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Management Accounting 7th Edition Kim Langfield Smith, Helen Thorne, David Alan Smith, Ronald W. Hilton - Solutions

Classifying costs; value chain: bank Consider a major bank. Classify the costs listed below using the following value chain classifications: (a) Research and development. (b) Design. (c) Production/delivery. (d) Marketing. (e) Customer support. Costs: 1. Salaries of the tellers who process
Classifying costs: value chain: retailer Walworths is a major independent supermarket located in West Wyalong. Classify the costs listed below. using these value chain classifications: (a) Purchasing. (b) Production/sales. (c) Marketing. (d) Distribution. (e) Customer support. Costs: 1. Wages paid
Classify the following organisations as professional service firms, mass service entities or service shops. In each case, explain the reasons for your classification. 1. Motor registration department that processes applications and payments for drivers licenses and vehicle registration. 2. Medical
Visit the website of Fox Studios Australia (www.foxstudiosaustralia.comn and read about recent film releases (by clicking on Studio Overview and 'View our credits). Using examples of these films, discuss whether job costing would be an appropriate costing method for feature film production. Would
Eye for Detail is an interior decorating firm located in Sydney. The following costs were incurred in the firm's contract to redecorate the local council offices:Direct material.........................................$5600Professional labour...................................12,000The firm's
Refer to the information for Exercise 6.27.1. Calculate the fee charged to redecorate the council offices, assuming that the firm uses a chargeout rate of $360 per professional labour hour (which includes a profit margin of 40 per cent) and 120 hours are worked on this contract. Materials are
Bairstow Consulting Ltd offers a range of IT consulting services. The company's service costing system estimates the cost of each consulting job by accumulating costs of the professional labour that works or the job plus a charge for overhead. The cost of professional labour is charged to jobs
Libraries are service organisations. Think of an example of a fixed cost and a variable cost for a library and specify the cost driver for the variable cost. How might the library's management use this information?
Friendly Skies Ltd operates the check-in facilities at domestic and international terminals throughout Australia. During the month of May the following costs were incurred as passengers were processed by the Check-in Department at Brisbane Airport:Required: 1. Calculate the cost per check-in at the
All Texts and Stationery Ltd (ATS) is a major provider of texts and stationery to secondary schools throughout South Australia. Students submit their order to MS through their school at the beginning °f the year. All Texts and Stationery fills the order in three stages:(a) An order is received
In this chapter, the Income Statement of Adelaide Bank (Exhibit 6.13) is typical of many service firms, in that Operating Profit (consisting of the difference between operating revenue and operating expenses) is separated from other (non-operating) items. However, the Income Statement of a retailer
The Stately Retail Group owns the EzyShop chain of discount department stores. The EzyShop store in Bondi Junction consists of several departments. The revenues and costs for each department are recorded separately, and department managers are held responsible for these results. Frieda Schmidt
Southwoods is a medium-sized accounting firm that provides services in the areas of audit, taxation and investment advice. Apply value chain and other classifications to the costs listed below. (More than one classification may be appropriate for each cost item.) What role might this approach to
Pabbings is a national retailer of hardware and garden products. The merchandise in each store is organised into separate departments such as timber, electrical tools, lighting and garden products. Each department has a manager, responsible for ordering and managing enquiries about merchandise in
Health-aware is a large medical practice in Sydney owned by Dr Palmer, a medical entrepreneur, and staffed by salaried doctors. Until recently the practice had been managed by Palmer's son, Jason. However, Dr Palmer became concerned about his son's financial management and appointed a qualified
Job costing: consulting firm WA Consulting Services Pty Ltd (WACS) provides consulting services throughout Western Austral and uses a job costing system to accumulate the cost of client projects. Traceable costs are charged directly to individual clients; in contrast, other costs incurred by WACS,
MJA Engineers is a firm of consulting engineers. The business provides two main services: design and support services for civil engineering projects, such as the building of bridges and roads, and environmental assessments for planned and existing developments. MJA is preparing a tender for a
Your local accounting firm is a service entity. Give two examples each of the accounting firm's direct and indirect costs, specifying the cost object. How might the accounting firm's management use this information?
Greenlife is a health resort that offers a range of programs for health-conscious managers. Managers who participate are provided with a tailored program, consisting of a series of activities. A job costing system s used to calculate the cost of each program. The manager of Greenlife has designed
Southern Districts is a private hospital in Wangaratta, Victoria. The hospital is a not-for-profit organisation, and currently bills its patients at $375 per day. This rate was set at the beginning of the year to cover the costs of running the hospital, based on the expected level of activity. The
Process costing: university enrolments Flagstaff University is exploring the possibility of outsourcing part or all of its enrolment function. This function involves three separate processes:(a) Validation, where the new student's secondary school results are sighted and the university's offer of
Partmate Pty Ltd is a retail business that sells car parts to customers who maintain their own cars. The company began business on t January and the acquisition of the inventory of car parts during the year involved the following amounts:The purchase price of the
Asian Adventure Holidays offers a series of holiday packages aimed at families, seniors and corporate groups. The financial controller. Jack Tallis, is preparing for the annual board meeting and is concerned about the loss that the business sustained in the past year. He has examined the profits
Spicer and Rabbit is an accounting firm that specialises in fraud investigation. In May, Jackson McInnes, the general manager of Jazz Industries, approached John house, a partner of Spicer and Rabbit, to discuss a problem that has arisen in one of his warehouses. McInnes is not sure whether fraud
What is a value chain? Select any major service organisation with which you are familiar and describe the segments that you think would be included in its value chain. Provide a brief explanation of the role of each segment.
In estimating the costs of products, manufacturers usually identify direct material, direct labour and manufacturing overhead costs. What modifications may be made to these classifications in estimating service costs?
Using an example, explain how a retailer could focus on the purchasing segment of their value chain to create competitive advantage.
Identify the key features of: (a) Professional service firms. (b) Service shops. (c) Mass service entities. Give three examples of each of these types of service organisations.
Describe the service costing system that is most appropriate for: (a) Professional service firms. (b) Service shops. (c) Mass service entities.
Explain the differences between manufacturing overhead, upstream and downstream costs, and the indirect costs of responsibility centres.
Refer to the 'Real life' and evaluate the PVA's decision to allocate overhead costs to self-funded projects based on salary costs.
Explain the costs and benefits that need to be considered when choosing between the use of predetermined or actual overhead rates.
What do we mean by the denominator volume? Describe the effect on product cost of changing from a denominator volume based on practical capacity to one based on theoretical capacity.
Why do management accountants allocate indirect costs to responsibility centres? Refer to the 'Real life' on page 289. What problems were encountered in allocating Prime Infrastructure costs to Dalrymple Bay Coal Terminal (DBCT) and what effect did this have on DBCT's cost per loaded tonne?
'Actual support department costs should be allocated rather than budgeted, as these are more accurate.' Do you agree? Explain your answer.
The reciprocal method is the most appropriate method of support department cost allocation as it takes into account all service flows between departments.' Do you agree? Explain your answer.
Explain the term reciprocal services and give examples of the reciprocal services offered by support departments in a university.
What are the major differences between a contribution margin statement and an absorption costing income statement?
What is the key difference between variable and absorption costing?
What are cost objects, cost pools and allocation bases? What role do they play in cost allocation? What is the difference between cost allocation bases and cost drivers?
Would you recommend variable costing or absorption costing as a source of information for managers? Explain your answer.
Predetermined overhead rates for various cost drivers: manufacturer The following data relate to Denyer Ltd for the year just ended.Budgeted sales revenue......................................$307,500Actual manufacturing overhead............................$510,000Budgeted machine
The following annual data relate to Facsimile Printing Pty Ltd:Budgeted machine hours............................15,000Budgeted direct labour hours.......................30,000Budgeted direct labour cost.....................$420 000Budgeted manufacturing overhead.............$546,000During the
Predetermined plantwide overhead rate; alternative cost drivers Repeat the requirements for Exercise 7.22, assuming that Facsimile uses the following as overhead cost drivers:(a) Direct labour hours.(b) Direct labour dollars.In hindsight, which cost driver seems to be the most appropriate: machine
Country Leatherworks, which manufactures saddles and other leather goods, has three departments. The Assembly Department manufactures various leather products, such as belts, purses and saddlebags, using an automated production process. The Saddle Department produces handmade saddles and uses very
Eye in the Sky Lens Company manufactures sophisticated lenses and mirrors used in large optical telescopes. The company is now preparing its annual profit plan. As part of its analysis of the profitability of individual products, the management accountant estimates the amount of overhead that
Normal costing: alternative denominator volumes: engineering firm Thomas Pty Ltd is a defense engineering business. Contracts are costed using a normal job costing system, with a plantwide overhead rate based on practical capacity. I.M. Rite, the firm's accountant, has recommended a switch from
Secure Bank has two support departments: the Human Resources Department and the Computing Department. The bank also has two departments that service customers directly: the Deposits Department and the Loans Department. The usage of the two support departments' output in the year just ended was as
Refer to the data given in Exercise 7.27.The budgeted costs in the two support departments for the year just ended were:Human Resources......................................$720,000Computing.............................................1,200,000Required:Use the step-down method to allocate the
Refer to the data given in Exercise 7.27.The budgeted costs in the two support departments for the year just ended were:Human Resources......................................$720,000Computing.............................................1,200,000Required:Use the reciprocal services method to allocate
In estimating the cost of a cost object, how are direct costs and indirect costs assigned to the cost object? Using the NGOs involved in the tsunami relief efforts choose a cost object and give two examples of direct and indirect costs for that cost object.
Porter Ltd began operation on 1 January, and achieved the following results for the year:Sales .................................................36 000 unitsSelling price ..........................................$45 per unitManufacturing costs:Direct material
Perfect Image Ltd produces two types of computer printers, a laser model and an inkjet model, which pass through two production departments. Fabrication and Assembly. The following data relate to the year just ended:Actual overhead costs for the year were $450,000.Required:1. Calculate the
Star Electronics Ltd calculates its predetermined overhead rate on a quarterly basis. The following estimates were made for next year:The firm main product, part number A200, requires $200 of direct material and 20 hours of direct labour per unit. The labour rate is $30 per hour. Required: 1.
Quality Pool Accessory Ltd manufactures a variety of accessory equipment for swimming pools. For many years the company has used a traditional product costing system with direct labour hours as the only cost driver for overhead application. The firm is organised into five departments, listed below
Constellation Telecommunications Ltd manufactures two different fax machines for the business market cost estimates for the two models for the current year are as follows:Each model of fax machine requires 20 hours of direct labour. The basic system requires 5 hours in Department A and 15 hours in
Refer to the data given in problem 7.34. The company has implemented an activity-based costing system for its manufacturing overhead costs with the activity cost pools and activity diver data below:Constellation plans to produce 1000 units of each model of fax machine.Required:1. For each activity,
Noteperfect Ltd manufactures sheet music stands in two separate departments: Cutting and welding:One of Noteperfect's major products, the A Frame, has the following production requirements:Required:1. Calculate the manufacturing overhead cost of the A Frame using:(a) A predetermined plantwide rate
Overhead application using a predetermined overhead rate; practical capacity versus normal volume: manufacturer Jane Statton, the accountant for Hobart Happy Critters Ltd is in the process of analysing the company's overhead costs for November. She has gathered the following data for the
Jackson Instrument Company manufactures gauges for the construction industry. The company has two production departments: Machining and Finishing. There are also three support departments: Human Resources (HR), Maintenance and Design. The budgeted overhead costs for the year for each department are
Kevin Ltd is developing departmental overhead rates based on machine hours for its Moulding Department and direct labour hours for its Assembly Department. The Moulding Department has 20 machines, each of which runs 2000 hours per year. The Assembly Department employs 80 people. Each person in the
Define the term cost allocation base. Can you think of a suitable cost allocation base for assigning advertising costs to the various attractions at a large theme park (such as Disneyland or Movie-world on the Gold Coast)?
Refer to the data given in Problem 7.39 for Kevin Ltd.Kevin Ltd is developing departmental overhead rates based on machine hours for its Moulding Department and direct labour hours for its Assembly Department. The Moulding Department has 20 machines, each of which runs 2000 hours per year. The
Feeling Fab Ltd produces frozen yoghurt. a low-fat dairy dessert. The product is sold in five-litre containers and had the following price and variable costs per unit for the current year which ended on 30 June:Sales price...............................$15.00Direct
Sleepsound Pty Ltd's planned production for the current year was 15,000 units. This production was achieved, but only 13,500 units were sold at $60 each. Other data are as follows:Direct materials used......................................................$120,000Direct labour cost
Rising Past Pty Ltd manufactures a complete line of fibreglass attaché cases and suitcases. The firm has three manufacturing departments: Moulding, Component and Assembly. There are also two support departments: Power and Maintenance. The sides of the cases are manufactured in the Moulding
ChalkTalk Ltd manufactures blackboard chalk for educational uses. The company's product is sold by the bog at 550 per unit. ChalkTalk uses an actual costing system, which means that the actual costs of direct material, direct labour and manufacturing overhead are entered into work in process
Distinguish between a support department and a production department. Give an example of a production department in a bank, and a support department in a restaurant chain.
Explain the difference between activity-based costing for manufacturing overhead and a traditional costing system that uses departmental overhead rates.
Describe some costs and benefits of using (a) departmental overhead rates and (b) activity-based costing, for product costing.
Traditional costing systems apply manufacturing overhead costs to products using a volume-based cost driver such as direct labour hours. What do we mean by the term volume-based cost driver? What problems can arise with this approach to product costing in a modern manufacturing environment?
What causes traditional product costing systems to report lower product costs than those reported by activity-based costing systems for low-volume, small-batch, speciality product lines?
Describe the circumstances in which the benefits from ABC will be greatest. Using the 'Real life' provide some examples of the benefits activity-based costing in the public sector?
What factors may impede the introductions of ABC?
Why might organizations choose the implement a one-off ABC project rather than an ongoing system?
What factors should be considered when deciding how many cost pools to use in activity-based costing?
What are the implications of spare capacity when activity-based costing is used to report on the profitability of a firm?
The success (or Failure) of activity-based costing is determined by the reactions of the people who develop and use the system? Discuss.
Describe the limitations of activity-based costing?
The Real life explains how activities were identified in the NSW public sector, Describe some of the difficulties that might arise in estimating the cost of these activities?
Describe the common indicators of an outdated product costing system?
Wheelco Pty Ltd manufactures car and truck wheels. The company produces four basic, high-volume wheels used by manufactures of large cars and trucks. Wheelco also has two specialty wheel lines. These are fancy, complicated wheels used in expensive sports cars. Lately, Wheelco's profits have been
Refer to the description of Wheelco Ltd in Exercise 8.21 Wheelco Pty Ltd manufactures car and truck wheels. The company produces four basic, high-volume wheels used by manufactures of large cars and trucks. Wheelco also has two specialty wheel lines. These are fancy, complicated wheels used in
Brain Jones, the manager of Walkabout tours, uses activity-based costing to calculate the cost of the company's adventure walking trips. The company offers two basic trips: a two-day walk along the EI Questro Gorge and a five-day trip to the Filnders Rangers. The activities and costs relevant to
Wallaby Gully Wines is a small, family-run operation in the Yarra Valley. The winery produces two varieties of wine: Riesling and Chardonnay. Among the winery's activities are the Following: 1. Pruning: At the end of a growing season, the vines are pruned, which helps prepare them for the next
Puresound Ltd manufactures MP3 players in its Brishbane plant. The following costs are budgeted for March. _____________________________________________________ $4, 425 000 Raw materials and components ........................................... 900 000 Insurance, plant
Refer to the information provided in Exercise 8.25. For each of the activities identified, indicate whether it represents a unit-level, batch-level, product-level, or facility-level activity? Explain your choice. Refer to Exercise 8.25: Puresound Ltd manufactures MP3 players in its Brishbane plant.
Blusteel Ltd manufactures Blu-ray players and uses an activity-based product costing system that assigns labour and overhead costs. Below is an incomplete bill of activities for the high-volume product, BluStandard.Bluesteel Ltd Bill of activities BluStandardActivity _____________ Cost per unit of
Stylish Manchester Ltd has used a traditional cost accounting system to apply quality control costs uniformly to all products at a rate of 16 per cent of direct labor cost. Monthly direct labor cost for the Satin Sheet range is $147 000. In an attempt to distribute quality control costs more
Peninsula Manufacturing has just completed a major change in its quality control (QC) process. Previously, products were reviewed by QC inspectors at the end of each major process, and the company's 10 QC inspectors were charged as direct labour to the operation or job. In an effort to improve
Describe the two dimensions of the activity-based costing model shown in Exhibit 83. Using the terms resources, activity and resource driver, explain how costs are assigned to activities?
Fantastique fashions Ltd has switched from a traditional product costing system to an activity based product costing system to assign manufacturing overhead costs to products. The table below show cost per unit for two products under the two costing systems:Costing system _________________ Product
Acacia Patins Ltd manufacturers paint and uses an activity-based product costing system. The table overleaf lists the labour and overhead costs of the Mixing Centre for the current year, and their resource drivers.Required: 1. Complete the following table to calculate the cost of the activity 'Load
Silver water Ltd manufactures sophisticated six-tuner personal video recorders and has decided to develop an activity-based product costing system to assign labour and overhead costs to products. The table below lists Silver-water's costs during the current year and the resource drivers to be used
The accountant for Snappy photographic Supply Ltd has estimated the following activity cost pools and activity drivers for the coming year:An order for 1000 boxes of film development chemicals has the following production requirement:Machine setups .................................. 4 setupsRaw
Hobart Machines Ltd (HML) manufactures two products Standard and Enhanced, and applies overhead on the basis of direct labour hours. Anticipated overhead and direct labour time for the upcoming accounting period are $800 000 and 25 000 hours, respectively. Information about the company's products
Pristine Ltd manufactures two types of storage cabinets-Deluxe and Executive-and applies manufacturing overhead to all units at the rate of $120 per machine hour. Production information follows._______________________________ Deluxe ______________ ExecutiveDirect material cost
Mel Snow is the manager of a firm, Taxation Matters, which specializes in the preparation of income tax returns. The firm offers two basic products: the preparation of income tax returns for wage and salary earners and the preparation of income tax returns for small businesses. Any clients
Brown and Whincup perform consulting services related to e-commerce and information systems in Adelaide. The firm, which bills $187.50 per hour for services performed, is in a very tight local labour market and is having difficulty finding quality staff. The labour cost per hour paid by Brown and
Explain the three different ways in which the term cost driver is used in activity-based costing and give two examples of each type of cost driver for a bank. (First think about the activities performed in a bank and then think about their cost drivers.)

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