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PROBLEMS
31. a. In one sense, the company did an excellent job of controlling costs since actual
costs were $700,000 below budget. However, it appears that the company con-
ing manuals could have been avoided altogether.
b. Ultimately, cost control must be viewed relative to the value created for cus-
32. a. Some considerations for the bookstore include:
Exercise prudent cost management over discretionary costs. One of the more
significant discretionary costs is advertising.
Maximize use of technology. Although book handling is inherently a labor-
Institute programs to reduce employee turnover. Because many employees
Arrange floor space to minimize book handling costs and to facilitate the
flow of students.
Work closely with professors to ascertain which books will be used in the
Develop associations with book wholesalers to market books that are no
Encourage professors to adopt the same book for multiple sections of the
Provide incentives to students to purchase books early so that the work load
can be spread across more time and be handled by fewer employees.
modes can be used.
Rent temporary warehouse space to handle the bulge in inventory that ac-
companies the start and end of school terms.
b. Some considerations for book publishers include:
spread across more units.
Manage the product mix so that unprofitable publications are eliminated.
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Make professors aware that there are costs to providing teaching supplements
and that such costs must eventually be passed on to students.
Conduct market research to determine what students and professors desire in
printing the final version.
Focus quality control on each textbook while it is in draft form to eliminate
Consider the use of part-time editors and other employees.
Consider outsourcing those aspects of operations that can be accomplished
and maximize purchase discounts.
Concentrate on developing JIT production capability to minimize production
c. Students can
the instructor.
Purchase their required textbooks from students rather than the bookstore.
This eliminates the bookstore markup.
Purchase the paperback editions rather than hardback textbooks.
d. College textbooks are different today for three major reasons. First, the subject
to attract and maintain market share.
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accessible website, in whole or in part.
33. (From employer perspective)
Advantages
Disadvantages
a. Less expensive
Possibly lower quality
Flexibility (if not working elsewhere)
Not available as much out of class
Less flexible (if employed elsewhere
on a full time basis)
b. Lower cost
Less loyalty to the firm
c. Greater flexibility
Possibly less competence
of personnel
Less continuity
Less expensive
d. Less expensive
Possibly poor quality writing
Flexibility
Less control over writers
e. Availability
Possibly lower quality work
Possibly less reliable
Possibly less responsive
Greater possibility of theft
f. Less expensive
Less training
Availability
Possibly less loyalty
Possibly poorer customer relations
g. Less expensive
Possibly less reliable
Possibly less control
Possibly lower quality of work
h. Less expensive
Possibly lower quality of work
Possibly less reliable
Possibly less control
i. More alert employees
Possibly lower quality of work
Less expensive
Possibly less competent workers
Lower pension & benefits costs
Lack of company loyalty
j. Provides more flexible
Inconsistent work
capacity
Reduced ability to control
Lower cost
quality
Flexibility of capacity
k. Availability
Better quality of life
for mom and pop
Less expensive
34. a. The use of part-timers is obviously an effective cost control technique. The firm
is able to avoid incurring the fringe benefit and other indirect costs associated
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b. If there are qualitative differences between those workers who are willing to
work part time and those who are only willing to work full time, these qualita-
d. It is unlikely that part-timers and paraprofessionals, used in lieu of full-time
professionals, can enhance the effectiveness of public accounting firms. It is
much more likely the case that they are hired on the grounds of efficiency. The
firms.
35. a. CU
b. CU
c. CA
d. CU
36. a. 2,000 × 0.98 = 1,960 flawless packages per kWh.
b. Achieved efficiency per kWh = (350,000 – 5,000) ÷ 180 = 1,916.7 gaskets per
ing flawless output than claimed.
d. kWh at standard efficiency: [(350,000 – 5,000) ÷ 1,960] = 176.02 kWh.
Std. kWh
176.02
Act. kWh
180.00
Excess kWh
3.98
Cost per kWh
× 4.50
Excess cost
$ 17.91
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e. An automobile manufacturer would want zero defects in the gaskets it purchas-
37. a. EDP Department
Under (Above)
Costs
Actual
Appropriation
Budget
Variable
$ 370,500
$ 400,000
$ 29,500
Fixed
1,630,000
1,600,000
(30,000)
Total
$2,000,500
$2,000,000
$ ( 500)
The EDP manager exceeded his $2,000,000 total appropriation even though he
underspent the variable portion of it. The amount by which the actual expendi-
b.
c.
Variable expenses efficiency:
Fixed expenses efficiency:
d. (1)
Actual
Actual Hrs. Std. Rate
Actual Hrs. Std. Rate
3,900 $100
3,900 $100
$370,500
$390,000
$390,000
$19,500 F
$0
Spending Variance
Efficiency Variance (note)
$19,500 F
Total Variable EDP Cost Variance
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accessible website, in whole or in part.
(2)
Actual
Budget
Actual Hrs. Std. Rate
3,900 $400
$1,630,000
$1,600,000
$1,560,000
$30,000 U
$40,000 U
Spending Variance
Volume Variance
$70,000 U
Total Fixed EDP Cost Variance
indicated.
It seems reasonable to believe that charging almost $500 per hour for computer
time where there was no charge previously would cause a reduction in demand.
f. Certainly it would be unethical to evaluate the EDP manager on a measure of
performance that fails to control for the effects of volume. The original budget-
ary data indicate that $400,000 of the budgeted costs is variable. The actual var-
iable costs will differ from the budgeted amount if actual volume differs from
38.
Both EFT and EFC: Use of simple, inexpensive antibiotics is found to be better
calls for using a lower-cost alternative.
EFC: Watchful waiting does the job better than using expensive MRIs.
CA: Watchful waiting is a lower-cost substitute.
disability and complications among asthmatic patients.
EFC & CA: Patients trained to avoid asthma triggers, measure their own lung
39. a. A flexible budget allows management to directly compare the actual cost of op-