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business
managerial accounting

Questions and Answers of Managerial Accounting

Match the following terms to the definitions below:Terms:i. Variable costii. Fixed costiii. Independent variableiv. Dependent variablev. Scatter diagramvi. High–low methodvii. Regression
Contribution margin is the same as gross profit. Do you agree? If you do not agree, explain why not.
Hayes Consulting Company builds database and point-of-sale systems for golf courses and country clubs. Mr. Hayes is trying to determine total revenues for the coming year and feels he can estimate
As R2 approaches +1, we are given a higher level of assurance that the independent variable accounts for most of the variability in the dependent variable. Do you agree? Explain.
An experienced company uses account analysis to separate its costs. For each of the following costs, indicate the category in which it would likely be classified:i. Variableii. Fixediii.
The wages of salespeople who are paid strictly on commission will always be variable, and the wages of those who are paid only a salary will be considered fixed. Do you agree? If you do not agree,
FQR’s Gadgets manufactures and sells a single product. A partially completed schedule of the company’s total and per-unit costs over a relevant range of 60,000 to 100,000 units produced and sold
Stuart Advertising Company decided to analyze its travel and entertainment expenses based on the number of customers it serviced each month. The regression analysis for the prior 12 months gave the
“Committed costs” is a term used to refer to fixed costs, whereas “discretionary costs” refers to variable costs. Do you agree? If you do not agree, explain why the statement is false.
Clean Company reported the following information on its current-year contribution margin income statement:a. The marketing department suggests that a new advertising campaign costing $15,000 can
Why is the organization of costs by behavior (variable versus fixed) useful for budgeting profits at different volume levels?
Following are two income statements: internal (contribution margin income statement, with costs classified by behavior) and external (a traditional income statement, with GAAP-based costs classified
Party Planner is considering two options, as follows:● Pay a variety entertainer (a comedian who is also a musician) a fixed amount of $10,000 and $100 per job● Pay the entertainer $600 per joba.
Why might there be a difference in operating income in a contribution margin income statement compared to a traditional income statement?
Understanding cost behavior is important. Select the graph for Williams Company that matches each description given. The vertical (or y) axes represent total dollars and the horizontal (or x) axes
For each of the following fixed costs, indicate if the costs are committed costs or discretionary costs:i. Committed costsii. Discretionary costsFixed costs:a. Company picnic costsb. Salary of
WKC Company reported the following overhead charges for the first 3 months:a. Which of the costs are fixed? Explain why.b. Which of the costs are variable? Explain why.c. Which of the costs are
BBC manufactures whiteboards. In March 2022, the variable production costs per unit were $15 and the average fixed production costs per unit (based on 5,000 whiteboards produced and sold) were $25.
Match the terms with their descriptionsa. Transferred-in costsb. Conversion costsc. Normal spoilaged. Process costinge. Equivalent unitsf. FIFO methodg. Weighted average methodh. Abnormal spoilage(1)
Light Plastics uses a process costing system. The following is known for September:● The company transferred out 66,000 units.● The beginning work in process was 10,000
Under process costing, a unit cost is determined for each product and then used to price the product at a margin above cost. Do you agree? If you disagree, explain why.
When is process costing used?
Great Paint Company uses a process costing system. The following applies to materials for June:● Materials are added halfway through the process.● The company started
Under process costing, since all units are the same, there is no distinction in the cost accumulation between direct materials costs and conversion costs. Do you agree? If you disagree, explain why.
Shiny Metals had a cost per equivalent unit of $6.00 for direct materials. Materials are added at the beginning of the first process. There were 20,000 units in work in process at the beginning of
Describe the cost flow for a process costing system.
Indicate whether job order costing or process costing best fits the scenario.a. Flour millb. Breweryc. Tire manufacturerd. Printing shope. Identical units are made continuouslyf. Costs are
Give the steps used to allocate costs in a process costing system.
Flour Everywhere uses a process costing system. The following applies to conversion costs for April:● Conversion costs are added uniformly throughout the process.● The
Flowers uses a weighted average process costing system. The following is known for November:a. What were the total costs to account for and allocate?b. What is the cost of goods completed and
Pencils and Pens uses a weighted average process costing system. The following applies to conversion costs for October:● 27,000 units were completed and transferred out.●
Explain what is meant by the term equivalent unit as used in process costing.
How are unit costs calculated under the weighted average method and under the FIFO method?
How are unit cost calculations different in the first and second production departments of a process costing system?
Cable Products uses a weighted average costing system with two departments: cutting and packaging. The following is known for February:a. What are the equivalent units for transferred-in costs in the
If a company does not have any beginning inventory in work in process, unit costs will be the same under the weighted average and FIFO process costing methods. Do you agree? If you disagree, explain
Questionable is the controller for a company that uses a process costing system. Questionable is concerned with the spoilage costs that have been identified as abnormal and has asked the staff
Discuss the differences in cost allocations when using the weighted average versus the FIFO method.
Companies use process costing systems in an effort to have lower cost of goods sold than if they used job order costing systems. Do you agree? If you disagree, explain why.
How is spoilage accounted for in a process costing system?
Both job order and process costing systems include direct materials, direct labor, and overhead as product costs. Do you agree? If you disagree, explain why.
As goods are finished in a process costing department, the costs are transferred from finished goods to cost of goods sold. Do you agree? If you disagree, explain why.
The two process costing methods are FIFO and weighted average. Weighted average is the most widely used because it is the more accurate approach. Do you agree? If you disagree, explain why.
Kralik’s Krazy Kostumes, LLC, manufactures its own costumes for business professionals and has two main products: the “Accounting Nerd” and the “Master Marketer.” The Accounting Nerd is a
One benefit of ABM is that because it provides information about which customers require a significant amount of service, marketing personnel can determine which customers to charge a high fee or, if
How is process costing different than job costing?
Pretty Lawn Products uses a process costing system. The following is known for July:● The company started 90,000 units and completed 87,000 units.● The beginning work in
VBD has started a home delivery business that buys items at wholesale prices and sells them to customers at retail prices. The owner has identified several key indirect cost activities for its
Morgan Company, which uses a normal job order cost system, has recorded the following information in its ledgers for several jobs during July 2022. Analyze the numbers given as well as the missing
Refer to the information in Problem 6. Record the information in the T-accounts.Data from problem 6The Moez Company uses a normal job order cost system. Other data:• There are three jobs that pass
Wizard Architects has three types of service lines: Basic: Customer accepts the quoted “off the shelf” service with no modifications.Upgrade: Customer is allowed three changes.Specialized:
Sanchez has developed the following product activity cost pool information for this year:Actual information follows for Standard Product A, Standard Product B, and Specialty Products:a. Determine the
Simple Company uses a traditional volume-based costing system with a single overhead cost pool and direct labor hours as the cost driver. Simple estimates total overhead for the year at $76,200 and
Wall, Inc., has identified the following overhead costs and cost drivers:The following are two of the jobs completed during the year:The company’s normal activity is 4,000 direct labor hours.a. If
You have been hired as a consultant to analyze the production job costs for a prestigious financial services company. Your analysis reveals that many tasks that were subcontracted out at cheaper
XYZ Company manufactures two products: Product DDD and Product EEE. Indirect manufacturing costs (overhead) are budgeted at $600,000 annually. The company is concerned about the assignment of the
Below you will find several activity drivers that can be used to assign indirect production costs (overhead) and general, selling, and administrative costs (period costs). For each of the activities,
With respect to indirect costs, explain the difference between a single overall plantwide rate and a departmental rate.
Value-added costs are those that customers are willing to pay for and that are necessary for the organization. Give examples of value-added and non–value-added costs for each of the following:a.
Which steps must an organization take to implement an activity-based costing (ABC) system?
Discuss the benefits and drawbacks of ABC.
An ABM costing analysis has revealed that it should take 40 minutes to render a service that now takes 60 minutes. The cost per hour is $15, and the monthly production volume is 8,000 hours of
For each of the following activities, provide appropriate cost drivers if activities do not differ (use similar resources) and if activities vary significantly (use different resources).Drivers:U:
Companies frequently react to economic downturns by downsizing the workforce (firing employees). Describe in detail how activity-based management (ABM) could assist companies in making decisions and
Are ABC and ABM applicable only to the production of products, or can they be used for providing services? Explain.
The ABC team found that one of the company’s products was losing money because it was using significant resources of setups, customer handling, and material handling. The chief financial officer
Brokerage Service, Inc., is a firm that charges a fee to buy and sell investment orders for its clients. The company has three types of service lines: discount brokers, mutual funds, and full-line
Valiente Company makes equipment for three major customers. As part of its ABC and ABM project, the following customer profitability report for 2022 was prepared.Other facts:
Give an example of how ABC can be useful in assigning general, selling, and administrative costs to various customers so that the customers are properly charged.
The Neighborhood Bank has gathered data related to its customers for a pilot project at one of its branches. The ABC team has identified three main product lines: regular account holders, loans, and
ABC and ABM can help companies identify ways to improve certain situations and develop measures to assess quality, efficiency, flexibility, and reduction of costs through a focus on prevention rather
For each of the following independent scenarios and items, indicate whether the activity described is:VA: Primarily value-added and efficientNVA: Primarily non–value-added (If NVA, indicate how
Indicate whether each of the following statements is true or false.T: TrueF: Falsea. Building complexity into the costing process is an important part of the ABC philosophy.b. The levels of
For each of the following activities, identify whether the activity cost is:U: UnitB: BatchP: Product-sustainingC: Customer-sustainingF: Facility-sustaininga. Making engineering changesb. Manually
Caring Hospital directly captures the cost of surgical labor. The hospital has collected the following indirect cost information and identified the corresponding cost drivers:a. With respect to
How can ABM be integrated with other managerial accounting tools and data analytics?
Sometimes, through ABM, management finds that the customers who were thought to be “low cost and profitable” are actually “high cost and unprofitable.” Explain.
Comment on each of the following independent scenarios. Apply the ABC and ABM techniques of focusing on processes and identifying non–value-added activities that could be either eliminated or made
Indicate whether each of the following is more descriptive of a traditional system or an ABC system:a. Costs are classified as unit, batch, product sustaining, customer sustaining, and facility
Look up a company such as Southwest Airlines or any of the companies listed in the chapter that have incorporated ABC into their operations. Write a memo to your boss on what you learned from your
One of the key components of ABM is the analysis of value-added activities and non–value-added activities. Contrast the two types of activities.
Tucker produces 40,000 Simple and 4,000 Complex small machines. It currently allocates overhead based on machine hours. An ABC study revealed the following activity cost pool data, including the use
Why does ABC correct the allocation of primarily batch and product- or customer-sustaining costs rather than correcting the allocation of unit or facility-sustaining costs?
The management of Toth Company has always taken pride in the quality of its motor products. Some of the company’s principles are:➢ Products should be designed for
There is a saying, “It is better to be approximately right than precisely wrong.” Discuss how that saying could be applied to ABC if a company uses the wrong assignment of costs and drivers.
To reduce waste, management should focus only on reducing costs. Do you agree? If you do not fully agree, indicate why you disagree. Be specific.
The best driver (base) when assigning the electricity used in manufacturing to products or jobs would be direct labor hours, since payroll numbers are already recorded. Do you agree? If you do not
After an ABC and ABM study, Analytical Company identified four groups of activities, as follows:● Group 1: Activities designed to prevent errors and mistakes during production and delivery● Group
Katelynn Corporation manufactures two products—kites and gliders.Annual production:● Kites: 2,000 units and 2,000 direct labor hours● Gliders: 400 units and 2,000 direct labor hours● Total
In an ABC system, facility-sustaining expenses should all be assigned to specific product lines according to the direct labor hours or machine hours consumed by each product line. Do you agree? If
The goal of a properly constructed ABC system is to have the most precise costs (typically per-unit costs are carried out to three digits). Do you agree? If you do not fully agree, indicate why you
ABC systems should be used primarily for budgeting (spending) decisions. Do you agree? If you do not fully agree, indicate why you disagree. Be specific.
Traditional cost accounting systems typically distort product costs by overcosting the complex products and undercosting the simple products. ABC systems have been introduced primarily to correct
Most ABC systems should be initiated, planned, and controlled by top management personnel, such as the chief executive officer, because those managers are in a position to understand both the costs
Refer to the information in Problem 2. Record the information in the T-accounts.Data from Problem 2Sue Enterprises uses a normal job order costing system and a predetermined overhead rate based on
CMG uses a normal job order costing system and applies overhead on the basis of direct labor hours. At the beginning of 2022, management estimated that 250,000 direct labor hours would be worked and
Sue Enterprises uses a normal job order costing system and a predetermined overhead rate based on machine hours. At the beginning of 2022, Sue estimated the overhead for the year would be $720,000
The Moez Company uses a normal job order cost system. Other data:• There are three jobs that pass through the two production departments.• Job 401 and Job 402 were completed and sold during
Precious Glassworks, Inc., produces unique hand-blown glass light fixtures for custom-built homes and uses a job order costing system for its production costs. The company bases its predetermined
Refer to the information in Problem 4. Record the information in the T-accounts.Data from Problem 4.Precious Glassworks, Inc., produces unique hand-blown glass light fixtures for custom-built homes

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