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1- 1 CHAPTER 1 THE MANAGER AND MANAGEMENT ACCOUNTING See the front matter of this Solutions Manual for suggestions regarding your choices of assignment material for each chapter. 1-1 Management accounting measures, analyzes, and reports financial and nonfinancial information that […]

1-27 (15 min.) Planning and control decisions, Internet company. PostNews.com offers its subscribers several services, such as an annotated TV guide and local– area information on weather, restaurants, and movie theaters. Its main revenue sources are fees for banner advertisements […]

10-1 CHAPTER 10 DETERMINING HOW COSTS BEHAVE 10-1 The two assumptions are 1. Variations in the level of a single activity (the cost driver) explain the variations in the related total costs. 2. Cost behavior is approximated by a linear […]

10-1 SOLUTION 1. Manufacturing cost classification for 2014: Account Total Costs (1) % of Total Costs That is Variable (2) Variable Costs (3) = (1)  (2) Fixed Costs (4) = (1) – (3) Variable Cost per Unit (5) = […]

10-1 SOLUTION 1. Solution Exhibit 10-26 plots the relationship between labor-hours and overhead costs and shows the regression line. y = $96,541 + $3.93 X Economic plausibility. Labor-hours appears to be an economically plausible driver of overhead costs for a […]

10-1 SOLUTION EXHIBIT 10-30 Plot and High-Low Line of Maintenance Costs as a Function of Machine-Hours $100,000 $120,000 $140,000 $160,000 $180,000 $200,000 $220,000 $240,000 $260,000 $280,000 $300,000 90,000 100,000 110,000 120,000 130,000 140,000 150,000 Maintenance Costs Machine-Hours 10-2 Solution Exhibit […]

10-1 Inspection costs using units inspected = $98.79 + ($2.02 × 1,500) = $3,128.79 Inspection costs using inspection labor-hours = $3.89 + ($20.06 × 160) = $3,213.49 If Sharon uses inspection-labor-hours she will estimate inspection costs to be $3,213.49, $84.70 […]

10-1 SOLUTION 1. Cost to produce the second through the seventh boats: Direct materials, 6  $201,000 $1,206,000 Direct manufacturing labor (DML), 76,0621  $43 3,270,666 Variable manufacturing overhead, 76,062  $24 1,825,4888 Other manufacturing overhead, 15% of DML costs […]

3. Multicollinearity is an issue that can arise with multiple regression but not simple regression analysis. Multicollinearity means that the independent variables are highly correlated. The correlation feature in Excel’s Data Analysis reveals a coefficient of correlation of 0.61 between […]

3. Here is the summary output for the regression of monthly Sales Revenue on the prior month’s Online Advertising Expense: SUMMARY OUTPUT Regression Statistics Multiple R 0.808588 R Square 0.653815 Adjusted R Square 0.61535 Standard Error 7393.922 Observations 11 ANOVA […]

11- 1 CHAPTER 11 DECISION MAKING AND RELEVANT INFORMATION 11-1 The five steps in the decision process outlined in Exhibit 11-1 of the text are 1. Identify the problem and uncertainties. 2. Obtain information. 3. Make predictions about the future. […]

11-21 (10 min.) Inventory decision, opportunity costs. Best Trim, a manufacturer of lawn mowers, predicts that it will purchase 204,000 spark plugs next year. Best Trim estimates that 17,000 spark plugs will be required each month. A supplier quotes a […]

11-1 11-27 (20 min.) Relevance of equipment costs. Papa’s Pizza is considering replacement of its pizza oven with a new, more energy-efficient model. Information related to the old and new pizza ovens follows: The old oven had been purchased a […]

11-1 SOLUTION 1. Easyspread 2.0 has a higher relevant operating income than Easyspread 1.0. Based on this analysis, Easyspread 2.0 should be introduced immediately: Easyspread 1.0 Easyspread 2.0 Relevant revenues $165 $215 Relevant costs: Manuals, diskettes, compact discs $ 0 […]

SOLUTION 1. 11-1 A110 B382 C657 Selling price $168 $ 112 $140 Variable costs: Direct materials (DM) 48 30 18 Labor and other costs 56 54 80 Total variable costs 104 84 98 Contribution margin $ 64 $ 28 $ […]

SOLUTION 1. and 2. Division A Division B Sales $504,000 $948,000 Variable costs of goods sold ($440,000  0.90; $930,000  0.80) 396,000 744,000 Variable S,G & A ($96,000  0.50; $202,500  0.50) 48,000 101,250 Total variable costs 444,000 […]

SOLUTION 1. Let D represent the batches of Della’s Delight made and sold. Let B represent the batches of Bonny’s Bourbon made and sold. The contribution margin per batch of Della’s Delight is $300. The contribution margin per batch of […]

12- 1 CHAPTER 12 STRATEGY, BALANCED SCORECARD, AND STRATEGIC PROFITABILITY ANALYSIS 12-1 Strategy specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives. 12-2 The five key forces to consider in industry […]

SOLUTION Effect of the industry-market-size factor on operating income Of the 28,000-unit (233,000 – 205,000) increase in sales between 2012 and 2013, 20,500 (10%  205,000) units are due to growth in market size, and 7,500 (28,000 – 20,500) units […]

The Productivity Component Cost effect of productivity for variable costs = Actual units of Units of input input used required to to produce produce 2013 2013 output ouput in 2012 −      Input price in 2013 […]

SOLUTION Effect of the industry-market-size factor on operating income Of the 3,000-unit increase in sales from 8,000 to 11,000 units, 10% or 800 (10%  8,000) units are due to growth in market size, and 2,2000 (3,000 − 800) units […]

Required: 1. Was Cerebral successful in implementing its strategy in 2013? Explain your answer. 2. Would you have included some measure of customer satisfaction in the customer perspective? Are these objectives critical to Cerebral for implementing its strategy? Why or […]

13-1 CHAPTER 13 PRICING DECISIONS AND COST MANAGEMENT 13-1 The three major influences on pricing decisions are 1. Customers 2. Competitors 3. Costs 13-2 Not necessarily. For a one-time-only special order, the relevant costs are only those costs that will […]

SOLUTION 1. and 2. Manufacturing costs of HJ6 in 2012 and 2013 are as follows: 2012 2013 Per Unit Per Unit Total (2) = Total (4) = (1) (1) ÷ 2,700 (3) (3) ÷ 4,600 Direct materials, $1,400 × 2,700; […]

13-24 (25 min.) Considerations other than cost in pricing decisions. Fun Stay Express operates a 100-room hotel near a busy amusement park. During June, a 30-day month, Fun Stay Express experienced a 65% occupancy rate from Monday evening through Thursday […]

13-28 (25 min.) Cost-plus, target return on investment pricing. Zoom-o-licious makes candy bars for vending machines and sells them to vendors in cases of 30 bars. Although Zoom-o-licious makes a variety of candy, the cost differences are insignificant, and the […]

13-33 (30 min.) Airline pricing, considerations other than cost in pricing. Northern Airways is about to introduce a daily round-trip flight from New York to Los Angeles and is determining how to price its round- trip tickets. The market research […]

14-1 N CHAPTER 14 COST ALLOCATION, CUSTOMER-PROFITABILITY ANALYSIS, AND SALES-VARIANCE ANALYSIS 14-1 Disagree. Cost accounting data plays a key role in many management planning and control decisions. The division president will be able to make better operating and strategy decisions […]

14-19 (20−25 min.) Customer profitability, distribution. Best Drugs is a distributor of pharmaceutical products. Its ABC system has five activities: Rick Flair, the controller of Best Drugs, wants to use this ABC system to examine individual customer profitability within each […]

SOLUTION Note: In some editions of the book, the revenues for the Pulp division has a zero missing at the end. It is shown as $9,800,00 instead of $9,800,000. Percentages for various allocation bases (old and new): Pulp Paper Fibers […]

SOLUTION Actual Budgeted Western region 12.3 million 10 million Soda King 1.23 million 1.25 million Market share 10% 12.5% Average budgeted contribution margin per unit = $3.90 ($4,875,000 ÷ 1,250,000). Solution Exhibit 14-26 presents the sales-quantity variance, market-size variance, and […]

14-31 (30 min.) Customer-cost hierarchy, customer profitability. Denise Nelson operates Interiors by Denise, an interior design consulting and window treatment fabrication business. Her business is made up of two different distribution channels, a consulting business in which Denise serves two […]

SOLUTION 1. Customer A Customer B Customer C Others Division Revenue $1,054,826 $1,544,680 $2,210,162 $480,33 2 $5,290,000 Customer-level costs 675,378 951,669 1,517,895 266,058 3,411,000 Customer-level operating income 379,448 593,011 692,267 214,274 1,879,000 Wholesale channel costs1 149,437 233,543 272,633 84,387 740,000 […]

SOLUTION EXHIBIT 14-37 Market-Share and Market-Size Variance Analysis of Houston Infonautics for the Third Quarter 2014. Static Budget: Actual Market Size Actual Market Size Budgeted Market Size  Actual Market Share  Budgeted Market Share  Budgeted Market Share  […]

15-1 CHAPTER 15 ALLOCATION OF SUPPORT-DEPARTMENT COSTS, COMMON COSTS, AND REVENUES 15-1 The single-rate (cost-allocation) method makes no distinction between fixed costs and variable costs in the cost pool. It allocates costs in each cost pool to cost objects using […]

SOLUTION 1a. 15-1 Support Departments Operating Departments AS I S Govt. Corp. Costs $600,000 $2,400,000 Alloc. of AS costs (0.25, 0.40, 0.35) (861,538) 215,385 $ 344,615 $ 301,538 Alloc. of IS costs (0.10, 0.30, 0.60) 261,538 (2,615,385) 784,616 1,569,231 $ […]

15-1 SOLUTION In some print editions of the book, requirement 1 states the airfare to be $1,600. The airfare in requirement 1 should be $1,200 instead of $1,600. 1. Alternative approaches for the allocation of the $1,200 airfare include the […]

15-1 15-28 (20 min.) Revenue allocation Yang Inc. produces and sells DVDs to business people and students who are planning extended stays in China. It has been very successful with two DVDs: Beginning Mandarin and Conversational Mandarin. It is introducing […]

3. Comparison of Methods: Step-down method: Job 88: Machining 17 × $7.686 $130.66 Assembly 7 × $3.584 25.09 $155.75 Job 89: Machining 9 × $7.686 $ 69.17 Assembly 20 × $3.584 71.68 $140.85 Direct method: Job 88: Machining 17 × […]

SOLUTION 1. Stand-alone cost-allocation method. Taylor Inc. = (600 $60) (1,000 $54) (600 $60) (400 $60)   +  = $36,000 $54,000 ($36,000 $24,000)  + = $32,400 Victor Inc. = (400 $60) (1,000 $54) (600 $60) (400 $60) […]

Collaborative Learning Problem 15-35 (20–25 min.) Revenue allocation, bundled products. Premier Resorts (PR) operates a five-star hotel with a championship golf course. PR has a decentralized management structure, with three divisions: ▪ Lodging (rooms, conference facilities) ▪ Food (restaurants and […]

16-1 CHAPTER 16 COST ALLOCATION: JOINT PRODUCTS AND BYPRODUCTS 16-1 Exhibit 16-1 presents many examples of joint products from four different general industries. These include: Industry Separable Products at the Splitoff Point Food Processing: • Lamb • Lamb cuts, tripe, […]

16-1 SOLUTION EXHIBIT 16-19 Joint Costs Separable Costs Processing $120000 for 10000 gallons Processing $2 per gallon Processing $3 per gallon 7500 gallons 2500 gallons Methanol: 2500 gallons at $21 per gallon Turpentine: 7500 gallons at $14 per gallon Splitoff […]

SOLUTION 1a. PANEL A: Allocation of Joint Costs using Sales Value at Splitoff Method Special B/ Beef Ramen Special S/ Shrimp Ramen Total Sales value of total production at splitoff point (20,000 tons  $5 per ton; 28,000  $20 […]

SOLUTION 1. Net realizable value of human product: (2,000 gallons × $585) – $120,000 = $1,050,000 Net realizable value of veterinarian product: 500 gallons × ($410 – $10) = $200,000 Joint costs: $60,000 + $90,000 = $150,000 Joint costs charged […]

3. Further processing of chocolate-powder liquor base into chocolate powder: Incremental revenue, $81,900 – $14,000 ($20 × 700) $67,900 Incremental costs 50,100 Incremental operating income from further processing $17,800 Further processing of milk-chocolate liquor base into milk chocolate: Incremental revenue, […]

SOLUTION 1. Byproduct—production method journal entries i) At time of production: Work-in–process Inventory 600,000 Accounts Payable, etc. 600,000 For Byproduct: Finished Goods Inv – Shreds 35,000 Work-in-process Inventory 35,000 For Joint Products Finished Goods Inv – Floor 226,000 Finished Goods […]

17- 1 CHAPTER 17 PROCESS COSTING 17-1 Industries using process costing in their manufacturing areas include chemical processing, oil refining, pharmaceuticals, plastics, brick and tile manufacturing, semiconductor chips, beverages, and breakfast cereals. 17-2 Process costing systems separate costs into cost […]

17- 1 17-23 (20-25 min.) Operation costing. Whole Goodness Bakery needs to determine the cost of two work orders for the month of June. Work order 215 is for 2,400 packages of dinner rolls, and work order 216 is for […]

17-27 (35–40 min.) Transferred-in costs, FIFO method. Refer to the information in Exercise 17-26. Suppose that Trendy uses the FIFO method instead of the weighted-average method in all of its departments. The only changes to Exercise 17-26 under the FIFO […]

SOLUTION 1. Because direct materials are added at the beginning of the assembly process, the units in this department must be 100% complete with respect to direct materials. Solution Exhibit 17-31A shows equivalent units of work done to date: Direct […]

17-35 (30 min.) Transferred-in costs, FIFO method (continuation of 17-34). Refer to the information in Problem 17-34. Suppose that Larsen Company uses the FIFO method instead of the weighted-average method in all of its departments. The only changes to Problem […]

SOLUTION 1. & 2. The equivalent units of work done in April 2014 in the Assembly Department for direct materials and conversion costs are shown in Solution Exhibit 17-37A. Solution Exhibit 17-37B summarizes the total Assembly Department costs for April […]

SOLUTION EXHIBIT 17-39A Summarize the Flow of Physical Units and Compute Output in Equivalent Units; FIFO Method of Process Costing, Binding Department of Publishers, Inc., for April 2014. (Step 1) (Step 2) Equivalent Units Flow of Production Physical Units Transferred-in […]

17-41 (25 min.) Multiple processes or operations, costing. The Sedona Company is dedicated to making products that meet the needs of customers in a sustainable manner. Sedona is best known for its KLN water bottle, which is a BPA-free, dishwasher-safe, […]

18- 1 CHAPTER 18 SPOILAGE, REWORK, AND SCRAP 18-1 Managers have found that improved quality and intolerance for high spoilage have lowered overall costs and increased sales. 18-2 Spoilage—units of production that do not meet the standards required by customers […]

SOLUTION Spoilage represents the amount of resources that go into the process but do not result in finished product. A simple way to account for spoilage in process costing is to calculate the amount of direct material that was spoiled. […]

18-30 (25 min.) Scrap, job costing. The Russell Company has an extensive job-costing facility that uses a variety of metals. Consider each requirement independently. Required: 1. Job 372 uses a particular metal alloy that is not used for any other […]

SOLUTION 1. Inspection Inspection Inspection at 30% at 60% at 100% Work in process, beginning (40%)* Started during November To account for 2,400 12,000 14,400 2,400 12,000 14,400 2,400 12,000 14,400 Good units completed and transferred out Normal spoilage 9,000a […]

19- 1 CHAPTER 19 BALANCED SCORECARD: QUALITY, TIME, AND THE THEORY OF CONSTRAINTS 19-1 Quality costs (including the opportunity cost of lost sales because of poor quality) can be as much as 10% to 20% of sales revenues of many […]

SOLUTION 1. Cell Design’s managers plan to increase spending on CAD design improvement improving machine calibrations to achieve product specifications. These are prevention activities. Cell Design’s managers plan to increase prevention costs to improve quality. This is consistent with much […]

19-24 (25 min.) Waiting time, cost considerations, and customer satisfaction (continued from 19-23). Refer to the information presented in Exercise 19-23. The head of the registration advisors at SMU has decided that the advisors must finish their advising in 2 […]

SOLUTION EXHIBIT 19-28A Quality improvement, Pareto diagram, cause-and-effect diagram 2. Prevention activities that could reduce failures in Pauli’s Pizza deliveries could include the following: a. Better staff training b. Improved technology for order processing c. Additional time for delivery personnel […]

3. Delays occur in the processing of B7 and A3 because of (a) uncertainty about how many orders Brandt will actually receive (Brandt expects to receive 125 orders of B7 and 10 orders of A3), and (b) uncertainty about the […]

2-1 CHAPTER 2 AN INTRODUCTION TO COST TERMS AND PURPOSES 2-1 A cost object is anything for which a separate measurement of costs is desired. Examples include a product, a service, a project, a customer, a brand category, an activity, […]

SOLUTION 1. Variable manufacturing cost per vehicle Steel $1,500 per Surfer Tires 625 per Surfer Direct manufacturing labor 700 per Surfer Total $2,825 per Surfer Fixed manufacturing costs per month Plant management costs ($1,200,000 ÷ 12) $ 100,000 Cost of […]

2-28 (20–30 min.) Inventoriable costs versus period costs. Each of the following cost items pertains to one of these companies: Star Market (a merchandising– sector company), Maytag (a manufacturing-sector company), and Yahoo! (a service-sector company): a. Cost of lettuce and […]

SOLUTION Shaler Corporation Schedule of Cost of Goods Manufactured Year Ended December 31, 2014 (in thousands) Direct materials costs Beginning inventory, January 1, 2014 $130,000 Purchases of direct materials 256,000 Cost of direct materials available for use 386,000 Ending inventory, […]

SOLUTION 1.(a) Total cost of hours worked at regular rates 48 hours × $20 per hour $ 960 44 hours × $20 per hour 880 43 hours × $20 per hour 860 46 hours × $20 per hour 920 3,620 […]

20-1 CHAPTER 20 INVENTORY MANAGEMENT, JUST-IN-TIME, AND SIMPLIFIED COSTING METHODS 20-1 Cost of goods sold (in retail organizations) or direct materials costs (in organizations with a manufacturing function) as a percentage of sales frequently exceeds net income as a percentage […]

20-1 SOLUTION EXHIBIT 20-21 Annual Relevant Costs of Current Production System and JIT Production System for Colonial Hardware Company Relevant Items Relevant Costs under Current Production System Relevant Costs under JIT Production System Annual tooling costs – $200,000 Required return […]

SOLUTION 1. 2 DP 2 10,400 $100 EOQ C $13  == EOQ = 400 steering wheels 2. Average weekly demand = 10,400 ÷ 52 weeks = 200 steering wheels per week Purchasing lead time = 1.5 weeks Reorder point […]

SOLUTION 1. (a) Record purchases of direct materials Materials and In-Process Inventory Control Accounts Payable Control 550,000 550,000 (b) Record conversion costs incurred Conversion Costs Control Various Accounts (such as 440,000 Wages Payable Control) 440,000 (c) Record cost of good […]

21-1 CHAPTER 21 CAPITAL BUDGETING AND COST ANALYSIS 21-1 No. Capital budgeting focuses on an individual investment project throughout its life, recognizing the time value of money. The life of a project is often longer than a year. Accrual accounting […]

SOLUTION 1. Present value of annuity of savings in cash operating costs ($31,250 per year for 8 years at 14%): $31,250  4.639 $144,969 Present value of $37,500 terminal disposal price of machine at end of year 8: $37,500  […]

21-1 SOLUTION 1. The after-tax cash inflow per year is $24,400 ($19,600 + $4,800), as shown below: Annual cash flow from operations ($43,000 – $15,000) $28,000 Deduct income tax payments (0.30  $28,000) 8,400 Annual after-tax cash flow from operations […]

21-1 1. Modernizing alternative: Present Value Discount Factors Net Cash Present Year At 10% Flow Value Jan. 1, 2015 1.000 $(36,800000) $(36,800,000) Dec. 31, 2015 0.909 10,432,500 9,483,143 Dec. 31, 2016 0.826 11,700000 9,664,200 Dec. 31, 2017 0.751 12,967,500 9,738,593 […]

21-1 Difference in after-tax cash flow from terminal disposal of machines: $23,020 – $14,720 = $8,300 (in favor of new machine) 2. The Frooty Company should retain the old equipment because the net present value of the incremental cash flows […]

22- CHAPTER 22 MANAGEMENT CONTROL SYSTEMS, TRANSFER PRICING, AND MULTINATIONAL CONSIDERATIONS 22-1 A management control system is a means of gathering and using information to aid and coordinate the planning and control decisions throughout an organization and to guide the […]

22-21 (30 min.) Effect of alternative transfer-pricing methods on division operating income. (CMA, adapted) Ajax Corporation has two divisions. The mining division makes toldine, which is then transferred to the metals division. The toldine is further processed by the metals […]

SOLUTION 1. The minimum transfer price that the SD would demand from the AD is the net price it could obtain from selling its screens on the outside market: $100 minus $8 marketing and distribution cost per screen, or $92 […]

22-30 (25 min.) Goal congruence problems with cost-plus transfer-pricing methods, dual pricing system (continuation of 22-29). Assume that Pat Borges, CEO of Cranergy, had mandated a transfer price equal to 150% of full cost. Now he decides to decentralize some […]

22–33 (30–40 min.) International transfer pricing, taxes, goal congruence. Castor, a division of Gemini Corporation, is located in the United States. Its effective income tax rate is 30%. Another division of Gemini, Pollux, is located in Canada, where the income […]

22-35 (25 min.) Transfer pricing, goal congruence. The Croydon Division of CC Industries supplies the Hauser Division with 100,000 units per month of an infrared LED that Hauser uses in a remote control device it sells. The transfer price of […]

23- 1 CHAPTER 23 PERFORMANCE MEASUREMENT, COMPENSATION, AND MULTINATIONAL CONSIDERATIONS 23-1 Examples of financial and nonfinancial measures of performance are Financial: ROI, residual income, economic value added, and return on sales Nonfinancial: Customer perspective: Market share, customer satisfaction Internal-business-processes perspective: […]

23-20 (20 min.) ROI, RI, EVA. Hamilton Corp. is a reinsurance and financial services company. Hamilton strongly believes in evaluating the performance of its standalone divisions using financial metrics such as ROI and residual income. For the year ended December […]

SOLUTION 1. ROI and residual income: Clothing Cosmetics Operating income after tax $ 800,000 $ 1,800,000 Net assets $3,200,000 $7,500,000 ROI ($800,000 ÷ $3,200,000; $1,800,000 ÷ $7,500,000) 25.00% 24.00% RI ($800,000 − 11% × 3,200,000; $1,800,000 − 11% × $7,500,000) […]

SOLUTION 1. ROI = Operating income ÷ Net book value of total assets St. Louis ROI = $1,446,000 ÷ ($9,000,000 – $6,600,000 + 1,999,600) = $1,446,000 ÷ $4,399,600 = 32.87% Memphis ROI = $1,008,000 ÷ ($7,500,000 – $3,500,000 + 1,536,400) […]

23-34 (30 min.) Financial and nonfinancial performance measures, goal congruence. (CMA, adapted) Precision Equipment specializes in the manufacture of medical equipment, a field that has become increasingly competitive. Approximately 2 years ago, Pedro Mendez, president of Precision, decided to revise […]

3- 1 CHAPTER 3 COST–VOLUME–PROFIT ANALYSIS NOTATION USED IN CHAPTER 3 SOLUTIONS SP: Selling price VCU: Variable cost per unit CMU: Contribution margin per unit FC: Fixed costs TOI: Target operating income 3-1 Cost-volume-profit (CVP) analysis examines the behavior of […]

3- 1 SOLUTION 1. Variable cost percentage is $3.80  $9.50 = 40% Let R = Revenues needed to obtain target net income R – 0.40R – $456,000 = $159,600 1 0.30− 0.60R = $456,000 + $228,000 R = $684,000 […]

SOLUTION 1. Sales of A, B, and C are in ratio 24,000 : 96,000 : 48,000. So for every 1 unit of A, 4 (96,000 ÷ 24,000) units of B are sold, and 2 (48,000 ÷ 24,000) units of C […]

SOLUTION 1. Monthly Number of Orders Cost of Current System 300,000 $1,000,000 + $45(300,000) = $14,500,000 400,000 $1,000,000 + $45(400,000) = $19,000,000 500,000 $1,000,000 + $45(500,000) = $23,500,000 600,000 $1,000,000 + $45(600,000) = $28,000,000 700,000 $1,000,000 + $45(700,000) = $32,500,000 […]

SOLUTION 1. CMU (SP – VCU = $60 – $40) $ 20.00 a. Breakeven units (FC  CMU = $180,000  $20 per unit) 9,000 b. Breakeven revenues (Breakeven units  SP = 9,000 units  $60 per unit) $540,000 […]

SOLUTION 1. We can recast BioPharm’s income statement to emphasize contribution margin, and then use it to compute the required CVP parameters. BioPharm Corporation Income Statement for the Year Ended December 31, 2014 Using Sales Agents Using Own Sales Force […]

SOLUTION 1. Sales of standard and deluxe carriers are in the ratio of 187,500 : 62,500. So for every 1 unit of deluxe, 3 (187,500 ÷ 62,500) units of standard are sold. Contribution margin of the bundle = 3  […]

CHAPTER 4 JOB COSTING 4-1 Cost pool––a grouping of individual indirect cost items. Cost tracing––the assigning of direct costs to the chosen cost object. Cost allocation––the assigning of indirect costs to the chosen cost object. Cost-allocation base––a factor that links […]

4-1 SOLUTION 1. An overview of the product costing system is COST OBJECT: PRODUCT COST ALLOCATION BASE DIRECT COST   Machining Department Manufacturing Overhead Machine-Hours Direct Materials INDIRECT COST POOL  Direct Manufacturing Labor Indirect Costs Direct Costs  […]

SOLUTION Some instructors may also want to assign Exercise 4-25. It demonstrates the relationships of the general ledger to the underlying subsidiary ledgers and source documents. 1. An overview of the product costing system is: 2. & 3. This answer […]

SOLUTION Some instructors may wish to assign Problem 4-25. It demonstrates the relationships of journal entries, general ledger, subsidiary ledgers, and source documents. 1. An overview of the product-costing system is 2. Amounts in millions. (1) Materials Control Accounts Payable […]

SOLUTION overhead rate 1. Budgeted manufacturing = Budgeted manufacturing overhead cost Budgeted direct manufacturing labor cost $125,000 50% of direct manufacturing labor cost $250,000 == 2. Overhead allocated = 50%  Actual direct manufacturing labor cost = 50%  $228,000 […]

SOLUTION Although not required, the following overview diagram is helpful to understand Kidman’s job– costing system. 1. Professional Partner Labor Professional Associate Labor Budgeted compensation per professional Divided by budgeted hours of billable time per professional Budgeted direct-cost rate $ […]

4-38 (40−55 min.) Overview of general ledger relationships. Brandon Company uses normal costing in its job-costing system. The company produces custom bikes for toddlers. The beginning balances (December 1) and ending balances (as of December 30) in their inventory accounts […]

5-1 CHAPTER 5 ACTIVITY-BASED COSTING AND ACTIVITY-BASED MANAGEMENT 5-1 Broad averaging (or “peanut–butter costing”) describes a costing approach that uses broad averages for assigning (or spreading, as in spreading peanut butter) the cost of resources uniformly to cost objects when […]

SOLUTION 1. Actual plantwide variable MOH rate based on machine hours, $308,600  4,000 $77.15 per machine hour United Motors Holden Motors Leland Auto Total Variable manufacturing overhead, allocated based on machine hours ($77.15  120; $77.15  2,800; $77.15 […]

SOLUTION Note: The cost driver for engineering is number of engineering-hours, not number of engineers. This change does not, however, affect the solution itself. 1. Using the simple costing system, total overhead costs are equally allocated to projects. There were […]

SOLUTION EXHIBIT 5-25 Product-Costing Overviews of Henderson Supermarkets PANEL A: SIMPLE COSTING SYSTEM COST OBJECT: PRODUCT LINE Indirect Costs Direct Costs Store Support COGS COGS INDIRECT COST POOL COST ALLOCATION BASE     DIRECT COST PANEL B: ABC […]

SOLUTION 1. Pricing decisions at Bradley Associates are heavily influenced by reported cost numbers. Suppose Bradley is bidding against another firm for a client with a job similar to that of Campa Coal. If the costing system overstates the costs […]

5-36 (30–40 min.) Activity-based costing, merchandising. Pharmahelp, Inc., a distributor of special pharmaceutical products, operates at capacity and has three main market segments: a. General supermarket chains b. Drugstore chains c. Mom-and-pop single-store pharmacies Rick Flair, the new controller of […]

5-40 (30 min.) Unused capacity, activity-based costing, activity-based management. Whitewater Adventures manufactures two models of kayaks, Basic and Deluxe, using a combination of machining and hand finishing. Machine setup costs are driven by the number of setups. Indirect manufacturing labor […]

6-1 CHAPTER 6 MASTER BUDGET AND RESPONSIBILITY ACCOUNTING 6-1 The budgeting cycle includes the following elements: a. Planning the performance of the company as a whole as well as planning the performance of its subunits. Management agrees on what is […]

6-1 6-23 (45 min.) Budgeting: service company. Sunshine Window Washers (SWW) provides window-washing services to commercial clients. The company has enjoyed considerable growth in recent years due to a successful marketing campaign and favorable reviews on service-rating Web sites. Sunshine […]

6-1 1. When the office manager receives calls from potential customers, she is instructed to handle the contracts herself. Recently, however, the number of contracts written up by the office manager has declined. At the same time, one of the […]

6-1 SOLUTION 1. Increase in Costs for the Year Assume Trendy uses New Dye Units to dye 60,000 Cost differential ($1.25 – $0.40) per ounce × 3 ounces × $2.55 Increase in costs $153,000 Because the fine is only $120,000, […]

6-1 SOLUTION 1. Revenue Budget For the Month of April Units Selling Price Total Revenues Cat-allac 530 $205 $108,650 Dog-eriffic 225 310 69,750 Total $178,400 2. Production Budget For the Month of April Product Cat-allac Dog-eriffic Budgeted unit sales 530 […]

6-1 6-38 (30 min.) Cash budgeting, chapter appendix. Retail outlets purchase snowboards from Skulas, Inc., throughout the year. However, in anticipation of late summer and early fall purchases, outlets ramp up inventories from May through August. Outlets are billed when […]

5. Direct Material Usage Budget in Quantity and Dollars For the Year Ending December 31, 2015 Material Plastic Bristles Total Physical Units Budget Direct materials required for Combs (12,600 units × 5 oz and 0 bunches) 63,000 oz. Brushes (14,200 […]

Required: 1. Prepare each of the following for June: a. Revenues budget b. Production budget in units c. Direct material usage budget and direct material purchases budget in both units and dollars; round to dollars d. Direct manufacturing labor cost […]

7-1 CHAPTER 7 FLEXIBLE BUDGETS, DIRECT-COST VARIANCES, AND MANAGEMENT CONTROL 7-1 Management by exception is the practice of concentrating on areas not operating as expected and giving less attention to areas operating as expected. Variance analysis helps managers identify areas […]

SOLUTION 1. The key information items are: Actual Budgeted Output units (scones) Input units (pounds of pumpkin) Cost per input unit 60,800 16,000 $ 0.82 60,000 15,000 $ 0.89 Peterson budgets to obtain four pumpkin scones from each pound of […]

SOLUTION For requirement 1 from Exercise 7-25: a. Direct Materials Control 18,500 Direct Materials Price Variance 370 Accounts Payable Control 18,870 To record purchase of direct materials. b. Work-in–Process Control 20,000 Direct Materials Efficiency Variance 1,500 Direct Materials Control 18,500 […]

7-30 (30 min.) Variance analysis, nonmanufacturing setting. Marcus McQueen has run In-A-Flash Car Detailing for the past 10 years. His static budget and actual results for June 2014 are provided next. Marcus has one employee who has been with him […]

SOLUTION 1. Materials Variances Actual Costs Incurred (Actual Input Qty. × Actual Price) Actual Input Qty. × Budgeted Price Flexible Budget (Budgeted Input Qty. Allowed for Actual Output × Budgeted Price) Direct Materials (5,200 × $17a) $88,400 Purchases Usage (5,200 […]

SOLUTION 1. Direct Materials: Actual Costs Incurred (Actual Input Qty. × Actual Price) Actual Input Qty. × Budgeted Price Flexible Budget (Budgeted Input Qty. Allowed for Actual Output × Budgeted Price) Wool (given) $9,000 3,500  $3.40 $11,900 200  […]

SOLUTION 1. Computing unit selling prices and unit costs of inputs: Actual selling price = $3,626,700 ÷ 462,000 = $7.85 Budgeting selling price = $3,360,000 ÷ 420,000 = $8.00 Selling-price variance =      Actual selling price […]

8- 1 CHAPTER 8 FLEXIBLE BUDGETS, OVERHEAD COST VARIANCES, AND MANAGEMENT CONTROL 8-1 Effective planning of variable overhead costs involves: 1. Planning to undertake only those variable overhead activities that add value for customers using the product or service, and […]

Fixed Manufacturing Costs and Variances a. Fixed Manufacturing Overhead Control 12,180 Salaries Payable, Acc. Depreciation, various other accounts 12,180 To record actual fixed manufacturing overhead costs incurred. b. Work–in–Process Control 22,050 Fixed Manufacturing Overhead Allocated 22,050 To record fixed manufacturing […]

SOLUTION 1. Easy Meals Now (May 2014) Actual Results Flexible Budget Static Budget Output units (number of deliveries) 8,600 8,600 12,000 Hours per delivery 0.66a 0.70 0.70 Hours of delivery time 5,660 6,020b 8,400c Variable overhead costs per delivery hour […]

Required: 1. For the month of April, compute the following variances, indicating whether each is favorable (F) or unfavorable (U): a. Direct materials price variance (based on purchases) b. Direct materials efficiency variance c. Direct manufacturing labor price variance d. […]

SOLUTION Known figures denoted by an * Case A: Actual Costs Incurred Actual Input Qty. × Budgeted Rate Flexible Budget: Budgeted Input Qty. Allowed for Actual Output × Budgeted Rate Allocated: Budgeted Input Qty. Allowed for Actual Output × Budgeted […]

7. Fixed Setup Overhead Variance Analysis for Rae Steven Publishing Company for 2014 Actual Static Budget Standard hours Fixed Overhead Fixed Overhead × Budgeted Rate (434 × 7.0 × $20) $68,000 $53,200 $60,760 $14,800 U $7,560 F Spending variance Production-volume […]

SOLUTION 1. In the columnar presentation of variable overhead variance analysis, all numbers shown in bold are calculated from the given information, in the order (a)–(e). VARIABLE MANUFACTURING OVERHEAD Flexible Budget: Budgeted Input Qty. Actual Costs Incurred Actual Input Qty. […]

9-1 CHAPTER 9 INVENTORY COSTING AND CAPACITY ANALYSIS 9-1 No. Differences in operating income between variable costing and absorption costing are due to accounting for fixed manufacturing costs. Under variable costing, only variable manufacturing costs are included as inventoriable costs. […]

  Absorption-costing   Variable costing   Fixed manufacturing   Fixed manufacturing 2.  operating income –  operating income =     costs in ending inventory –     costs in beginning […]

9-23 (40 min.) Variable and absorption costing, sales, and operating-income changes. Smart Safety, a three- year-old company, has been producing and selling a single type of bicycle helmet. Smart Safety uses standard costing. After reviewing the income statements for the […]

SOLUTION This problem always generates active classroom discussion. 1. The treatment of fixed manufacturing overhead in absorption costing is affected primarily by what denominator level is selected as a base for allocating fixed manufacturing costs to units produced. In this […]

SOLUTION 1. Fixed manufacturing overhead rate = $576,000/24,000 units = $24 per unit Manufacturing cost per unit: $20 direct materials + $35 direct mfg. labor + $9 var. mfg. OH + $24 fixed mfg. OH = $88 Selling price: $88 […]

9-40 (20 min.) Cost allocation, responsibility accounting, ethics (continuation of 9-39). In 2015, only 740,000 Topman meals were produced and sold to the hospitals. Smith suspects that hospital controllers had systematically inflated their 2015 meal estimates. Required: 1. Recall that […]

1) The return on investment is usually considered the most popular approach to measure performance because ________. A) it blends all the ingredients of profitability into a single percentage B) once determined, there is no need to use it with […]

1) ________ is also called lean production. A) Economic order quantity production B) Just-in-time production C) Materials requirements planning production D) Push-through system 2) Financial accounting provides a historical perspective, whereas management accounting emphasizes ________. A) the future B) past […]

1) An efficient management accounting system traces direct costs and allocates indirect costs to products. 2) Absorption costing enables managers to increase operating income by increasing the unit level of sales, as well as by producing more units. Answer: TRUE […]

1) When the operating budget is used as a control device, managers are less likely to be motivated to budget higher sales than actually anticipated. 2) Bottom-up budgets entrusts senior managers to prepare budgets and lower-level managers to execute them. […]

1) In markets with little or no competition, the key factor affecting price is the cost of production to the company. 2) One of the steps in planning is evaluating the performance and taking corrective measures. Answer: FALSE 3) The […]

1) In a combined 3-variance analysis, the total spending variance would be ________. A) $20,500 F B) $22,500 U C) $20,500 U D) $37,500 F 2) The gross margin for April was: A) $1,465,600 B) $3,960,400 C) $1,017,600 D) $600,400 […]

1) Investing in a new equipment, such as flexible manufacturing systems that can be programmed to switch quickly from producing one product to producing another can decrease capacity as it would incur excess overhead costs. 2) Companies seek to minimize […]

1) Ruben intends to sell his customers a special round-trip airline ticket package. He is able to purchase the package from the airline carrier for $150 each. The round-trip tickets will be sold for $200 each and the airline intends […]

1) Fixed costs are sometimes allocated to individual products as part of the standard costing system. When this is the case, they should be treated as variable costs for purposes of future cost estimation. 2) A composite unit is a […]

1) Which of the following is an example of division-sustaining costs? A) research and development cost B) corporate administration costs C) corporate brand advertising D) shipment costs 2) Beta Corp reported the following: Required: a.Compute contribution margin. b.Compute gross margin. […]

1) Longer manufacturing cycle times increase the inventory carrying costs and decrease revenues. 2) The DuPont method recognizes the two basic ingredients in profit making: increasing the income per dollar of revenues and using assets to generate more revenues. Answer: […]

1) An Enterprise Resource Planning System can best be described as ________. A) a collection of programs that use a variety of unconnected databases B) a single database that collects data and feeds it into applications that support each of […]

1) Hammond and Jarrett provide tax consulting for estates and trusts. Their job-costing system has a single direct-cost category (professional labor) and a single indirect-cost pool (research support). The indirect-cost pool contains all the costs except direct personnel costs. All […]

1) Quality-inspection costs is an example of batch-level costs. 2) Identifying and minimizing the sources of non-value-added manufacturing time increases a firm’s responsiveness to its customers and reduces its costs. Answer: TRUE 3) Simple regression analysis estimates the relationship between […]

1) All other things being equal, the longer the time horizon the more likely a cost will be fixed. 2) The full cost plus a markup transfer-pricing method can sometimes lead to goal incongruence. Answer: TRUE 3) The cost used […]

1) If one of five distribution channels is discontinued, corporate-sustaining costs such as general administration costs will most likely be reduced by 20%. 2) Management accountants must promote fact-based analysis and make tough-minded, critical judgments without being adversarial. Answer: TRUE […]

1) Which of the following costs can be classified into both value-added and non-value-added costs? A) production control costs B) machine breakdown costs C) rework costs D) direct material costs 2) The cost components of a heater include $30 for […]

1) Which of the following is true of the Work-in-Process Control account? A) It tracks all direct material purchases. B) Its balance is the sum of amounts from all in-process individual job-cost records. C) It is an expense account. D) […]

1) Pearl Manufacturing Company provides glassware machines for major department store retailers. The company has been investigating a new piece of machinery for its production department. The old equipment has a remaining life of five years and the new equipment […]

1) Implementing activity-based costing system involves use of different cost rates for different activities to compute indirect costs of a product. 2) Fixed costs for the period are by definition a lump sum of costs that remain unchanged and therefore […]

1) Which of the following is true of flexible budget? A) It calculates total variable cost by multiplying actual units by budgeted variable cost per unit. B) It calculates total fixed cost by multiplying actual units by budgeted fixed cost […]

1) Contribution margin = Contribution margin percentage x Revenues (in dollars). 2) It is best to rely totally on financial performance measures rather than using a combination of financial and nonfinancial performance measures. Answer: FALSE Explanation: It is best to […]

1) Aunt Ethel’s Fancy Cookie Company manufactures and sells three flavors of cookies: Macaroon, Sugar, and Buttercream. The batch size for the cookies is limited to 1,000 cookies based on the size of the ovens and cookie molds owned by […]

1) If the production planners set the budgeted machine hours standards too tight, one could anticipate there would be a favorable variable overhead efficiency variance. 2) Possible reasons for the larger actual materials-handling labor-hours per batch include the possibility of […]

1) The formal management control system includes shared values, loyalties, and mutual commitments among members of the company, company culture, and norms about acceptable behavior for managers and other employees. 2) Reducing the investment base involves decreasing idle cash, managing […]

1) In joint costing, outputs with no sales value are always excluded when costs are allocated using physical measures. 2) A capital budgeting project is accepted if the required rate of return equals or exceeds the internal rate of return. […]

1) Roberson Corporation manufactured 30,000 ice chests during September. The variable overhead cost-allocation base is $11.25 per machine-hour. The following variable overhead data pertain to September: What is the flexible-budget amount? A) $121,500 B) $151,875 C) $165,000 D) $168,750 2) […]

1) ABC systems and department costing systems use totally different approaches towards indirect cost allocation and can never be used together. 2) A performance report compares actual performance to the amount budgeted. Answer: TRUE 3) Managers cannot use human resource […]

1) The ideal database for estimating cost functions contains ________. A) numerous cost driver observations B) only the independent variable and not the dependent variable C) cost driver observations spanning a narrow range D) a few values of the cost […]

1) When actual cost-allocation rates are used, managers of the supplier division are motivated to improve efficiency. 2) Activity -based costing plays a more significant role in job costing as compared to process costing as companies using process costing have […]

1) The Fortise Corporation manufactures two types of vacuum cleaners, the Victor for commercial building use and the House-Mate for residences. Budgeted and actual operating data for the year 2015 were as follows: What is the contribution margin for the […]

1) Product-cost cross-subsidization is very common when costs are uniformly spread across various products. 2) The net present value (NPV) method calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows […]

1) The standard error of the estimated coefficient indicates how much the estimated value, b, is likely to be affected by random factors. 2) The single cost-allocation method makes no distinction between fixed and variable costs. Answer: TRUE 3) When […]

1) Jacob’s Manufacturing sales is equal to production.If Jacob’s Manufacturing presented a Financial Accounting Income Statement emphasizing gross margin showing operating income of $180,000, a Contribution Income Statement emphasizing contribution margin would show a different operating income. 2) A firm […]

1) Favorable overhead variances are always recorded with credits in a standard cost system. 2) The stand-alone method of allocating determines the weights for cost allocation by considering each user of the cost as a separate entity. Answer: TRUE 3) […]

1) Budgeted fixed manufacturing costs of a product using practical capacity ________. A) represents the cost per unit of supplying capacity B) can result in setting selling prices that are not competitive C) includes the cost of unused capacity D) […]

1) The main difference between variable costing and absorption costing is the way in which fixed manufacturing costs are accounted for. 2) Step fixed-cost functions are variable over the long run. Answer: TRUE 3) Cross-sectional data pertain to the same […]

1) Companies that only record the invoice price can usually track the magnitude of price discounting. 2) Economic value added, unlike residual income, charges managers for the costs of their investments in long-term assets and working capital. Answer: FALSE Explanation: […]

1) The opportunity cost of the stockout includes lost contribution margin on the sale not made plus any contribution margin lost on future sales due to customer ill will. 2) Cost of quality financial measures will usually deteriorate when nonfinancial […]

1) The financial perspective of the balanced scorecard identifies targeted customers and market segments and measures the company’s success in these segments. 2) The same cost concept used for external and internal reporting purposes. Answer: FALSE 3) In a job-cost […]

1) Cost bases that include fewer costs also have lower markups. 2) If U.S dollar strengthens against the Japanese Yen, Japanese producers selling goods in U.S markets will have to increase the prices of products to recover the extra cost […]

1) Companies implementing kaizen budgeting believe that employees who actually do the job have the best knowledge of how the job can be done better. 2) Proration is the spreading of underallocated or overallocated overhead among ending work in process, […]

1) The economic order quantity model completely ignores ________. A) carrying costs B) ordering costs C) stockout costs D) the size of a purchase order 2) Ways to “produce for inventory” that result in increasing operating income include ________. A) […]

1) Bar charts and a whale curve are some of the common ways of displaying the results of customer-profitability analysis. 2) Financial accounting information focuses on internal reporting. Answer: FALSE Explanation: Management accounting information focuses on internal reporting and financial […]

1) In joint costing, the physical measures are generally used for products or services that are processed and, after splitoff, additional value is added to the product and a selling price can be determined. 2) The Required Rate of Return […]

1) Direct materials and direct manufacturing labor become a part of work-in-process inventory on the balance sheet because the direct manufacturing labor transforms the direct materials to another asset, work-in-process inventory. 2) Service-sector companies have no use of variance analysis […]

1) A budget serves as much as a control tool as a planning tool because ________. A) it aids in the coordination and communication among various business functions B) it helps to evaluate customer needs and feedback C) it is […]

1) Supply the missing data for each of the following proposals: Proposal A Proposal B Proposal C Initial investment (a) $62,900 $226,000 Annual net cash inflow $60,000 (c) (e) Life, in years 10 6 10 Salvage value $0 $10,000 $0 […]

1) A time driver is any factor that causes a change in the speed of an activity when the factor changes. 2) Companies that overcost products will most likely lose market share. Answer: TRUE 3) All cost functions are linear. […]

1) Under the weighted-average method, the stage of completion of beginning work in process ________. A) is relevant in determining the equivalent units B) must be combined with the work done during the current period to determine the equivalent units […]

1) Accounting methods for internal reporting purposes are specified by Generally Accepted Accounting Principles (GAAP). 2) A favorable flexible-budget variance for variable costs may be the result of using more input quantities than were budgeted. Answer: FALSE Explanation: An unfavorable […]

1) Customer life-cycle costs focus on the total costs incurred by a customer to acquire, use, maintain, and dispose of a product or service. 2) Inflation and fluctuations in foreign-currency exchange rates affect performance measurement. Answer: TRUE 3) The actual […]

1) Some companies present financial and nonfinancial performance measures for various organization units in a single report called the balanced scorecard. 2) If indirect-cost rates were based on actual short-term usage, periods of lower demand would result in lower costs […]

1) Bonuses given to employees based on performance is an example of extrinsic reward. 2) The breakeven points are the same under both variable costing and absorption costing. Answer: FALSE Explanation: The breakeven points are generally different under both variable […]

1) Direct material price variance is likely to be unfavorable if the purchasing manager switched to a lower-price supplier. 2) A linear cost function can only represent fixed cost behavior. Answer: FALSE Explanation: A linear cost function can represent fixed, […]

1) The contribution-margin format of the income statement distinguishes manufacturing costs from nonmanufacturing costs. 2) An organization’s strategy matches its capabilities with the opportunities in the marketplace to accomplish its objectives. Answer: TRUE 3) Separable costs include manufacturing costs only. […]

1) A company with sales of $50,000, variable costs of $35,000, and fixed costs of $25,000 will earn a net income of $15,000. 2) A cost object is anything for which a measurement of costs is desired. Answer: TRUE 3) […]

1) At the end of the fiscal year, the fixed overhead spending variance is always prorated among work-in-process control, finished goods control, and cost of goods sold on the basis of the fixed overhead allocated to these accounts. 2) Kaizen […]

1) A company may use job costing to assign costs to different product lines and then use process costing to calculate unit costs within each product line. 2) Long-run pricing is an operational decision and not a strategic decision as […]

1) Activity-based costing attempts to identify the most relevant cause-and-effect relationship for each activity pool without restricting the cost driver to only units of output or variables related to units of output. 2) Practical capacity rather than master-budget volume is […]

1) Under the step-down method, once a support department’s costs have been allocated, all subsequent support-department costs are allocated back to it. 2) The equivalent unit concept is a means by which a process costing system can compare partially completed […]

1) Fox Studios, the movie production house, uses process costing to estimate costs. 2) Merchandising companies hold only one type of inventory: direct material. Answer: FALSE Explanation: Merchandising companies normally hold only one type of inventory: merchandise inventory. 3) Management […]

1) Fixed costs remain constant at $400,000 per month. During high-output months variable costs are $320,000, and during low-output months variable costs are $80,000. What are the respective high and low indirect-cost rates if budgeted professional labor-hours are 16,000 for […]

1) Buzz’s Educational Software Outlet sells two or more of the video games as a single package. Managers are keenly interested in individual product-profitability figures. Information pertaining to three bundled products and the stand-alone prices is as follows: Using the […]

1) Benchmarking is the continuous process of measuring products, services, and activities against the best possible levels of performance, either inside or outside the organization. 2) An individual cost item can be simultaneously a direct cost of one cost object […]

1) A variance is the difference between the actual cost for the current and expected (or budgeted) performance. 2) Operating income plus total fixed costs equals the contribution margin. Answer: TRUE Explanation: Total revenues less total variable costs equal the […]

1) Aerated Water Company makes internal transfers at 180% of full cost. The Soda Refining Division purchases 30,000 containers of carbonated water per day, on average, from a local supplier, who delivers the water for $30 per container via an […]

1) One problem with total factor productivity revolves around the measurement of combined productivity of all inputs. 2) The t-value of a coefficient measures how large the value of the estimated coefficient is relative to its standard error. Answer: TRUE […]

1) One way to increase capacity is to reduce the time it takes for setups and processing. 2) Direct costs are traced the same way for actual costing and normal costing. Answer: TRUE 3) All inventory costs are available in […]

1) The purchase-order lead time is the ________. A) time between placing an order and its delivery B) time between receiving a customer order and producing the products C) time between receiving a customer order and delivering the items D) […]

1) Velshi Printers has contracts to complete weekly supplements required by forty-six customers. For the year 2015, manufacturing overhead cost estimates total $840,000 for an annual production capacity of 12 million pages. For 2015 Velshi Printers has decided to evaluate […]

1) Under the incremental method of allocating common costs ________. A) the parties are interested in being viewed as primary users B) each party bears a proportionate share of the total costs in relation to their individual stand-alone costs C) […]

1) In a cost center, a manager is responsible for investments, revenues, and costs. 2) Tightly budgeted machine time standards can lead to unfavorable variable overhead efficiency variance. Answer: TRUE 3) When using the cause-and-effect criterion, cost drivers are selected […]

1) Rework labor time is considered an overhead cost and not a direct labor cost. 2) As a company reduces its inventory levels, operating income differences between absorption costing and variable costing become immaterial. Answer: TRUE 3) A company usually […]

1) To evaluate overall aggregate performance, return on investment and residual income measures are more appropriate than return on sales. 2) The cost driver of an indirect cost is often used as the cost-allocation base. Answer: TRUE 3) Fixed cost […]

1) Distribution of questionnaires to customers regarding product quality and improving the product on certain key areas based on the inferences drawn from the questionnaires is an example of a nonfinancial measure of quality. 2) An example of a physical […]

1) The tariffs and customs duties governments levy on imports of products into a country also affect the transfer pricing practices of multinationals. 2) An organization should design its management control system independently of its strategies, so that the system […]

1) Absorption costing helps managers to artificially inflate profits by encouraging the production of products that absorb the highest amount of fixed manufacturing costs. 2) The weighted-average process costing method does not distinguish between units started in the previous period […]

1) Variable cost per labor-hour is $8.50. Fixed cost is $10,500. Calculate the total cost for 350 labor hours. Machine hours during the period are 50. A) $10,925 B) $13,475 C) $13,900 D) $3,400 2) Which of the following is […]

1) Use of practical capacity results in an unrealistically small fixed manufacturing cost per unit because it is based on an idealistic and unattainable level of capacity. 2) A company should use the same denominator level capacity for all the […]

1) Reverse engineering can be used to analyze competitors’ products to determine product designs and materials and to understand the technologies competitors use. 2) The dependent variable is a cost to be predicted and managed, whereas an independent variable or […]

1) Indirect manufacturing costs should be allocated equally to each job. 2) Kaizen budgeting does NOT make sense for cost centers. Answer: FALSE Explanation: Kaizen budgeting can be used in any type of responsibility center. 3) Engineered costs result from […]

1) A price-bidding decision for a one-time-only special order includes an analysis of all ________. A) manufacturing costs B) cost drivers related to the product C) direct and indirect variable costs of each function in the value chain D) fixed […]

1) The prime cost for September was: A) $114,000 B) $100,000 C) $103,000 D) $47,000 2) Netzone Company is in semiconductor industry and fabrication of silicon-wafer chips splits off two types of memory chips, Standard and Premium. The following information […]

1) The selling price per unit is $25, variable cost per unit $15, and fixed cost per unit is $4. When this company operates above the breakeven point, the sale of one more unit will increase net income by $6. […]

1) Determining the “right” level of capacity is one of the most strategic and difficult decisions managers face. 2) The difference between total revenues and total variable costs is called contribution margin. Answer: TRUE 3) Multiple regression analysis estimates the […]

1) Supervision costs have both value-added and non-value-added components. 2) Evaluating a performance helps in the future decision-making process. Answer: FALSE Explanation: Feedback and learning helps in the future decision-making process. 3) An advantage of the single-rate method is that […]

1) The internal rate-of-return (IRR) method calculates ________. A) the discount rate at which an investment’s present value of the total of all expected cash inflows equals the present value of its expected cash outflows. B) the discount rate at […]

1) Too high a price may ________. A) deter a customer from purchasing a product B) increase demand for the product C) indicate supply is too plentiful D) decrease a competitor’s market share 2) Which of the following is an […]

1) The two broad strategies that companies follow are cost leadership strategy and product differentiation strategy. 2) In a series of interdepartmental transfers, each department is regarded as separate and distinct for accounting purposes. Answer: TRUE 3) Management by exception […]

1) Lukehart Industries, Inc., produces air purifiers. Lukehart, Inc., produces the air purifiers in batches. To manufacture a batch of the purifiers, Lukehart, Inc., must set up the machines and assembly line tooling. Setup costs are batch-level costs because they […]

1) Pearl Lights sells only pearl necklaces. 8,000 units were sold resulting in $240,000 of sales revenue, $60,000 of variable costs, and $40,000 of fixed costs. The breakeven point in total sales dollars is ________. A) $40,000 B) $53,334 C) […]

1) Gambino Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $138.80 per unit. The best estimate of the total […]

1) In joint costing, using physical measures at splitoff to allocate costs enables the accountant to obtain individual product costs and gross margins. 2) To reduce the undesirable incentives to build up inventories that absorption costing can create, a number […]

1) Products S5 and CP8 each are assigned $100.00 in indirect costs by a traditional costing system. An activity analysis revealed that although production requirements are identical, S5 requires 45 minutes less setup time than CP8. According to an ABC […]

1) Under both variable and absorption costing, research and development costs are period costs. 2) Actual prices paid for materials usually serve as actual direct-cost rates for charging material costs to jobs. Answer: TRUE 3) Backflush costing is a costing […]

1) Bismite Corporation purchases trees from Cheney lumber and processes them up to the splitoff point where two products (paper and pencil casings) are obtained. The products are then sold to an independent company that markets and distributes them to […]

1) Post-investment audits prevent managers from overstating the expected cash inflows from projects and accepting projects they should reject. 2) Activity-based budgeting would permit the use of multiple drivers and multiple cost pools in the budgeting process. Answer: TRUE 3) […]

1) The high-low method uses cost and activity data from just two periods to establish the formula for a mixed cost. 2) Direct costs of a cost object are costs related to a particular cost object that can be allocated […]

1) The production method for recognizing byproducts reduces the cost of manufacturing the main or joint products in the income statement. 2) All costs other than direct materials and direct manufacturing labor are classified as indirect costs. Answer: TRUE 3) […]

1) Management is primarily a human activity that should focus on encouraging individuals to do their jobs better. 2) As budgeting is not a cross-functional activity, it tends to be accurate and reliable with regard to forecasts. Answer: FALSE Explanation: […]

1) Tracking price discounts by customer and by salesperson helps improve customer profitability. 2) As companies increase supply, the cost of producing an additional unit initially declines but eventually increases. Answer: TRUE 3) A cost function is a mathematical description […]

1) The classification of costs as variable and fixed depends on the relevant range, the length of the time horizon, and the specific decision situation. 2) To determine outputs at each stage of production, MRP uses a bill of materials […]

1) Productivity describes the relationship between different quantities of inputs consumed and the quantities of output produced. 2) When budgeted cost-allocation rates are used, variations in actual usage by one division affect the costs allocated to other divisions. Answer: FALSE […]

1) Competence includes maintaining an appropriate level of professional expertise by continually developing knowledge and skills. 2) A refined costing system provides better measurement of the costs of indirect resources used by different cost objects, no matter how differently various […]

1) For each cost pool listed select an appropriate allocation base from the list below. An allocation base may be used only once. Assume a manufacturing company. Allocation bases for which the information system can provide data: 1.Number of employees […]

1) To comply with antitrust laws, a company must not engage in predatory pricing, dumping, or collusive pricing which lessen competition, put another company at a competitive disadvantage, or harm consumers. 2) Total factor productivity explicitly considers gains from using […]

1) Ventaz Corp manufactures glasses. The manufacturing cycle efficiency is 70%. What is its waiting time if the manufacturing lead time is 120 minutes per keyboard? A) 38.00 minutes B) 42.00 minutes C) 48.00 minutes D) 36.00 minutes. 2) Gloria’s […]

1) In a just-in-time production system, inventory carrying costs would be high. 2) Wood used to manufacture chairs is considered a direct variable cost. Answer: TRUE 3) An unfavorable price variance for materials-handling labor indicates that the actual cost per […]

1) Process costing ________. A) allocates all product costs, including materials, and labor B) results in different costs for different units produced C) is commonly used by general contractors who construct custom-built homes D) is used exclusively in manufacturing 2) […]

1) The Allianz Company produces a specialty wood furniture product, and has the following information available concerning its inventory items: Relevant ordering costs per purchase order$450 Relevant carrying costs per year for each package: Required annual return on investment15% Required […]

1) The weighted-average cost of capital (WACC) equals ________. A) the after-tax average cost of all the long-term and short-term funds B) the after-tax average cost of all the long-term funds C) the pre-tax average cost of all the short-term […]

1) Ridez Manufacturing currently produces 1,000 bicycles per month. The following per unit data apply for sales to regular customers: The plant has capacity for 3,000 bicycles and is considering expanding production to 2,000 bicycles. What is the per unit […]

1) Inventoriable costs and period costs flow through the income statement at a merchandising company similar to the way costs flow at a manufacturing company. 2) A particular cost item could be variable for one cost object and fixed for […]

1) All else being constant, an increase in operating income will result in an increase in net income. 2) Throughput costing results in a higher amount of manufacturing costs being placed in inventory than either variable or absorption costing. Answer: […]

1) It is appropriate to incorporate expected learning-curve efficiencies when evaluating performance. 2) An organization which uses product differentiation strategy will charge higher prices. Answer: TRUE 3) After a budget is agreed upon and finalized by the management team, the […]

1) Customer response time comprises of ________. A) manufacturing cycle time and delivery time only B) receipt time and manufacturing cycle time only C) receipt time, manufacturing cycle time, and delivery time D) manufacturing time and delivery time only 2) […]

1) Manufacturing overhead cost is an example of indirect engineered costs. 2) Downsized capacity is the amount of productive capacity available over and above the productive capacity employed to meet customer demand in the current period. Answer: FALSE Explanation: The […]

1) The Standards of Ethical Conduct for management accountants include concepts related to ________. A) competence, performance, diligence, and reporting B) competence, confidentiality, integrity, and credibility C) experience, diligence, reporting, and objectivity D) diligence, objectivity, conflicts of interest, and credibility […]

1) Budgeted production equals ________. A) beginning finished goods inventory + budgeted unit sales – targeted ending finished goods inventory B) targeted ending finished goods inventory + beginning finished goods inventory – budgeted unit sales C) budgeted unit sales + […]

1) The NPV method is the preferred method over IRR for selecting projects because ________. A) its use leads to shareholder value maximization B) it accounts for the time value of money C) it assumes that cash flows are reinvested […]

1) Total manufacturing costs is comprised of ________. A) direct materials costs and period costs B) direct materials costs, direct manufacturing labor costs, and manufacturing overhead costs C) indirect materials costs, indirect manufacturing labor costs, and manufacturing overhead costs D) […]

1) An assumption of the FIFO process-costing method is that ________. A) the units in beginning inventory are not necessarily assumed to be completed by the end of the period B) the units in beginning inventory are assumed to be […]

1) To prepare budgets based on actual data from past periods is preferred since past inefficiencies are EXCLUDED. 2) Indirect costs such as rent, telephone, and depreciation are always costs of the period in which they are incurred and are […]

1) A major advantage of using actual costs for transfer prices is that often inefficiencies are NOT passed along to the receiving division. 2) In a cost function y = 18,000, the slope coefficient is zero. Answer: TRUE 3) Work-in-process […]

1) ISO 9000 are standards designed to encourage organizations to develop environmental management systems to reduce environmental costs. 2) Companies that have low manufacturing lead time usually find that a version of backflush costing will report cost numbers totally different […]

1) Activity-based costing analysis takes a long-run perspective and treats all activity costs as variable costs. 2) The objective of maximizing return on investment may induce managers of highly profitable divisions to reject projects that from the viewpoint of the […]

1) Comfort chair company manufacturers a standard recliner. During February, the firm’s Assembly Department started production of 73,000 chairs. During the month, the firm completed 78,000 chairs, and transferred them to the Finishing Department. The firm ended the month with […]

1) Transfer-pricing systems enable managers to focus on maximizing the performance of their subunits. 2) Managers can always view a favorable variable overhead spending variance as desirable. Answer: FALSE Explanation: Managers should not always view a favorable variable overhead spending […]

1) In flexible budgets, costs that remain the same regardless of the output levels within the relevant range are ________. A) allocated costs B) budgeted costs C) fixed costs D) variable costs 2) ________ is the continuing reduction in the […]

Absorption-Costing Income Statement Theoretical Capacity Practical Capacity Normal Capacity Utilization Revenues (2,460,000 bbls.  $47 per bbl.) $115,620,000 $115,620,000 $115,620,000 Cost of goods sold Beginning inventory 0 0 0 Variable mfg. costs 80,634,000 80,634,000 80,634,000 Fixed mfg. overhead costs allocated […]

1) A customer cost hierarchy may include distribution-channel costs. 2) Effort in terms of management control systems is defined in terms of physical exertion such as a worker producing at a faster rate. Answer: FALSE Explanation: Effort goes beyond physical […]

1) Depreciation on office equipment would be included in product costs. 2) The account analysis method of cost estimation classifies account costs as fixed, mixed, or variable using qualitative judgments. Answer: TRUE 3) The coefficient of determination (r2) measures the […]

1) The best-designed strategies are valuable whether or not they are effectively implemented. 2) The high-low method involves choosing the period of highest cost driver activity and the period of lowest cost driver activity. Answer: TRUE 3) Historical-cost-based accounting measures […]

1) Effort refers to physical exertion, such as a worker producing at a faster rate, but excludes non-physical aspects like acumen and diligence of a worker. 2) The cash budget is a schedule of expected cash receipts and disbursements. Answer: […]

1) In making the decision to buy the model 260 machine rather than the model 330 machine, the sunk cost was: A) $418,000 B) $456,000 C) $474,000 D) $496,000 2) Sandra’s Sheet Metal Company has two divisions. The Raw Material […]

1) When fixed costs are $50,000 and variable costs are 60% of the selling price, then breakeven sales are ________. A) $115,000 B) $125,000 C) $175,000 D) $275,000 2) A budget ________. A) is the qualitative expression of a proposed […]

1) The Green Company processes unprocessed goat milk up to the splitoff point where two products, condensed goat milk and skim goat milk result. The following information was collected for the month of October: The costs of purchasing the of […]

1) The journal entry for transfer from Department B to finished goods is: Work in ProcessDepartment B Finished Goods Control 2) The benefits of implementing a more-complex cost allocation system are relatively easy to quantify for application of the cost-benefit […]

1) Costs of activities related to a group of units sold to a customer is termed as customer batch-level costs. 2) The revenues budget should be based on the cost of goods sold budget. Answer: FALSE Explanation: The revenues budget […]

1) Job-costing systems separate costs into cost categories according to when costs are introduced into the process of manufacture. 2) When large differences exist between practical capacity and master-budget capacity utilization, several companies classify the difference as production-volume variance. Answer: […]

1) With the use of a bar chart, the number of “unprofitable” customers and the magnitude of their losses are apparent. 2) Direct manufacturing labor includes plant rent and salaries paid to plant supervisors. Answer: FALSE 3) The last step […]

1) Comfort Corporation manufactures two models of office chairs, a standard and a deluxe model. The following activity and cost information has been compiled: Number of setups and number of components are identified as activity-cost drivers for overhead. Assuming an […]

1) Benchmarking measures how well a company and its managers are doing in comparison to other organizations. 2) A Pareto diagram is usually in a bar-chart format, that indicates how frequently each type of defect occurs, ordered from the most […]

1) A learning curve measures the effect of learning on efficiency. 2) From the perspective of control, the direct materials price variance should be isolated at the time of sales. Answer: FALSE Explanation: From the perspective of control, the direct […]

1) In joint costing, the constant gross-margin percentage method recognizes that the profit margin is not just attributable to the joint process but is also derived from the costs incurred after splitoff. 2) Computer-based systems, such as ERP systems, cannot […]

1) The issue of “allowable costs” is applicable in government cost-plus contracts. 2) An important consideration in designing compensation arrangements is the tradeoff between creating incentives and imposing risks. Answer: TRUE 3) The key to a company’s success is always […]

1) A flexible-budget variance pertaining to revenues is often called a sales-volume variance. 2) Time taken to replace or repair defective products is a measure of the financial perspective of the balanced scorecard. Answer: FALSE Explanation: Time taken to replace […]

1) Sensitivity analysis is a useful tool that helps managers evaluate risks. 2) Discretionary costs arise from periodic (usually annual) decisions regarding the maximum amount to be incurred. Answer: TRUE 3) Commissions paid to salespersons are a variable selling expense. […]

1) Zephyr Apparels is a clothing retailer. Unit costs associated with one of its products, Product DCT121, are as follows: What are the direct variable manufacturing costs per unit associated with Product DCT121? A) $142 B) $90 C) $105 D) […]

1) The journal entry to dispose of the difference between actual conversion costs incurred and standard conversion costs allocated is different under backflush costing and sequential tracking. 2) A direct cost is a cost that cannot be easily traced to […]

1) Estimating the degree of completion for the calculation of equivalent units is usually easier for conversion costs than it is for direct materials. 2) The manufacturing overhead control accounts are closed or become zero at the end of each […]

1) When a company has no opening or ending inventory during the month, the cost per unit is calculated by dividing the total costs incurred in the period by the total units produced during the period. 2) Activity-based budgeting provides […]

1) Tax deductions for depreciation result in tax savings that partially offset the cost of acquiring the capital asset. 2) Companies that implement JIT purchasing will emphasize developing short-term supplier relationships to attain flexibility. Answer: FALSE Explanation: Companies that implement […]

1) A revenue driver is a variable, such as volume, that causally affects revenues. 2) Machine depreciation can be a cost-driver for a manufacturing company under ABC system. Answer: FALSE Explanation: Machine depreciation is an activity cost rather than a […]

1) Companies operating in markets that are not competitive favor cost-based approaches. 2) Target cost per unit is arrived at by adding the target operating income to the target price of the product. Answer: FALSE Explanation: Target cost per unit […]

1) In each of the following industries, identify possible joint (or severable) products at the splitoff point. a.Coal b.Petroleum c.Dairy d.Lamb e.Lumber f.Cocoa Beans g.Christmas Trees h.Salt i.Cowhide 2) Under backflush costing approach, the purchase of materials is ________. A) […]

1) The value chain is the sequence of business functions in which ________. A) value is deducted from the products or services of an organization B) producing and delivering the product or service is of prime importance C) products and […]

1) Cost of goods sold budget takes inputs from both, ending inventories budget and nonmanufacturing costs budget. 2) Management accounting ensures communication of an organization’s financial position to investors, banks, and regulators. Answer: FALSE Explanation: Financial accounting, not management accounting, […]

1) The cash budget is a schedule of expected cash receipts and disbursements that ________. A) requires an aging of accounts receivable and accounts payable B) is a self-liquidating cycle C) is prepared immediately after the sales forecast D) predicts […]

1) The cash flow statement includes ________. A) cash discount on sales B) cash outflow towards insurance premium C) sales revenues of the organization D) interest accrued on an investment 2) Many manufacturing, marketing, and design problems require employees with […]

1) Which of the following best describes transferred-in costs in process costing? A) These costs are incurred in previous departments that are carried forward to subsequent departments. B) These costs are transferred in to the company by an external vendor. […]

1) The revenues budget is prepared after all other operating budgets are prepared. 2) Indirect labor and distribution costs would most likely be in the same activity-cost pool. Answer: FALSE Explanation: Indirect labor and distribution costs would not be in […]

1) Buzz’s Educational Software Outlet sells two or more of the video games as a single package. Managers are keenly interested in individual product-profitability figures. Information pertaining to three bundled products and the stand-alone prices is as follows: Using the […]

1) Throughput costing considers only direct materials and direct manufacturing labor to be truly variable costs. 2) Appraisal costs are costs incurred to preclude the production of products that do not conform to specifications. Answer: FALSE Explanation: Prevention costs are […]

1) A responsibility center is a part, segment, or subunit of an organization whose manager is accountable for a specified set of activities. 2) Operating plans are generally expressed through long-run budgets. Answer: FALSE Explanation: Operating plans are generally expressed […]

1) Job costing system is an example of absorption costing. 2) When calculating the equivalent units, we should only focus on dollar amounts of inventory. Answer: FALSE Explanation: When calculating the equivalent units, we should disregard dollar amounts and focus […]

1) A positive aspect of backflush costing is the presence of the visible audit trail. 2) The credit rating agencies require detailed disclosures of the compensation arrangements of top-level executives. Answer: FALSE Explanation: The SEC requires detailed disclosures of the […]

1) The cost-allocation base is a systematic way to link an indirect cost or group of indirect costs to cost objects. 2) A cost driver is a variable, such as the level of activity or volume that causally affects costs […]

1) Russo Corporation manufactured 16,000 air conditioners during November. The overhead cost-allocation base is $31.50 per machine-hour. The following variable overhead data pertain to November: What is the variable overhead efficiency variance? A) $3,937.50 favorable B) $3,937.50 unfavorable C) $4,500 […]

1) IMA’s overarching ethical principles include: Honesty, Fairness, Objectivity, and Responsibility. 2) The key to a company’s success is creating value for customers while differentiating itself from its competitors. Answer: TRUE 3) Companies operating in competitive markets should ideally use […]

1) When forecasting fixed costs, managers should concentrate on total lump-sum costs instead of unitized fixed overhead costs. 2) Treasury includes banking and short- and long-term financing, investments, and cash management. Answer: TRUE 3) A firm operating at breakeven point […]

1) Jane Industries manufactures plastic toys. During October, Jane’s Fabrication Department started work on 10,000 models. During the month, the company completed 11,000 models, and transferred them to the Distribution Department. The company ended the month with 1,500 models in […]

1) Using net book value as an investment base will result in a lower ROI than using gross book value as an investment base. 2) Management accountants help managers identify what information is relevant and what information is irrelevant that […]