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cost accounting

Questions and Answers of Cost Accounting

Cuda, Inc., is thinking about adding a new product line. Marketing surveys indicate that sales of the new product would be 150,000 units. Each unit sells for $8. Direct variable costs would be $6.25
Haws Electronics produces two products, MP3 players and digital cameras. Both products are extremely popular, and the company can sell as many of either product as it can produce. Haws can produce
B&B Manufacturing (BBM) makes two types of lawnmower engines which it supplies to lawnmower manufacturers: a turbo and a self-propelling engine. The company has only a limited supply of skilled labor
Medical Care, Inc., is considering what price to charge for Sparkle, a toothpaste that is sold in its leased store at a hospital. The accountant has been asked to prepare an estimated normal selling
Midwest Company manufactures portable radios. Shop Smart, a large retail merchandiser, wants to buy 200,000 radios from Midwest for $12 each. The radio would carry Shop Smart’s name and would be
Logan Company manufactures several toy products. One is a large plastic truck, which requires a plastic truck body, two metal axles, and four rubber wheels. Logan currently manufactures and assembles
Bruce€™s Bakery is thinking of making its own Danish pastries. Two machines, A and B, are being considered for purchase. Bruce€™s now purchases the Danish pastries from an outside
Northeast Reinsurance Company is growing rapidly. As it has grown, it has added legal staff to provide for its legal services. One of the principals of the company is an attorney who has provided
Snow Corporation manufactures commercial freezers for use in restaurant kitchens. Snow is planning to produce a new freezer suitable for large hotel kitchens. These smaller freezers require a
Style Company manufactures three items, S1, S2, and S3, which are used in the production of fabrics. Each item can be sold at the point that all three are separated from the joint production process,
Bryce Baseballs manufactures baseballs, baseball bats, and baseball gloves. The company is thinking of dropping baseball gloves as a product line. The following report was prepared by the accounting
Park Manufacturing Company has been producing three products: frisbees, volleyballs, and croquet. Now that the plant has been shifted to an assembly-line operation, a fourth product, bocce, has been
End Trail Campground is open year-round. However, 80% of its revenues are generated from May through October. Because only 20% of the revenues are generated from November to April, End Trail is
Clarity Corporation produces three sizes of television sets: 10-inch screen, 19-inch screen, and 24-inch screen. The revenues and costs per unit for each size are as follows:Clarity has a constraint
David's Robotics is examining two of its products, Calculon Model and Bender Model. The following information is being reviewed:Required:1. Which item should David's manufacture if there is no
Dresser, Inc., manufactures three super-sports-hero dolls: Super Dunk, Pete Tulip, and Zonk. Production, however, is limited by the skilled labor necessary to produce these unique dolls. Data on each
Cole Company manufactures only two products'a battery charger and a testing machine for automobile engines. An average of 30,000 chargers and 50,000 testers are sold each year. This year, Cole can
Chojna Lighting Supply manufactures desktop and ceiling-mounted luxury light fixtures. The company wants to come up with a reasonable price for its desktop executive model. Production costs for that
E & B Company has two divisions, Processing and Finishing. Finishing has been purchasing certain products from Processing at a price of $80 per unit. (A unit consists of 100 yards of material.)
Sam Love owns and manages a small but growing service business. In fact, this year has been so good that Sam is moving his office to a larger, more centrally located site. In an effort to save on
Which is more important to a company’s overall success and profitability: quantitative or qualitative factors?Often, a company is judged based on the strength of financial indicators, like sales
Find the most recent Form 10-K for Microsoft. Read through the report to determine how many segments of business exist within Microsoft. What approach does Microsoft appear to use in identifying
Located in Bartow, Alabama, the Pharmaceutical Division of Ameripill Company ranks among the top 15 drug companies in the world. The European Unit of the Pharmaceutical Division is divided into three
Roger Smith, the controller of Play World, Inc., a toy company, has just completed an analysis of a make-or-buy decision with respect to a particular part for one of the new toys the company is
How can a person tell whether an entry to an expense account is payment for a legitimate expenditure or a means of concealing a theft of cash?
How would it be possible to overstate revenues? What effect would an overstatement of revenues have on total assets?
What are the major elements of a system of internal controls?
Identify five different types of control procedures.
What are the four factors that might motivate a manager to attempt to manage earnings?
(a) What is the purpose of internal earnings targets?(b) What is the risk associated with internal earnings targets?
What is meant by the term income smoothing?
What are the five labels in the earnings management continuum in Exhibit 5.3, and what general types of actions are associated with each of the labels?
Is there anything wrong with using a different accounting estimate this year compared to last year, as long as both estimates fall within a generally accepted range for your industry?
Refer to the GAAP oval in Exhibit 5.4. (a) In what important way is point E different from point C? (b) In what important way is point A different from point C?
What are the duties of the Public Company Accounting Oversight Board?
What constraints does the Sarbanes-Oxley Act place on auditors?
As a result of the Sarbanes-Oxley Act, public companies were required to change the way they do business. What practice does Sarbanes-Oxley forbid?
How do internal auditors add to the credibility of financial statements?
What is the purpose of a financial statement audit by CPAs?
Do you believe that outside auditors (CPAs) who examine the financial statements of a company, while being paid by that company, can be independent?
The SEC requires companies to register with it when they sell stocks or bonds and also requires periodic reporting thereafter. Which of these reports, the initial registration statements or the
What do you suspect is the relationship between the FASB and the SEC?
How would the following errors affect the account balances and the basic accounting equation, Assets = Liabilities + Owners’ Equity? How do the misstatements affect income?a. The purchase of a
The following financial statements are available for Sherwood Real Estate Company:Sherwood Company is using these financial statements to entice investors to buy stock in the company. However, a
In the early 1990s, the top executive of a large oil refining company was convicted of financial statement fraud. One of the issues in the case involved the way the company accounted for its oil
As an auditor, you have discovered the following problems with the accounting system control procedures of Jim’s Supply Store. For each of the following occurrences, tell which of the five internal
A manufacturing corporation recently reassigned one of its accounting managers to the internal audit department. He had successfully directed the western-area accounting office, and the corporation
Which of the following is not applicable to the internal audit function?a. Deter or catch employee fraud.b. Issue an opinion for investors regarding the reliability of the financial statements.c. Be
Pierson, CPA, is planning an audit of the financial statements of Generic Company. In determining the nature, timing, and extent of the auditing procedures, Pierson is considering Generic’s
Three college seniors with majors in accounting are discussing alternative career plans. All three want to enter careers that will help to ensure the integrity of financial reporting. The first wants
What is the purpose of external auditors providing an opinion on a company’s financial statements?
The Utah Lakers professional basketball team has recently decided to sell stock and become a public company. In determining what it must do to file a registration statement with the SEC, the company
A few years ago, the officers of Phar-Mor, a discount retail chain, were convicted of issuing fraudulent financial statements. The company had overstated its inventory by moving inventory from store
Which organization—the Securities and Exchange Commission, the American Institute of Certified Public Accountants, or the Financial Accounting Standards Board—has federal government authority to
Describe the role of the SEC and its influence on the practice of auditing.
As an investor, you are considering buying stock in a relatively new company. Medical Horizons, Inc., has been in existence for 10 years and is now about to go public. The first stock offering will
Many people have argued that the purpose of the SEC is to protect investors. Some believe that the best way to do this is by preventing weak companies from issuing stock. Others say that the SEC
Jerry Stillwell, the owner of a small company, asked Jones, a CPA, to conduct an audit of the company’s financial statements. Stillwell told Jones that the audit needed to be completed in time to
You are an analyst for an investment fund that invests in initial public offerings (IPOs). You are looking at the financial statements of two companies, Clark Company and Durfee Company, that plan
Cruella DeVil is the chief financial officer (CFO) of a local publicly traded company. Cruella was recently invited to speak to accounting students at the local university. One of the students asked
You are the chief financial officer (CFO) of Lorien Company, which is publicly traded. At the annual shareholders’ meeting, you have been asked to discuss the company’s recent reported results.
Is an internal control structure really necessary? Your uncle doesn’t seem to think so. He works for a regional employment staffing service and recently commented, “As long as a company hires
Should external auditors do all audit procedures themselves, or should the relationship between the auditor and the client be more friendly? You have just graduated from college and are now working
Locate the 2009 Form 10-K for Wal-Mart in Appendix A and consider the following questions:1. With respect to the report of the external auditors to “the Board of Directors and Shareholders of
At one time, Circle K was the second-largest convenience store chain in the United States. At its peak, Circle K operated 4,685 stores in 32 states. Circle K’s rapid expansion was financed through
Swire Pacific, Ltd., is one of the largest companies in the world. The primary operations of the company are in the region of Hong Kong, China, and Taiwan where it has operated for over 125 years.
On St. Patrick’s Day in 1992, Chambers Development Company, one of the largest landfill and waste management firms in the United States, announced that it had been engaging in improper accounting
As a recently hired accountant for a small business, Bearing, Inc., you are provided with last year's balance sheet, income statement, and post-closing trial balance to familiarize yourself with the
What is a cost object? Identify four different cost objects in which an accountant would be interested.
Why is cost accumulation imprecise?
If the cost object is a manufactured product, what are the three major cost categories to accumulate?
What is a direct cost? What criteria are used to determine whether a cost is a direct cost?
Why are the terms direct cost and indirect cost independent of the terms fixed cost and variable cost? Give an example to illustrate.
Give an example of why the statement, “All direct costs are avoidable,” is incorrect.
What are the important factors in determining the appropriate cost driver to use in allocating a cost?
How is an allocation rate determined? How is an allocation made?
In a manufacturing environment, which costs are direct and which are indirect in product costing?
Why are some manufacturing costs not directly traceable to products?
What is the objective of allocating indirect manufacturing overhead costs to the product?
On January 31, the managers of Integra Inc. seek to determine the cost of producing their product during January for product pricing and control purposes. The company can easily determine the costs
Respond to the following statement: “The allocation base chosen is unimportant. What is important in product costing is that overhead costs be assigned to production in a specific period by an
Larry Kwang insists that the costs of his school’s fundraising project should be determined after the project is complete. He argues that only after the project is complete can its costs be
Define the term cost pool. How are cost pools important in allocating costs?
Jeffcoat Services Company (JSC) has 50 employees, 38 of whom are assigned to Division A and 12 to Division B. JSC incurred $370,000 of fringe benefits cost during 2008.RequiredDetermine the amount of
Estep Construction Company is composed of two divisions: (1) Home Construction and (2) Commercial Construction. The Home Construction Division is in the process of building 12 houses and the
O'Brien Hats Inc. manufactures three different styles of hats: Vogue, Beauty, and Deluxe. O'Brien expects to incur $576,000 of overhead cost during the next fiscal year. Other budget information
Walker Company makes three products in its factory: plastic cups, plastic tablecloths, and plastic bottles. The expected overhead costs for the next fiscal year include the following.Walker uses
Bryson Construction Company expects to build three new homes during a specific accounting period. The estimated direct materials and labor costs are as follows.Assume Bryson needs to allocate two
Production workers for Kirby Manufacturing Company provided 280 hours of labor in January and 500 hours in February. Kirby expects to use 4,000 hours of labor during the year. The rental fee for the
Production workers for Weik Manufacturing Company provided 3,600 hours of labor in January and 1,900 hours in February. The company, whose operation is labor intensive, expects to use 32,000 hours of
Atlantic Air is a large airline company that pays a customer relations representative $5,000 per month. The representative, who processed 1,000 customer complaints in January and 1,300 complaints in
Anchorage Corporation expects to incur indirect overhead costs of $75,000 per month and direct manufacturing costs of $11 per unit. The expected production activity for the first four months of 2009
Lemiley Manufacturing Company produced 1,200 units of inventory in January 2009. It expects to produce an additional 8,400 units during the remaining 11 months of the year. In other words, total
Foote Manufacturing Co. expects to make 30,000 chairs during 2008. The company made 4,000 chairs in January. Materials and labor costs for January were $16,000 and $24,000, respectively. Foote
Bunn Department Stores Inc. has three departments: women’s, men’s, and children’s. The following are the indirect costs related to its operations.Payroll taxesPaper rolls for cash
McAlpin Clinics provides medical care in three departments: internal medicine (IM), pediatrics (PD), and obstetrics gynecology (OB). The estimated costs to run each department follow.McAlpin expects
Maller Manufacturing Company makes two different products, M and N. The company's two departments are named after the products; for example, Product M is made in Department M. Maller's accountant has
The Brower School of Vocational Technology has organized the school training programs into three departments. Each department provides training in a different area as follows: nursing assistant,
Jarmon Airlines is a small airline that occasionally carries overload shipments for the overnight delivery company Never-Fail Inc. Never-Fail is a multimillion-dollar company started by Peter Never
Spring Manufacturing Company makes tents that it sells directly to camping enthusiasts through a mail-order marketing program. The company pays a quality control expert $108,000 per year to inspect

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