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cost accounting

Questions and Answers of Cost Accounting

The following data are available for InterGalactic Strategic Consultants for the year just ended:Gross margin .......... $16,200,000Operating profit ........ 6,100,000Revenues ..........
Lead! Inc. offers executive coaching services to small business owners. Lead!’s operating profits average 20 percent of revenues and its marketing and administrative costs average 25 percent of the
The following balances are from the accounts of Secol Machining Company:Direct materials purchased during the year amount to $299,000, and the cost of goods sold for the year was
The following data refer to one year. Fill in the blanks with required calculations.
The cost accountant for Sun & Surf Apparel Shop has compiled the following information for last year’s operations:Administrative costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Powell Street Electronics has provided the following information for February:Sales revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 807,000Store rent . . . . . . . .
Ramirez Company manufactured 60,000 units of product last year and identified the following costs associated with the manufacturing activity:Variable costs:Direct materials used . . . . . . . . . . .
Gibson Corporation has compiled the following information from the accounting system for the one product it sells:Sales price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Refer to Exercise 2-36.RequiredCompute:a. Product costs per unit.b. Period costs for the period.
Larcker Manufacturing’s cost accountant has provided you with the following information for January operations:Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $105
Refer to Exercise 2-38.RequiredPrepare:a. A gross margin income statement.b. A contribution margin income statement.
The following data are from the accounting records of Cunha Products for year 2 (all figures in thousands of dollars).Units produced and sold . . . . . . . . . . . . . . . . . . . . . . . . . .
Tosca Beverages reports the following information for July:Units produced and sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,800Per unit revenue and costs:Sales revenue. . . . . . .
Gene’s Diner has the following information for October, when several new employees were added to the waitstaff:Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Paul€™s Limo Service has the following information for June:Requireda. Using the traditional income statement format, prepare a value income statement.b. What value would there be to Paul
The following information comes from the accounting records for Santa Cruz, Inc., for March:Direct material inventory, March 1 . . . . . . . . . . . . . . . . . . . . . .
The controller at Emporia Precision Parts asks for your help in sorting out some cost information. She is called to a meeting, but hands you the following information for June:Prime costs, June. . .
Princeton Fabrication, Inc., produced and sold 1,200 units of the company’s only product in March. You have collected the following information from the accounting records:Sales price (per unit) .
Pioneer Parts, a manufacturer of windows for commercial buildings, reports the following account information for last year (all costs are in thousands of dollars):Information on January 1
The administrative offices and manufacturing plant of Oakdale Tool & Die share the same building. The following information (in $000s) appears in the accounting records for last year:Administrative
Coastal Computer operates two retail outlets in Oakview, one on Main Street and the other in Lakeland Mall. The stores share the use of a central accounting department. The cost of the accounting
Wayne Casting, Inc., produces a product made from a metal alloy. Wayne buys the alloy from two different suppliers, Chillicothe Metals and Ames Supply, in approximately equal amounts because of
The library at Pacific Business School (PBS) serves both undergraduate and graduate programs. The dean of PBS is interested in evaluating the profitability of the degree programs and has asked the
After a computer failure, you are trying to reconstruct some financial results for the year just ended. While you know that backups are available, it will take too long to get the information you
Just before class starts, you realize that you have mistakenly recycled the second page of your cost accounting homework assignment. Fortunately, you still have the fi rst page of printout from your
The City of Imperial Falls contracts with Evergreen Waste Collection to provide solid waste collection to households and businesses. Until recently, Evergreen had an exclusive franchise to provide
San Ysidro Company manufactures hiking equipment. The company€™s administrative and manufacturing operations share the company€™s one building. Eighty percent of the building is
You were appointed the manager of Drive Systems Division (DSD) at Tunes2Go, a manufacturer of portable music devices using the latest developments in hard drive technology, on December 15 last year.
Mary’s Mugs produces and sells various types of ceramic mugs. The business began operations on January 1, Year 1, and its costs incurred during the year include these:Variable costs (based on mugs
BS&T Partners has developed a new hubcap with the model name Spinnin’ Wheel. Production and sales started August 3. As of August 2, there were no direct materials in inventory. Data for the month
Fixed costs are often defined as “fixed over the short run.” Does this mean that they are not fixed over the long run? Why or why not?
What is the difference between a sunk cost and a differential cost?
Are sunk costs ever differential costs?
What is the difference between short-run and long-run decisions? Give one example of each.
What costs are included in the full cost of a product? Is a product’s full cost always the appropriate cost for decision makers to use?
What are life-cycle product costing and pricing?
When is cost-plus pricing most likely to be used?
What do the terms target cost and target price mean? Explain how they are developed.
What is predatory pricing? Why is it illegal in many jurisdictions?
What is dumping? What role would a cost accountant play in determining whether dumping has occurred?
What is price discrimination? How could a cost accountant help determine if differences in prices were evidence of price discrimination?
If we want to maximize profit, why do we use unit contribution margins in our analysis instead of unit gross margins?
A company has learned that a particular input product required for its production of several products is in limited supply. What approach should management take to maximize profits in the presence of
Why are production constraints important in determining the optimal product mix?
What are some nonfinancial factors in decisions to drop a product line?
On what three main factors does the theory of constraints focus?
Consider the In-Action item, “Cost Analysis and the Choice of Office Space for a SmallBusiness”. In the decision to relocate to the virtual office, what are the differential costs? What costs
Consider the In-Action item, referred to in Question 4-17. Suppose the company had signed a lease for five years and had two years remaining on the contract. Would the remaining lease payments be
As a marketing manager for an airline, would you sell a seat to a passenger who walked up to the gate at the last minute at the variable (marginal) cost? Why or why not? Do the costs from the
A company has several units of old-model telephones that it is selling for $10 per unit. The units cost $25 to produce. Is the company engaging in predatory pricing? Explain.
You buy an airline ticket to New York City to see a play. You buy the ticket on the day you fly and pay $100. The person sitting next to you, who bought a ticket two months earlier, paid $200. Are
Consider the In-Action item, “Cost-Volume-Profit Analysis and Airline Pricing” in Chapter 3. Based on the article alone, was go! engaging in predatory pricing? Why or why not?
One of your acquaintances notes, “This whole subject of differential costing is easy; variable costs are the only costs that are relevant.” How would you respond?
A manager in your organization just received a special order at a price that is “below cost.” The manager points to the document and says, “These are the kinds of orders that will get you in
If you are considering driving to a weekend resort for a quick break from school, what are the differential costs of operating your car for that drive?
If you are considering buying a second car, what are the differential costs of that decision? Are they the same as in Question 4-25? Why or why not?
Management notes that the contribution from one product is higher than the contribution from a second product. Hence, it concludes that the company should concentrate on production of the first
Under what circumstances would fixed costs be relevant when management is making decisions in a multiproduct setting?
In the theory of constraints, what are ways to improve performance at the bottleneck?
According to the theory of constraints, what are the ways to increase profits?
Maria€™s Food Service provides meals that nonprofit organizations distribute to handicapped and elderly people. Here is her forecasted income statement for April, when she expects to
Carlsbad Enterprises has a capacity to produce 400,000 computer cases per year. The company is currently producing and selling 320,000 cases per year at a selling price of $40 per case. The cost of
Assume that Cold Rock sells ice cream for $4.80 per gallon. The cost of each gallon follows:Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mother’s Bottlers, Inc., is a small bottling company that bottles and sells cold teas for $5 per unit. The cost of each unit follows:Materials . . . . . . . . . . . . . . . . . . . . . . . . . . .
Andreasen Corporation manufactures thermostats for office buildings. The following is the cost of each unit:Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mission Electronics manufactures and sells basic DVD players for sale under various generic store brand names. The cost of one of their models follows:Materials . . . . . . . . . . . . . . . . . . .
Sid’s Skins makes a variety of covers for electronic organizers and portable music players. The company’s designers have discovered a market for a new clear plastic covering with college logos
Dino’s, Inc., makes a variety of T-shirts with logos. The company has discovered a new market for sweatshirts with logos. Market research indicates that a sweatshirt like this would sell well in
Terracotta, Inc., makes toy soldiers. Company management believes that a new model would sell well at a price of $65. The company estimates unit materials costs to be $16 for the model, and overhead
Mobility Partners makes wheelchairs and other assistive devices. For years it has made the rear wheel assembly for its wheelchairs. A local bicycle manufacturing firm, Trailblazers, Inc., offered to
Mel’s Meals 2 Go purchases cookies that it includes in the 10,000 box lunches it prepares and sells annually. Mel’s kitchen and adjoining meeting room operate at 70 percent of capacity. Mel’s
Refer to the facts in Exercise 4-41. Mel suddenly finds an opportunity to sell boxed dinners. The new opportunity would require the use of the 30 percent unused capacity. The contribution margin from
Atlantic Soup Company is presently operating at 75 percent of capacity. Worried about the company's performance, the president is considering dropping its clam chowder line. If clam chowder is
Freeflight Airlines is presently operating at 70 percent of capacity. Management of the airline is considering dropping Freeflight€™s routes between Europe and the United States. If these
CompDesk, Inc., makes a single model of an ergonomic desk (with chair) for computer usage. The desk is manufactured in building 1, and the chair is manufactured in building 2. Monthly capacities and
Playful Pens, Inc., makes a single model of a pen. The cartridge for the pen (which contains the ink) is manufactured on one machine. The cartridge holder (which you hold when you hold the pen) is
Hi-Speed Electronics manufactures low-cost, consumer-grade computers. It sells these computers to various electronics retailers to market under store brand names. It manufactures two computers, the
Sherene Nili manages a company that produces wedding gowns. She produces both a custom product that is made to order and a standard product that is sold in bridal salons. Her accountant prepared the
Sam, Martina, Aretha, Roxi, and Tomas (SMART) operate a management consulting firm. The firm has just received an inquiry from a prospective client about its prices for educational seminars to teach
M. Anthony, LLP, produces music in a studio in London. The cost of producing one typical song follows:Average Cost per Song:Labor, including musicians and technicians . . . . . . . . . . . . .
Davis Kitchen Supply produces stoves for commercial kitchens. The costs to manufacture and market the stoves at the company’s normal volume of 6,000 units per month are shown in the following
King City Specialty Bikes (KCSB) produces high-end bicycles. The costs to manufacture and market the bicycles at the company€™s volume of 2,000 units per month are shown in the following
Carson Corporation produces and sells three products, Alpha, Beta, and Gamma, in a local market and in a regional market. At the end of the first quarter of the current year, the following income
Power Music owns five music stores, where it sells music, instruments, and supplies. In addition, it rents instruments. At the end of last year, the new accounts showed that although the business as
You have been asked to assist the management of Ironwood Corporation in arriving at certain decisions. Ironwood has its home office in Michigan and leases factory buildings in Wisconsin, Minnesota,
Austin Enterprises makes and sells three types of dress shirts. Management is trying to determine the most profitable mix. Sales prices, demand, and use of manufacturing inputs follow:The company
The Bubble Company produces a variety of bottles from recycled plastic. The company has one particular machine on which it can produce either of two types of water bottles, 1-liter bottles or
Slavin Corporation manufactures two products, Alpha and Delta. Each product requires time on a single machine. The machine has a monthly capacity of 500 hours. Total market demand for the two
Layton Machining Company (LMC) manufactures two versions of a basic machine tool. One version is a standard model and one is a custom model, which requires some additional work and slightly
To win a predatory pricing case, law enforcement officials traditionally have had to prove that a company has sold products or services for less than their average variable cost. Companies with
The Liquid Chemical Company manufactures and sells a range of high-grade products. Many of these products require careful packaging. The company has a special patented lining made that it uses in
Explain the differences between financial accounting and cost accounting. Why are these differences important?
Place the letter of the appropriate accounting cost in Column 2 in the blank next to each decision category in Column 1. Column 1 Column 2_____Identifying the best
Distinguish between the value chain and the supply chain.
How can cost accounting information together with a classification of activities into those that are value-added and those that are nonvalue-added help managers improve an organization’s
Does the passage of Sarbanes-Oxley mean that codes of ethics are no longer necessary?
A manager once asked, “How would you calculate the cost of a credit card account?” What will be your first question to the manager?
You are considering lending a car to a friend so she can drive to Aspen. What costs would you ask her to reimburse? How would your answer change, if at all, if you decided to go along? Identify the
Would you support a proposal to develop a set of “generally accepted” accounting standards for measuring executive performance that would be used to determine compensation? Why or why not?
Airlines are well known for using complex pricing structures. For example, it is often (but not always) less expensive to buy a ticket in advance than it is on the day of the flight. However, if the

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