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business
managerial accounting

Questions and Answers of Managerial Accounting

Hokuriku-Seika Co., Ltd., of Yokohama, Japan, is a subcontractor to local manufacturing companies. The company specializes in precision metal cutting using focused high-pressure water jets and
This question should be answered only after Research and Application 5—20 are completed.Required:1. Referring to the data for Blue Nile in Research and Application 5-20 and the data on net sales
What is meant by a product’s contribution margin ratio? How is this ratio useful in planning business operations?
In all respects, Company A and Company B are identical except that Company A’s costs are mostly variable, whereas Company B’s costs are mostly fixed, When sales increase, which Company will tend
What is meant by the term operating leverage?
In response to a request from your immediate supervisor, you have prepared a CVP graph portraying the cost and revenue characteristics of your company’s product and operations. Explain how the
Explain how a shift in the sales mix could result in both a higher break-even point and a lower net income.
Whirly Corporation’s most recent income statement is shown below:Required:Prepare a new contribution format income statement under each of the following conditions (consider each case
Karlik Enterprises distributes a single product whose selling price is $24 and whose variable expense is $18 per unit. The company’s monthly fixed expense is $24,000.Required:1. Prepare a
Jaffre Enterprises distributes a single product whose selling price is $16 and whose variable expense is $11 per unit. The company’s fixed expense is $16,000 per month.Required:1. Prepare a profit
Last month when Holiday Creations, Inc., sold 50,000 units, total sales were $200,000, total van- able expenses were $120,000, and fixed expenses were $65,000.Required:1. What is the company’s
Data for Hermann Corporation are shown below:Fixed expenses are $30,000 per month and the company is selling 2,000 units per month.Required:1. The marketing manager argues that a $5,000 increase in
Profit Lin Corporation has a single product whose selling price is $120 and whose variable expense is $80 per unit. The company’s monthly fixed expense is $50,000.Required:1. Using the equation
Products distributes a single product, a woven basket whose selling price is $15 and whose variable expense is $12 per unit. The company’s monthly fixed expense is $4,200.Required:1. Solve for the
Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the next month’s budget appear below:Required:1. Compute the company’s margin of safety.2. Compute
Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income statement follows:Required:1. Compute the company’s degree of operating leverage.2.
Lucido Products markets two computer games: Claimjumper and Makeover. A contribution format income statement for a recent month for the two games appears on the following page:Required:1. Compute the
Miller Company’s most recent contribution format income statement is shown below:Required:Prepare a new contribution format income statement under each of the following conditions (consider each
Menlo Company distributes a single product. The company’s sales and expenses for last month follow:Required:1. What is the monthly break-even point in units sold and in sales dollars?2. Without
Lindon Company is the exclusive distributor for an automotive product that sells for $40 per unit and has a CM ratio of 30%. The company’s fixed expenses are $180,000 per year. The company plans to
Fill in the missing amounts in each of the eight case situations below. Each case is independent of the othersa. Assume that only one product is being sold in each of the four following case
Realm, Inc., has developed a new fantasy board game. The company sold 15,000 games last year at a selling price of $20 per game. Fixed costs associated with the game total $182,000 per year, and
Outback Outfitters sells recreational equipment. One of the company’s products, a small camp stove, sells for $50 per unit. Variable expenses are $32 per stove, and fixed expenses associated with
The Hartford Symphony Guild is planning its annual dinner-dance. The dinner-dance committee has assembled the following expected costs for the event:The committee members would like to charge $35 per
Olongapo Sports Corporation is the distributor in the Philippines of two premium golf balls—the Flight Dynamic and the Sure Shot. Monthly sales, expressed in pesos (P), and the contribution margin
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable costs are $8 per unit, and fixed costs total $180,000 per year. Required: Answer the following
Gold Star Rice, Ltd., of Thailand exports Thai rice throughout Asia. The company grows three varieties of rice—Fragrant, White, and Loonzain. (The currency in Thailand is the baht. which is denoted
The Fashion Shoe Company operates a chain of women’s shoe shops around the country. The shops carry many styles of shoes that are all sold at the same price. Sales personnel in the shops are paid a
Cost Structure to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, Inc., has been experiencing difficulty for some time. The company’s contribution format
Island Novelties, Inc., of Palau makes two products, Hawaiian Fantasy and Tahitian Joy. Present revenue, cost, and sales data for the two products follow:Fixed expenses total $475,800 per year. The
A CVP graph such as the one shown below is a useful technique for showing relationships among an organization’s costs, volume, and profits.Required:1. Identify the numbered components in the CVP
Carbex, Inc., produces cutlery sets out of high-quality wood and steel. The company makes a standard cutlery set and a deluxe set and sells them to retail department stores throughout the country.
Minden Company introduced a new product last year for which it is trying to find an optimal selling price. Marketing studies suggest that the company can increase sales by 5,000 units for each $2
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus,
Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, a store that specializes in fashionable sandals. Angie has just received a degree in business and she is anxious to apply the
Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety Morton Company’s contribution format income statement for last month is given below:The industry in which
The Shirt Works sells a large variety of tee shirts and sweatshirts. Steve Hooper, the owner, is thinking of expanding his sales by hiring local high school students, on a commission basis, to sell
Changes in Fixed and Variable Costs; Target Profit and Break-Even Analysis Neptune Company produces toys and other items for use in beach and resort areas. A small, inflatable toy has come onto the
Cheryl Montoya picked up the phone and called her boss, Wes Chan, the vice president of marketing at Piedmont Fasteners Corporation: “Wes, I’m not sure how to go about answering the questions
Company is a small but growing manufacturer of telecommunications equipment. The company has no sales force of its own; rather, it relies completely on independent sales agents to market its
The questions in this exercise are based on the Benetton Group, a company headquartered in Italy and known in the United States primarily for one of its brands of fashion apparel—United Colors of
What is the basic difference between absorption costing and variable costing?
Are selling and administrative expenses treated as product costs or as period costs under variable costing?
Explain how fixed manufacturing overhead Costs are shifted from one period to another under absorption costing.
What are the arguments in favor of treating fixed manufacturing overhead costs as product costs?
What are the arguments in favor of treating fixed manufacturing overhead costs as period costs?
If the units produced and unit sales are equal, which method would you expect to show the higher net operating income, variable costing or absorption costing? Why?
If the units produced exceed unit sales, which method would you expect to show the higher net operating income, variable costing or absorption costing? Why?
If fixed manufacturing overhead costs are released from inventory under absorption costing, what does this tell you about the level of production in relation to the level of sales?
Under absorption costing, how is it possible to increase net operating income without increasing sales?
How does Lean Production reduce or eliminate the difference in reported net operating income between absorption and variable costing?
Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan
Variable Costing Income Statement; Explanation of Difference in Net Operating Income Refer to the data in Exercise 7—1 for Ida Sidha Karya Company. The absorption costing income statement
Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for municipalities. The company uses variable costing for internal management reports and absorption costing for external
The questions below pertain to two different scenarios involving a manufacturing company. In each scenario, the cost structure of the company is constant from year to year. Selling prices, unit
Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations: During the year, the company produced 25,000 units and 20,000
Sierra Company incurs the following costs to produce and sell a single product.During the last year, 25,000 units were produced and 22,000 units were sold. The Finished Goods inventory account at the
Whitman Company has just completed its first year of operations. The company’s absorption costing income statement for the year appears below:The company’s selling and administrative expenses
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $210. Data for last year’s operations follow:Required:1.
Absorption Costing Unit Product Cost and Income Statement Refer to the data in Exercise 7—8 for Chuck Wagon Grills. Assume in this exercise that the company uses absorption costing.Required:1.
Parker Products Joe, a manufacturer, reported $123 million in sales and a loss of $18 million in its annual report to shareholders. According to a CVP analysis prepared for management, the
During Heaton Company’s first two years of operations, the company reported absorption costing net operating income as follows:The company’s $18 unit product cost is computed as follows:Forty
Variable and Absorption Costing Unit Product Costs and Income Statements; Explanation of Difference in Net Operating Income High Country, Inc., produces and sells many recreational products. The
Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on
Company manufactures and sells a single product. Cost data for the product are given below:The product sells for $60 per unit. Production and sales data for July and August, the first two months of
Far North Telecom, Ltd., of Ontario, has organized a new division to manufacture and sell specialty cellular telephones. The division’s monthly costs are shown below:Far North Telecom regards all
Prepare and Interpret Income Statements; Changes in Both Sales and Production; Lean Production Starfax, Inc., manufactures a small part that is ‘widely used in various electronic products such as
Carlos Cavalas, the manager of Echo Products’ Brazilian Division, is trying to set the production schedule for the last quarter of the year. The Brazilian Division had planned to sell 3,600 units
This makes no sense at all, said Bill Sharp, president of Essex Company. “We sold the same number of units this year as we did last year, yet our profits have more than doubled. Who made the
These statements can’t be right, said Ben Yoder, president of Rayco, Inc. “Our sales in the second quarter were up by 25% over the first quarter, yet these income statements show a precipitous
Guochang Li was hired as chief executive officer (CEO) in late November by the board of directors of ContactGlobal, a company that produces an advanced global positioning system (GPS) device. The
In what fundamental ways does activity-based costing differ from traditional costing methods such as those described?
Why is direct labor a poor base for allocating overhead in many companies?
Why is top management support crucial when attempting to implement an activity-based costing system?
What are unit-level, batch-level, product-level, customer-level, and organization-sustaining activities?
What types of costs should not be assigned to products in an activity-based costing system?
Why is the activity-based costing described in this chapter unacceptable for external financial reports?
Why is the first stage of the allocation process in activity-based costing often based on inter- views?
When activity-based costing is used, why do manufacturing overhead costs often shift from high-volume products to low-volume products?
How can the activity rates (i.e., cost per activity) for the various activities be used to target process improvements?
Java Source, Inc. (JSI), is a processor and distributor of a variety of blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. JSI
The following activities occur at Greenwich Corporation, a company that manufactures a variety of products.a. Receive raw materials from suppliers.b. Manage parts inventories.c. Do rough milling work
SecuriCorp operates a fleet of armored cars that make scheduled pickups and deliveries in the Los Angeles area. The company is implementing an activity-based costing system that has four activity
Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate costs for pricing and other purposes. The proprietor of the company believes that costs are driven
Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity- based costing system contains the following six activity cost pools and activity rates:Activity data
Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has
Various activities at Ming Corporation, a manufacturing company, are listed below. Each activity has been classified as a unit-level, batch-level, product-level, or customer-level
Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding the two products follow:Additional information about the company follows:a. Hubs
Durban Metal Products, Ltd., of the Republic of South Africa makes specialty metal parts used in applications ranging from the cutting edges of bulldozer blades to replacement parts for Land Rovers.
The operations vice president of Security Home Bank has been interested in investigating the efficiency of the bank’s operations. She has been particularly concerned about the costs of handling
(This exercise is a continuation of Exercise 8—9; it should be assigned only if Exercise 8—9 is also assigned.) The manager of the Westfield branch of Security Home Bank has provided the
CD Express, Inc., provides CD duplicating services to software companies. The customer provides a master CD from which CD Express makes copies. An order from a customer can be for a single copy or
Foam Products, Inc., makes foam seat cushions for the automotive and aerospace industries. The company’s activity-based costing system has four activity cost pools, which are listed below along
Model X100 sells for $120 per unit whereas Model X200 offers advanced features and sells for S500 per unit. Management expects to sell 50,000 units of Model X100 and 5,000 units of Model X200 next
Advanced Products Corporation has supplied the following data from its activity-based costing system:During the year, Advanced Products completed one order for a new customer, Shenzhen Enterprises.
Hiram’s Lakeside is a popular restaurant located on Lake Washington in Seattle. The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a student
Smoky Mountain Corporation makes two types of hiking boots—Xtreme and the Pathfinder. Data concerning these two product lines appear below:The company has a traditional costing system in which
Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned.
Pixel Studio, Inc., is a small company that creates computer-generated animations for films and television. Much of the company’s work consists of short commercials for television, but the company
Mercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. There has been a long-simmering dispute between the company’s estimator and the

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