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cost accounting

Fundamentals of Cost Accounting 3rd Edition William Lanen, Shannon Anderson, Michael Maher - Solutions

The following data are available for InterGalactic Strategic Consultants for the year just ended:Gross margin .......... $16,200,000Operating profit ........ 6,100,000Revenues .......... 34,000,000Find the following by completing a cost of goods sold statement.a. Marketing and administrative
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 cost of services sold.RequiredLead! Inc. expects revenues to be $400,000 for April. Prepare an
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 $1,086,200.RequiredReconstruct a cost of goods sold statement and fill in the following missing data:a. Cost of direct
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 146,400Merchandise inventory, January 1 . . . . . . . . . . . . . . . . . . . .
Powell Street Electronics has provided the following information for February:Sales revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 807,000Store rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,600Store utilities . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 1,020,000Direct labor . . . . . . . . . . . . .
Gibson Corporation has compiled the following information from the accounting system for the one product it sells:Sales price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300 per unitFixed costs (for the month)Marketing and administrative . . . . . . . . . . . . . . . .
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 per unitFixed manufacturing overhead costs . . . . . . . . . . . . . . . . $675,000Sales price . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . 42,500Total revenues and costsSales revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tosca Beverages reports the following information for July:Units produced and sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,800Per unit revenue and costs:Sales revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3.20Direct material costs . . . . . .
Gene’s Diner has the following information for October, when several new employees were added to the waitstaff:Sales revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $180,000Cost of food serveda. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 from preparing the same information inJuly?
The following information comes from the accounting records for Santa Cruz, Inc., for March:Direct material inventory, March 1 . . . . . . . . . . . . . . . . . . . . . . $6,000Direct material inventory, March 31 . . . . . . . . . . . . . . . . . . . . .
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $147,000Total manufacturing costs,
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 (Beginning):Direct materials inventory . . . . . . . . . . . . . . . . . . . . . . . $ 18Work-in-process
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 costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,800Building and
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 department for last year was $180,000. Following are the operating results for the two stores for the
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 supply constraints at both vendors. The material from Chillicothe is less expensive to buy, but more
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 head of the library, Rex Gilmore, to allocate the annual library cost of $4,035,000 to the two
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 want. You have been able to collect the following information:Direct materials inventory, January 1
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 spreadsheet (shown below) and you remember that you were able to determine the items on the recycled
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 this service in Imperial Falls, which meant that other waste collection firms could not operate
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 used for manufacturing and the remainder is used for administrative activities. Indirect labor is 8
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. DSD manufactures the drive assembly, M-24, for the company’s most popular product. Your bonus is
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 produced):Direct materials cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
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 of August include the following:Direct labor cost per unita . . . . . . . . . . . . . . . . . . . . .
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 this constraint?
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 would not be differential?
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 relevant to the decision to move? Explain why or why not.
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 accounting system include all relevant costs for the decision?
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 the costs different or is this an example of price discrimination?
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 trouble. Every sale must bear its share of the full costs of running the business. If we sell below
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 product. Under what, if any, conditions will this approach result in maximum profits?
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 produce and sell 3,000 meals:Fixed costs included in this income statement are $4,500 for meal production
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 producing and selling one case follows:Variable manufacturing costs . . . . . . . . . . . . . . . . .
Assume that Cold Rock sells ice cream for $4.80 per gallon. The cost of each gallon follows:Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.80Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.50Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Andreasen Corporation manufactures thermostats for office buildings. The following is the cost of each unit:Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18.00Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18.00Labor . . . . . . . . . . . . . . . . . . .
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 for a popular music player. Market research indicates that a cover like this would sell well in the
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 the market priced at $25 each. Dino’s desires an operating profit of 25 percent of
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 costs would average $20 per unit. The local wage rate for direct labor is $28 per hour. Terracotta
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 sell these rear wheel assemblies to Mobility. If Mobility makes the assembly, its cost per rear
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 purchases the cookies for $0.60 each but is considering making them instead. Mel’s can bake each
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 the dinners would amount to $3,000 annually. Would your advice in Exercise 4-41change? Why or why
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 dropped, the revenue associated with it would be lost and the related variable costs saved. In addition,
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 routes are dropped, the revenue associated with the routes would be lost and the related variable
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 production levels are as follows:The company will sell a desk only with a chair and can sell 500
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 manufactured on another machine. Monthly capacities and production levels are as follows:The company
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 Lightning 2.0 and the Lightning 2.4, which differ in terms of speed, included memory, and included
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 following forecasted income statement for March, which is a busy month:Ms. Nili already has orders
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 its supervisors better communications skills. The prospective client wants bids for three
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 . . . . . . . . . . . . . $17,000Variable overhead, including clerical support . . . . . . . . . . . 3,000Fixed overhead . .
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 table.Unless otherwise stated, assume that no connection exists between the situation described in each
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 table:The company has the capacity to produce 2,000 units per month and always operates at full
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 statement (in thousands of dollars) has been prepared:Management has expressed special concern with the
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 a whole was profitable, the Fifth Avenue store had shown a substantial loss. The income statement
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, and North Dakota, all of which produce the same product. Ironwood's management provided you a
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 faces two limits:(1) the volume of each type of shirt that it can sell (see maximum annual demand)
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 1/2-liter bottles. Sales demand for both products is such that the machine could operate at full capacity
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 products is limited to 150 units (each) monthly. Slavin is currently producing 110 Alphas and 110 Deltas
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 higher-grade materials. The manufacturing process at LMC requires that each product go through two
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 relatively high fixed costs and low variable costs are less likely to be accused of predatory pricing
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 specially designed packing containers. The lining uses a special material known as GHL. The firm
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 performing subsidiary A. Costs for inventory valuation_____Determining whether to accept a special
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 performance?
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 possible options and explain your choices.
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 airline offered this lower (“discount”) fare for all seats, it could not remain in business. Why

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