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cost accounting

Cost Accounting Foundations and Evolutions 8th Edition Michael R. Kinney, Cecily A. Raiborn - Solutions

What is the balanced scorecard? What perspectives are considered in selecting performance measures for the balanced scorecard, and why is each of these perspectives important?
Why is the trend in U.S. business away from automatic pay increases and toward increased use of incentive compensation plans?
If worker performance measures used in a pay-for-performance plan are not highly correlated with corporate goals, what is the likely result for the organization? For the workers?
How does the time perspective of a performance-based plan affect the selection of performance measures?
Why should different missions for two subunits result in different performance reward structures for the managers of those subunits? How does the mission of an organizational subunit affect the mix of financial and nonfinancial, and short-term and long-term, rewards?
How can feedback, both positive and negative, be used to improve managerial performance? How is feedback used in a performance-based reward system?
Many pay structures involve compensation combining both cash and stock. Why do firms want employees to be holders of the firm's common stock? What additional performance measurement and reward issues are created when managers are not shareholders in the firms they manage?
What are some of the important equity issues in designing reward structures? Why is the achievement of equity in the reward structure important?
Theta Property Management provides management services for commercial real estate development projects.The firm recently started a new division to market video game services to existing clients. The new division will purchase and maintain the video equipment placed in client buildings. Clients will
The company president has asked you, as the new controller, to comment on any deficiencies of the firm.After saying you believe that the firm needs long-run performance measurements, the president says that the long run is really just a series of short runs. He says that if you do a good job of
Data for the three autonomous divisions of Arizona Mining, Inc. for fiscal year 2010 follow.Compute the return on investment for eachdivision.
For the most recent fiscal year, the Northern Division of Eastern Corporation generated an asset turnover ratio of 4 and a profit margin (as measured by the segment margin) ratio of 4 percent on sales of $4,000,000.a. Compute the average assets employed.b. Compute the segment margin.c. Compute the
The following 2010 information is available for Cornwall Industries: average assets invested $7,200,000; revenues, $26,400,000; and expenses, $24,600,000.a. Calculate return on investment.b. Calculate profit margin.c. Calculate asset turnover.d. Using (b) and (c), prove your answer to (a).e.
Double K Corp. has established a 12 percent target ROI for 2010 for its Jamestown Division. The following data have been gathered for the division's operations for 2010: average total assets, $11,200,000; revenues, $30,000,000; and expenses, $28,000,000. What is the division's residual income? Did
London Ltd. operates its two divisions as investment centers. Information about these divisions follows.a. What is the residual income of each division if the "charge" on invested assets is 13 percent? Which division is doing a better job?b. If the only change expected for next year is a sales
Schulz GmbH, a German company, set an 18 percent target rate of return for its U.S. division for 2010. For 2010, the U.S. division generated $39,000,000 of revenue on average assets of $25,000,000. The division's variable costs were 45 percent of sales, and fixed costs were $6,750,000. Compute the
Mountain Mist Inc.'s cost of capital is 11 percent. In 2010, one of the firm's divisions generated an EVA of $1,130,000. The fair market value of the capital investment in that division was $29,500,000. How much after-tax income was generated by the division in 2010?
EVA is used by top management at College Learning Technologies to measure and evaluate the performance of segment managers. The company's cost of capital is 11 percent. In 2010, its Audio/Visual subsidiary generated after-tax income of $2,260,000, with $8,900,000 fair market value of invested
Following is a list of transactions that affected one division within a multiple-division company. Indicate, for the current fiscal year, whether each transaction would increase (I), decrease (D), have no effect (N), or have an indeterminate (?) effect on each of the following: asset turnover,
Just Nuts, a macadamia nut cannery, is analyzing its throughput for September. The following statistics are obtained for the month:Cans packed and sold ..........700,000Total cans packed ............742,040Value-added processing time ...... 650 hoursTotal processing time ......... 2,450 hoursa.
La Maya Corp. wants to compute its throughput for August 2010.The following production data are available:Good units produced and sold.......2,923,200Total units produced........................3,360,000Total processing time..........................144,000 hoursValue-added
Management at Southeast Crafts has decided to begin using throughput as a divisional performance measure. The Durham Division is a job shop that carefully crafts furniture to customer specifications. The following first quarter information is available for the division:Good units started,
Jeannie South is a division manager of Montana Manufacturing Inc. She is in the process of evaluating a $4,000,000 investment. The following net annual increases, before depreciation, in divisional income are expected during the investment’s five-year life:Year 1 .......$ 400,000Year 2 .......
In recent years, salaries for chief financial officers (CFOs) of large U.S. corporations averaged only about 20 percent of the total CFO compensation package; the other 80 percent is performance-based, variable compensation that includes mostly stock options and short-term and long-term incentive
The Mergers & Acquisitions Division (M&A) of Global Financial Services is evaluated by corporate management based on a comparison of budgeted and actual pre-tax income. For 2010, M&A’s budgeted income statement was as follows:Sales ................. $ 36,000,000Variable costs ..............
San Francisco Sea Salt's controller prepared the following cash flow statements (in thousands of dollars) for the past two years, the current year (2010), and the upcoming year (2011):After preparation of the budgeted cash flow statement for 2011, Lana Kaslowski, the company president, asked you to
Wayne Coyle, the controller of PEI Potato Co., is disillusioned with the company’s system of evaluating the performance of divisional profit centers and their managers. The present system focuses on a comparison of budgeted to actual income from operations. Coyle’s major concern with the
Evergreen Industries operates a chain of lumber stores. In 2010, corporate management examined industry-level data and determined the following performance targets for lumber retail stores:Asset turnover ........... 1.9Profit margin .................7.0%The actual 2010 results for the company’s
Fashion Fabrics sells sewing and craft materials to specialty retail and department stores. For 2010, the company’s New York Division had the following performance targets:Asset turnover .....3.0Profit margin ......5.5%Actual information concerning the performance of the New York Division in 2010
Imelda Sanchez, manager of the Arias Division of Poncé Chemical, is evaluated based on the division's return on investment and residual income. Near the end of November 2010, she was reviewing the division's financial information as well as some activities projected for the remainder of the year.
Morton Industrial produces stamping machinery for manufacturers. In 2009, the company expanded vertically by acquiring a supplier, Lancaster Company. Lancaster is now operated as a divisional investment center.Morton monitors its divisions on the basis of both unit contribution and return on
Miami Marine uses ROI to evaluate the performance of both its Powerboat and Sailboat Division managers. The following estimates of relevant measures have been made for the upcoming year:Both division managers have the autonomy to make decisions regarding new investments.The Powerboats manager is
As one of the division managers for Premier Inc., your performance is evaluated primarily on a single measure: after-tax divisional segment income less the cost of capital invested in divisional assets. The fair value of invested capital in your division is $20,000,000, the required return on
Jill Haas is a divisional manager within Tulsa GPS Guidance Systems. Haas is concerned about the amount of the division’s production. The following production data are available for April 2010:Total units completed ...........846,720Total good units completed and sold .....719,712Total
Terry Travers is the manufacturing supervisor of the Aurora Manufacturing Company, which produces a variety of plastic products. Some of these products are standard items that are listed in the company's catalog, whereas others are made to customer specifications. Each month, Travers receives a
For each of the following items, indicate two performance measurements that could be obtained from a cost management system. Classify each item into one of the four balanced scorecard perspectives.a. Qualityb. Costc. Production line flexibilityd. People productivity and developmente. Inventory
Chesterville Manufacturing makes a variety of glass products having both commercial and household applications. One of its newest divisions, ColOptics, manufactures fiber optic cable and other high-tech products. Recent annual operating results (in millions) for ColOptics and two older divisions
In September 2010, Lyon Precision Corporation (LPC) decided to launch an expansion plan for some product lines. To finance this expansion, the firm has decided to issue $400,000,000 of new common stock in November 2010.Historically, the firm's innovative cell phone was a significant contributor to
Relative to worker compensation, no topic is more hotly debated than the minimum wage law. Using concepts from this chapter, prepare a report in which you explain why increases in the minimum wage are not desirable and how alternative mechanisms could be used to increase the compensation of
In 2010, the lead story in your college newspaper reports the details of the hiring of the current football coach. The previous football coach was fired for failing to win games and attract fans. In his last season, his record was 1 win and 11 losses. The news story states that the new coach's
A recent survey of U.S. chief financial officers provides compelling evidence that managers are willing to take extraordinary measures to achieve financial earnings targets. For example, the survey found 26 percent were willing to sacrifice some long-term value of the firm to achieve short-term
Anthem Manufacturing has just initiated a formula bonus plan that rewards plant managers for various achievements. One of the current criteria for bonuses is the improvement of asset turnover. The plant manager of the Eastern Plant asked Sam Jensen, his assistant, to meet him Saturday when the
Family Fun Vehicle Co. (FFV), a subsidiary of Drummondville Automotive, manufactures go-carts and other recreational vehicles. Family recreational centers that feature go-cart tracks, miniature golf, batting cages, paint ball wars, and arcade games have increased in popularity. As a result, FFV has
Assume you are the newly appointed CFO of an international engineering services firm. As one of your first assignments you need to appoint a new controller for the branch of your firm located in Buenos Aires. You have identified an assistant controller in your New York office who has the requisite
How does management determine how to classify each type of output from a joint process? Is this decided before or after production?
In a company that engages in a joint production process, will all processing stop at the split-off point? Discuss the rationale for your answer.
By what criteria would management determine whether to proceed with processing at each decision point in a joint production process?
Why is cost allocation necessary in accounting? Why is it necessary in a joint process?
Compare the advantages and disadvantages of the two primary methods used to allocate joint cost to joint products.
Why are approximated, rather than actual, net realizable values at split-off sometimes used to allocate joint cost?
Which of the two common approaches used to account for by-product/scrap provides better information to management? Discuss the rationale for your answer.
When is by-product/scrap cost considered in setting the predetermined overhead rate in a job order costing system? When is cost not considered?
Why must not-for-profit organizations determine when it is appropriate to allocate any cost for a joint activity among fund-raising, program, and administrative activities?
Bethany Lutrell's uncle has asked her to take over the family poultry processing plant. Provide Lutrell, who graduated in engineering, answers to the following issues:a. What are the important questions to be answered about joint processes in a poultry processing plant? Also indicate the points in
Michigan Timber uses a joint process to manufacture two grades of wood: A and B. During October 2010, the company incurred $12,000,000 of joint production cost in producing 18,000,000 board feet of Grade A and 6,000,000 board feet of Grade B lumber. The company allocates joint cost on the basis of
Cal-C-Yum produces milk and sour cream from a joint process. During June, the company produced 120,000 quarts of milk and 160,000 pints of sour cream (there are two pints in a quart). Sales value at split-off point was $120,000 for the milk and $280,000 for the sour cream. The milk was assigned
FINS produces three products from its fish farm: fish, fish oil, and fishmeal. During July 2010, FINS produced the following average quantities of each product from each pound (16 ounces) of fish processed:Product Obtained from Each Pound of FishFish 8 ouncesFish oil 4Fish meal
MediaForum has three operating groups: Games, News, and Documentaries. In May, the company incurred $24,000,000 of joint cost for facilities and administration. May revenues and separate production costs of each group are as follows:a. What amount of joint cost is allocated to each operating group
The Scent of Money makes three products that can be sold at split-off or processed further and then sold. The joint cost for April 2010 is $1,080,000.The number of ounces in a bottle of each product is: perfume, 1; eau de toilette, 2; and body splash, 3. Assume that all products are processed
Keiffer Production manufactures three joint products in a single process. The following information is available for August 2010:Allocate the joint cost of $558,000 to the production based on thea. Number of gallons.b. Sales value at split-off.c. Approximated net realizable values at
All-A-Buzz makes three products from a joint production process using honey. Joint cost for the process in 2010 is $123,200.Each container of honey butter, jam, and syrup, respectively, contains 16 ounces, 8 ounces, and 3 ounces of product.a. Determine which products should be processed beyond the
Winnovia Mills processes cotton in a joint process that yields two joint products: fabric and yarn. May's joint cost is $120,000, and the sales values at split-off are $360,000 for fabric and $300,000 for yarn. If the products are processed beyond split-off, the final sales value will be $540,000
Washington Cannery makes three products from a single joint process. For 2010, the cannery processed all three products beyond split-off. The following data were generated for the year:Analysis of 2010 market data reveals that candied apples, apple jelly, and apple jam could have been sold at
In a joint process, Sylvia's Styles produces precut fabrics for three products: dresses, jackets, and blouses. Joint cost is allocated on the basis of relative sales value at split-off. The company can choose to process each of the products further rather than sell the fabric at split-off.
English Realty separates its activities into two operating divisions: Rentals and Sales. In March 2010, the firm spent $21,000 for general company promotions (as opposed to advertisements for specific properties). The corporate controller has decided to allocate general promotion costs to the two
Ring Corporation, which began operations in 2010, produces gasoline and a gasoline by-product. The following information is available pertaining to 2010 sales and production:Total production costs to split-off point .......$240,000Gasoline sales ................ 540,000By-product sales
Abrula Archery provides archery training for children and adults. During 2010, the camp had the following operating data:Direct instructional costs for 2010 were $120,000; overhead costs for the two programs were $55,500. Camp owners want to know the cost of each program.a. Determine each program's
Indicate whether each item that follows is associated with (1) The realized value approach or (2) The net realizable value approach.a. Is easier to applyb. Is used to reduce the cost of main products in the period the by-product is producedc. Presents proceeds from sale of the by-product as other
Macon Farms raises peaches that, at harvest, are separated into three grades: premium, good, and fair. Joint cost is allocated to products based on bushels of output. The $337,500 joint cost for one harvest yielded the following output quantities.Product Output in
Weinberg Canning produces fillet, smoked salmon, and salmon remnants in a single process. The same amount of disposal cost is incurred whether a product is sold at split-off or after further processing. In October 2010, the joint cost of the production process was $142,000.a. The remnants are
Your employer engages in numerous joint processes that produce significant quantities and types of by-product.You have been asked to give a report to management on the best way to account for by-product. Develop criteria for making such a choice and provide reasons for each criterion selected. On
Dover Studios shot hundreds of hours of footage that cost $20,000,000. From this footage, the company produced two movies:Greedy CEOs and Greedy CEOs: The Sequel. The sequel used better sound effects than the original and was significantly more expensive to produce. However, audiences seemed to be
Trady's Tree People manufactures wood statues, which yields sawdust as a by-product. Selling costs associated with the sawdust are $25 per ton sold. The company accounts for sawdust sales by deducting the sawdust's net realizable value from the major products' cost of goods sold. Sawdust sales in
The Bishop's Falls Lumber Corporation harvests lumber and prepares it for sale to wholesalers of lumber and wood products. The main product is finished lumber, which is sold to wholesale construction suppliers. A byproduct of the processes is wood pellets, which are sold to wholesalers of wood
Potato skins are generated as a by-product in making potato chips and frozen hash browns at Zeena Foods. The skins are sold to restaurants for use in appetizers. Processing and disposal costs associated with by-product sales are $0.06 per pound of potato skins. During May 2010, Zeena Foods produced
Hammatt Inc. provides a variety of services for commercial clients. Hammatt destroys any paper client records after seven years and the shredded paper is sold to a recycling company. The net realizable value of the recycled paper is treated as a reduction to operating overhead. The following data
Renaissance Creations restores antique stained glass windows. All jobs generate some breakage or improper cuts. This scrap can be sold to stained glass hobbyists. Renaissance Creations expects to incur approximately 45,000 direct labor hours during 2010. The following estimates are made in setting
Mosbee Designs uses a job order costing system to account for the various architectural services offered to commercial clients. For each major job, architectural models of the completed structures are built for client presentations. At the completion of a job, models not wanted by clients are sold
Memphis Jazz Company is preparing a pamphlet that will provide information on the types of jazz, jazz terminology, and biographies of some of the better-known jazz musicians. In addition, the pamphlet will include a request for funding to support the jazz company. The company has tax-exempt status
Natural Beauty Corp. uses a joint process to make two main products: Forever perfume and Fantasy lotion. Production is organized in two sequential departments: Combining and Heating. The products do not become separate until they have been through the heating process. After heating, the perfume is
Illinois Soybeans operates a processing plant in which soybeans are crushed to create soybean oil and soybean meal. The company purchases soybeans by the bushel (60 pounds). From each bushel, the normal yield is 11 pounds of soybean oil, 44 pounds of soybean meal, and 5 pounds of waste.For March,
Powisett Farms Dairy began operations at the start of May 2010. Powisett Farms operates a fleet of trucks to gather whole milk from local farmers. The whole milk is then separated into two joint products: skim milk and cream. Both products are sold at the split-off point to dairy wholesalers. For
Refer to the information in Problem 40.a. Assume the net realizable values of the joint products are as follows:Soybean oil ......... $0.50 per poundSoybean meal ....... $0.20 per poundAllocate the joint cost incurred in March on the basis of net realizable value.b. Calculate the cost of goods sold
Refer to the information in Problem 41.a. Calculate the sales price per gallon for skim milk and cream.b. Using relative sales value, allocate the joint cost to the joint production.c. Calculate ending Finished Goods Inventory cost, Cost of Goods Sold, and the gross margin for the month.
Stephenville Bank & Trust offers two primary financial services: commercial checking and credit cards. The bank also generates some revenue from selling identity fraud insurance as a by-product of its two main services. The monthly joint cost for conducting the two primary services is $800,000 and
Fredericksburg Vegetable is a fruit-packing business. The firm buys peaches by the truckload in season and separates them into three categories: premium, good, and fair. Premium peaches can be sold as is to supermarket chains and to specialty gift stores. Good peaches are sliced and canned in light
GetAhead provides personal training services for, and sells apparel products to, its clients. GetAhead also generates a limited amount of revenue from the sale of protein drinks. The net realizable value from drink sales is accounted for as a reduction in the joint cost assigned to the Personal
Tangy Fresh produces orange juice and orange marmalade from a joint process. Second-stage processing of the marmalade creates an orange pulp by-product that can be sold for $0.05 per gallon. Expenses to distribute pulp total $90.In May 2010, 140,000 pounds of oranges costing $44,200 were processed
Arguillo Inc. is a 5,000 acre farm that produces two products: Zilla and Corma. Zilla sells for $3.50 per bushel (assume that a bushel weighs 60 pounds). Without further processing, Corma sells for $30 per ton (a ton equals 2,000 pounds). If the Corma is processed further, it can be sold for $45
During March 2010, the first month of operations, Oink Oink's Pork Co. had the operating statistics shown in the following table.Costs of the joint process were direct material, $40,000; direct labor, $23,400; and overhead, $10,000. The company's main products are pork tenderloin, roast pork, and
DD's Linens produces terrycloth products for hotels. The company buys fabric in 60-inch-wide bolts. In the first process, the fabric is set up, cut, and separated into pieces. Setup can be for either robes and beach towels, or bath towels, hand towels, and washcloths.During July, the company set up
Buchan's Junction Manufacturing Corporation uses a joint production process that produces three products at the split-off point. Joint production costs during March were $720,000. The company uses the sales-value method for allocating joint costs. March production information was as follows:a.
Some waste, scrap, and by-product materials have little value. In fact, for many meat and poultry producers, animal waste represents a significant liability because it is considered hazardous and requires significant disposal costs.Some companies, such as Smithfield Foods Inc. (the largest hog
Choose a fairly common product that you believe would generate multiple by-products.a. Without doing any research, prepare a list of some items that you believe would be by-products from that product.b. After you have completed your list, use the Web to find what by-products are actually associated
Debra's Diabetes Foundation was started by a family whose mother had died after suffering for many years with diabetes. A lecture that cost the foundation $360,000 was held on the fourth Tuesday in March, which is American Diabetes Alert Day. Advertisements were placed in all local newspapers and
Read Joseph McCafferty's article entitled "Misgivings" in CFO.com (January 2007); www.cfo.com/article.cfm/8477078/c_8483311?f5singlepage&x51 (last accessed 5/28/09).a. Discuss your thoughts about not-for-profits claiming to raise funds without incurring any costs.b. What would you consider a
Throughout your college career, you have been employed on a part-time basis by the Center for Entrepreneurship of your business college. The Center for Entrepreneurship provides executive training and consulting for a fee to individuals and organizations located throughout the state. For 2010, the
Wayne Litcomb is the president and chief operating officer of Litcomb Electronics. He founded the company and has led it to its prominent place in the electronics field. He has manufacturing plants or retail outlets in 40 states. Litcomb is finding, however, that he cannot "keep track" of things
Why are responsibility reports prepared? Is it appropriate for a single responsibility report to be prepared for a division of a major company? Why or why not?
What is suboptimization, and what factors contribute to it in a decentralized firm?

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