Company managers are considering producing only the top-quality, hand-sewn dictionaries with gold-edged pages. Briones is currently assigning the $2,000,000 of overhead costs

> Regis Place is a health-care facility that has been allocating its overhead costs to patients based on number of patient days. The facility’s overhead costs total $3,620,400 per year and the facility (which operates monthly at capacity)

> Wyeth Corp. has decided to implement an activity-based costing system for its in-house legal department. The legal department’s primary expense is professional salaries, which are estimated for associated activities as follows: Reviewing supplier or cust

> Leopold & Olney LLP has 5 partners and 12 staff accountants. The partners each work 2,100 hours per year and earn $350,000 annually. The staff accountants each work 2,600 hours per year and earn $80,000 annually. The firm’s total annual budget for profes

> Three clients (A, B, and C) use Kingsley Call Service’s call center. During October, Kingsley initiated four new equipment advancements. The following information indicates the cost and benefits of each service: a. If the total cost of

> DaSilva Co. has a casting machine that is used for three of the company’s products. Each setup of the machine costs was $18,760 and the casting machine was set up in June for six different production runs. The following information show

> For each of the following costs commonly incurred in a manufacturing company, identify a cost driver and explain why it is an appropriate choice. a. Machine setup cost b. Computer operations c. Freight costs for materials d. Material handling e. Material

> For each of the following cost pools in a temporary employment agency, identify a cost driver and explain why it is appropriate. a. Accounts receivable department b. Payroll department c. Advertising cost d. Information technology e. Utilities f. Propert

> Lin Products manufactures special-order office cubicle systems. Production time is two days, but the average cycle time for any order is three weeks. The company president has asked you, as the new controller, to discuss missed delivery dates. Prepare an

> The Sioux City Storage System’s plant prepared the following flexible overhead budget for three levels of activity within the plant’s relevant range. After discussion with the home office, the plant managers planned to

> Why would regression analysis provide a more accurate cost formula than the high– low method for a mixed cost?

> Discuss the reasons a company would use a predetermined overhead rate rather than actual overhead to determine cost of products or services.

> The high–low method of analyzing mixed costs uses only two observation points: the high and the low points of activity. Are these always the best points for prediction purposes? Why or why not?

> What is the difference between variable and mixed costs, considering that both change in total with changes in activity levels?

> What are the income relationships between absorption and variable costing when production volume differs from sales volume? What causes these relationships to occur?

> Why does variable costing provide more useful information than absorption costing for making internal decisions?

> La Mia’s Casas builds replicas of residences of famous and infamous people. The company is highly automated, and the new accountant owner has decided to use machine hours as the basis for predicting maintenance costs. The following data are available fro

> Wyoming Wholesale has gathered the following data on the number of shipments received and the cost of receiving reports for the first seven weeks of 2010. Number of Weekly Cost of Shipments Received Receiving Reports 50 ………………………..………………………

> Information about Indiana Industrial’s utility cost for the last six months of 2010 follows. The high–low method will be used to develop a cost formula to predict 2011 utility charges, and the number of machine hours h

> Alberton Electronics makes inexpensive GPS navigation devices and uses a normal cost system that applies overhead based on machine hours. The following 2010 budgeted data are available: Variable factory overhead at 100,000 machine hours $1,250,000 Variab

> For 2010, Milltown Iron Manufacturing has estimated its production capacities as follows: Theoretical capacity ………………………………400,000 units Practical capacity ………………………………….300,000 units Normal capacity ……………………………………260,000 units Expected capacity ……………………

> At year-end 2010, Dub’s Wind Generator Co. had a $40,000 debit balance in its Manufacturing Overhead Control account. Overhead is applied to products based on direct labor cost. Relevant account balance information at year-end follows:

> Davidson’s Dolls had the following information in its Work in Process Inventory account for June 2010: All workers are paid the same rate per hour. Factory overhead is applied to Work in Process Inventory on the basis of direct labor ho

> At the end of 2010, Jackson Tank Company’s accounts showed a $66,000 credit balance in Manufacturing Overhead Control. In addition, the company had the following account balances: Work in Process Inventory $384,000 Finished Goods Inventory 96,000 Cost of

> Roddickton Manufacturing Co. has gathered the following information to develop predetermined OH rates for 2010. The company produces a wide variety of energy-saving products that are processed through two departments, Assembly (automated) and Finishing (

> Is variable or absorption costing generally required for external reporting? Why is this method preferred to the alternative?

> Langston Automotive Accessories applies overhead using a combined rate for fixed and variable overhead. The rate is 250 percent of direct labor cost. During the first three months of the current year, actual costs incurred were as follows: a. What amount

> For 2010, Omaha Mechanical has a monthly overhead cost formula of $42,900+$6 per direct labor hour. The firm’s 2010 expected annual capacity is 78,000 direct labor hours, to be incurred evenly each month. Making one unit of the company’s product requires

> Use the information in Exercise 11 and assume that Lansing Mfg. has decided to use units of production to apply overhead to production. In April 2010, the company produced 875 units and incurred $7,500 and $26,500 of variable and fixed overhead, respecti

> Lansing Mfg. prepared the following 2010 abbreviated flexible budget for different levels of machine hours: Each product requires 4 hours of machine time, and the company expects to produce 10,000 units in 2010. Production is expected to be evenly distri

> How does budgeting provide important information to managers and operating personnel?

> After a master budget has been prepared, what is its role in managerial control?

> Distinguish between a strategic plan and a tactical plan. How are these plans related?

> How does the strategic plan influence preparation of the master budget?

> (Appendix) Why is it helpful for a company to prepare a budget manual? Appendix: Most companies combine many materials and various classes of direct labor to produce goods. In such settings, the material and labor variance computations presented in this

> What is budgetary slack, and what might top managers do to rid their firms’ budgets of slack?

> What is meant by classifying costs (a) functionally and (b) behaviorally? Why would a company be concerned about functional and behavioral classifications?

> If the majority of companies find that their forecasts are inaccurate, why should managers engage in budgeting at all?

> Why is continuous (rolling) budgeting becoming more popular than it was in the past for organizational managers?

> The cash budget and the budgeted statement of cash flows both provide information about cash. What information about cash is common to these two sources, and what information is unique to the two sources?

> Assume that in preparing the cash budget, the accountant discovers that a cash shortage will likely occur in a specific month. What actions might the accountant recommend to management to deal with the cash shortage?

> Why is a firm’s production budget influenced by the finished goods inventory policy?

> Discuss the sequence in which the major components of the master budget are prepared. Why is it necessary to prepare the components in such a sequence?

> Differentiate between the operating and financial budgets that are contained in a master budget. Why are both types needed?

> Shredder Manufacturing has the following projected unit sales (at $18 per unit) for four months of operations: January ……………………………………………25,000 February ………………………………………….30,000 March ………………………………………………32,000 April ………………………………………………..35,000 Twenty-five pe

> Blackman Corp., a rapidly expanding crossbow distributor, is in the process of formulating plans for 2011. Cara Jordan, director of marketing, has completed her 2011 forecast and is confident that sales estimates will be met or exceeded. The following fo

> Collegiate Management Education (CME) Inc. is a nonprofit organization that sponsors a wide variety of management seminars throughout the Southwest. In addition, it is heavily involved in research into improved methods of teaching and motivating college

> How does absorption costing differ from variable costing in cost accumulation and income statement presentation?

> UpTop Mining has compiled the following data to analyze utility costs: Use the least squares method to develop a formula for budgeting utility cost. Month Machine Hours Utility Cost January 200 $300 February 325 440 March 400 480 Аpril 410 490 Мay 52

> Stabler Co.’s projected March 31, 2011, balance sheet follows. Additional information about the company is as follows: • Expected sales for April and May are $240,000 and $260,000, respectively. All sales are made on a

> Cute and Cuddly Inc. sells teddy bears in walk-by kiosks in shopping malls. The company’s balance sheet on March 31, 2010, showed the following balances related to Accounts Receivable and inventories: Accounts Receivable …………………………………..$346,000 Allowance

> Butler Inc. has projected Cost of Goods Sold (CGS) for June 2011 of $1,500,000. Of this amount, $80,000 represents fixed overhead costs. Total variable costs for the company each month average 70 percent of sales. The company’s cost to retail (CGS to sal

> Corner Brook Furniture Co. makes bookstands and expects sales and collections for the first three months of 2011 to be as follows: The December 31, 2010, balance sheet revealed the following selected account balances: Cash, $18,320; Direct Material Inven

> Atkinson’s Reliable Tools makes two products that use similar raw materials: #587Q and #253X. Estimated production needs for a unit of each product follow. Estimated sales in units by product for 2011 are 80,000 of #587Q and 30,000 of

> Narisho Supply is in the process of preparing the budget for the first quarter of 2011. The following projections for unit sales have been made: Each finished unit requires three direct materials: 4 pounds of Material M, 2.5 pounds of Material N, and 2 p

> Caleb Corp. has prepared the following unit sales forecast for 2011: Estimated ending Finished Goods Inventories are 50,000 units at December 31, 2010; 72,000 units at June 30, 2011; and 120,000 units at December 31, 2011. In manufacturing a unit of this

> Preparing budgets for a multinational organization is significantly more complex than doing so for a solely domestic organization. What costs might managers find in budgets for international companies that might not commonly be included (or included at s

> Attala Co., a division of Jackson Industries ( JI), offers consulting services to clients for a fee. JI’s corporate management is pleased with the performance of Attala Co. for the first nine months of the current year and has recommend

> Norton Weymer & Collins, LLP, a local accounting firm, has a formal budgeting system. The firm has five partners, two managers, four seniors, two secretaries, and two bookkeepers. The budgeting process has a bottom-line focus; that is, the budget and pla

> Red River Farm Machine makes a wide variety of products, all of which must be processed in the Cutting and Assembly departments. For the year 2010, Red River budgeted total overhead of $993,000, of which $385,500 will be incurred in Cutting and the remai

> Kalogridis Corp. manufactures industrial dye. The company is preparing its 2011 master budget and has presented you with the following information: a. The projected December 31, 2010, balance sheet for the company is as follows: b. The Accounts Receivabl

> Clarenville Kitchen Products produces and sells upscale mixers and breadmakers. In October 2010, Clarenville’s budget department gathered the following data to meet budget requirements for 2011. To produce one unit of each product, the