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Accounting 22nd Edition Carl S. Warren, James M. Reeve, Jonathan E. Duchac - Solutions

How is technology affecting supply-chain purchasing practices and transaction costs?
What are the four generic approaches to reducing uncertainty? Describe the context in which each approach is typically used.
What factors create uncertainty when estimating future costs and revenues?
Lois Jilg, the CEO of Minnesota Manufacturing, was concerned about the amount the firm had spent on fuel and energy costs in the previous quarter. Jilg called Alice Briggs, the CFO, and expressed her concern, "Alice, according to our latest 10-Q, we spent $20 million on fuel and energy costs. Isn't
Idaho Industrial is a medium-size manufacturing corporation in a capital-intensive industry. Currently, actual profits are not meeting expectations. As a result, investment funds are limited and hiring is restricted. These consequences of the corporation's problems have placed a strain on the
Rogal and Associates Legal Services hires full- and part-time professional employees. Full-time experienced staff can be hired for a salary of $60,000 per year; fringe benefit costs for each full-time employee amount to 20 percent of base salary. Rogal and Associates pays part-time professional
Brenda Barnes has just been appointed the new director of Youth Hot-Line, a not-for-profit organization that operates a phone bank for teen-age individuals experiencing emotional difficulties. The phones are staffed by qualified social workers and psychologists who are paid on an hourly basis.
Identify in the following scenarios whether the cost change is attributable to effects of cost behavior (CB), inflation/deflation (I/D), supplier cost adjustment (CA), or quantity purchased (QP). Defend your answer.a. Allison Mfg. experienced an increase in fuel costs following an increase in crude
A list of committed and discretionary costs follows.Annual audit fees ............Internal audit salariesAnnual report preparation and printing ....Marketing researchBuilding flood insurance ........Preventive maintenanceCharitable contributions .........Property taxesCorporate advertising
Choose letter C (for committed cost) or D (for discretionary cost) to indicate the type of each of the following described costs. Explain the rationale for your choice.a. Control is first provided during the capital budgeting process.b. Typical examples include advertising, research and
Houston Health Clinic has used funds during 2010 for the following purposes:a. Sent two cost accounting staff members to seminars on activity-based costing.b. Purchased a kidney dialysis machine.c. Built an attached parking garage for the clinic.d. Redecorated the main lobby.e. Placed a full-page
Allridge University formed a new department to recruit top out-of-state students. The department's funding for 2010 was $1,600,000, and the department was given the goal of recruiting 600 new nonresident students. By year-end 2010, the department was credited with recruiting 660 new students. The
Fred's Freight employs three drivers who are paid $20 per hour for regular time and $30 for overtime. A single pickup and delivery requires, on average, one hour of driver time. Drivers are paid for a 40-hour week because they must be on call all day. One driver stands by for after-hour
Management at Robo Weld Inc. has estimated that each quality control inspector should be able to make an average of 24 inspections per hour. Retired factory supervisors are excellent quality control inspectors because of their familiarity with the products and processes in the plant. Robo Weld
Cost control in the Human Resources Office of Eastern Wholesale is evaluated based on engineered cost concepts. The office incurs both variable and fixed costs. The variable costs are largely driven by the amount of employee turnover. For 2010, budgeted costs in the Human Resources Office
New England Automotive manufactures aftermarket automobile parts that are sold in a variety of outlets including auto parts stores and discount retailers. The following account data (in millions) have been taken from a recent balance sheet:Current Assets_______________________________Cash
You are employed by a firm engaging in heavy manufacturing.Its direct materials are sourced globally, but its nonoperating inputs are sourced from a variety of U.S. vendors. You have been charged with making a presentation to the CFO about the benefits of e-procurement for nonoperating inputs.
You have been assigned the task of projecting the cost of 2011 employee fringe benefits for your firm and have identified number of employees, total labor hours, and total labor cost as candidate independent variables for use in the estimation equation. Using historical data and ordinary least
Omaha Metal Products manufactures a variety of industrial products from stock metal components. The firm is engaged in its annual process of budgeting costs and revenues for the coming year. The cost of metal consumes approximately 50 percent of total revenues. Discuss which strategies for dealing
Johnson Consumer Electronics operates in an industry in which the demand for products is cyclical and often unpredictable.Discuss a strategy for dealing with uncertainty associated with the cycles that would be appropriate for Johnson Consumer Electronics to employ to maintain its profitability
Slydell Industries produces a variety of consumer goods including lamps, home office desks, and storage cabinets. Many products sold by the company are purchased disassembled, and then assembled by the customer. To assist the customer with assembly, Slydell provides a free hotline staffed 24 hours
The following graphic indicates where each part of the dollar that a student pays for a new college textbook goes:Where the New Textbook Dollar Goes*...Students are frustrated with the cost of their textbooks, but most publishers would say that the selling prices have merely kept pace with
Temporary or part-time employees may be used rather than full-time employees in each of the following situations:a. To teach undergraduate accounting courses at a university.b. To serve as security guards.c. To staff a health clinic in a rural area.d. To write articles for a monthly technical
The managers and partners [who] were interviewed listed reduced manpower costs as the major advantage for utilizing paraprofessionals [in CPA firms]. It seems that these savings were realized in a number of ways. First, there were significant savings in the salaries of paraprofessionals when
Sue and Jim Hansen are preparing their household financial budget for December. They have started with their November budget and are adjusting it to reflect the difference between November and December in planned activities.The Johnsons are expecting out-of-town guests for two weeks over the
Lucy Liu has been asked to monitor the efficiency and effectiveness of a newly installed machine. The specialized machine has been guaranteed by the manufacturer to package 2,000 engine gaskets per kilowatt hour (kWh).The rate of defects on production is estimated at 2 percent. The machine is
Top management of Capital Services observed that the budget for the EDP department had been growing far beyond what was anticipated for the past several years. Each year, the EDP manager would demonstrate that increased usage by the company's non-EDP departments would justify a larger
The founder and president of the Institute for Healthcare Improvement, Donald Berwick, is convinced that the U.S. health-care system can reduce costs by 30 percent while improving overall quality-just by getting health care professionals to adopt improvements others already have discovered.Many
Birmingham Chemical evaluates performance in part through the use of flexible budgets. The selling expense budgets at three activity levels within the relevant range follow.The following assumptions were used to develop the selling expense flexible budgets:The average size of the company's sales
Multinational firms domiciled in the United States do not have to pay U.S. income taxes on foreign earnings, unless those earnings are returned to the United States. Accordingly, the U.S. income tax system acts as a deterrent to firms to bring cash earned abroad back to the United States. In 2004,
As the economy entered the new millennium, Internet companies were competing head to head in many markets with established, traditional retailers for the consumer's dollar. In comparing the financial statements of "e-tailers" relative to traditional retailing firms such as Wal-Mart, one
Jose Martin founded a firm that manufactures innovative toys. Since its founding in 2000, the firm has experienced steady growth.However, in the past six months, the firm's products were featured on two major network television shows. As a result of that exposure, the demand for the firm's products
The financial results for the Business Education Department of Omega Educational Services Corporation for November 2010 are presented in the schedule at the end of this problem. Caroline Roper, president of Omega Educational Services, is pleased with the final results but has observed that the
Your employer, Lawson Brake Systems, implemented an e-procurement system last year for purchasing nonoperating inputs.The installation has been such a success that the firm is now considering using the same system to acquire operating inputs (e.g., direct material and product components).However,
As an accounting intern working for your local police department, you learn that the department is considering starting a citizen's police academy. In recent years, there have been events that have created friction between the police department and the citizens. The police academy is intended to
After reviewing financial results for 2010, Chicago Cannery's president sent the following e-mail to his CFO and controller, Willie Logan.Dear Willie:I'm disappointed in the financial results for the year just completed. As you know, profits were $2 million below budget. In comparing the actual
Wilson Ceramics manufactures holiday ornaments in its sole plant located in Wisconsin. Because the demand for the company's products is very seasonal, the company builds inventory throughout the first nine months of the year and draws down inventory the last three months of the year as demand in
What does the term relevance mean in the context of making management decisions?
How does the passage of time affect the set of costs that is relevant to a decision?
What are opportunity costs and why are they often the most difficult costs to analyze in decision making?
Describe sunk costs. Are there circumstances in which sunk costs are relevant to decisions? Discuss.
What is outsourcing? Why is the practice heatedly debated in the United States?
What is a scarce resource? Why is an organization's most scarce resource likely to change from time to time?
What is the objective of managing the sales mix of products? What are the major factors that influence sales mix?
What is a special order decision? Under what circumstances would a company refuse to accept a special order?
What is segment margin? How is segment margin used in the quantitative analysis of a decision to drop or keep a product line?
Under what circumstances is linear programming needed to analyze a scarce resource decision?
What is the objective function in a linear programming model? What are the two common types of objective functions?
Prior to the 2009 Super Bowl, a Phoenixarea retailer ordered 50,000 T-shirts that read: Arizona Cardinals-2009 Super Bowl Champs. The company paid $11.75 for each of the custom T-shirts. Following the loss of Arizona to the Pittsburgh Steelers, the retailer found itself with 15,000 unsold T-shirts
Because of a monumental error committed by its purchasing department, Corner Grocery ordered 5,000 heads of lettuce rather than the 1,000 that should have been ordered. The company paid $0.65 per head for the lettuce. Although management is confident that it can sell 2,000 units through regular
High Frequency manufactures and sells MP-3 players. Information on last year’s operations (sales and production of the 2010 model) follows.Sales price per unit ....... $70Costs per unitDirect material ......... $16Direct labor ........... 14Overhead (50% variable) ..... 12Selling costs (40%
Assume that you are about to graduate from your university and are deciding whether to apply for graduate school or enter the job market.To help make the decision, you have gathered the following data:Costs incurred for the bachelor’s degree ....... $163,000Out-of-pocket costs for a master’s
Your roommate, Jill Blalock, purchased a new portable DVD player just before this school term for $80. Shortly after the semester began, her new DVD player was crushed by an errant "flying plant" during a party at her apartment. Returning the equipment to the retailer, Blalock was informed that the
Certain production equipment used by Cincinnati Chemical has become obsolete relative to current technology. The company is considering whether it should keep or replace its existing equipment. To aid in this decision, the company€™s controller gathered the following data:a. Identify any
On April 1, 2010, Topeka Brake Mfg. purchased new computer-based production scheduling software for $480,000. On May 15, 2010, a representative of a computerized manufacturing technology company demonstrated new software that was clearly superior to that purchased by the firm in April. The price of
Fibre Technologies manufactures fiberglass housings for portable generators. One part of a housing is a metal latch. Currently, the company produces the 120,000 metal latch units required annually. Company management is considering purchasing the latch from an external vendor. The following data
Orlando Auto Accessories produces pickup truck bumpers that it sells on a wholesale basis to new car retailers. The average bumper sales price is $160. Normal annual sales volume is 300,000 units, which is the company’s maximum production capacity. At this capacity, the company’s per-unit costs
Pneu Shoe Company manufactures various types of athletic shoes.Several types require a built-in air pump. Presently, the company makes all air pumps it requires. However, management is evaluating an offer from Ram Air Co. to provide air pumps at a cost of $3.60 each. Pneu Shoe's management has
Michigan Mfg. makes electronic products. Because the employees of one of the company's plants are on strike, the Chicago plant is operating at peak capacity. It makes two electronic products: MP3 players and PDAs. Presently, the company can sell as many of each product as can be made, but making a
LaNora White received her accounting degree in 1992. Since graduating, she has obtained significant experience in a variety of job settings. Her skills include auditing, income and estate taxation, and business consulting.White currently has her own practice, and her skills are in such demand that
Pet Palace provides two types of services to dog owners: grooming and training. All company personnel can perform each service equally well. To expand sales and market share, Pet Palace's manager, Jim Jones, relies heavily on radio and billboard advertising, but the 2010 advertising budget is
One product produced and sold by Outback Outfitters is an ATV gun rack for which 2010 projections are as follows:Projected volume in units ......... 120,000Sales price per unit ............. $60Variable production cost per unit ...... $24Variable selling cost per unit
Cellular Communications manufactures cell phones and two cell phone accessories: ear buds and a 12-volt (automotive) battery charger. (Each ear bud package contains a set of ear buds.) The ear buds and charger are compatible only with the Matrix cell phone. Sales prices and variable costs for each
Wisconsin Metal Co. produces 12.5-gauge barbed wire that is retailed through farm supply companies. Presently, the company has the capacity to produce 100,000 tons of wire per year. It is operating at 80 percent of annual capacity and, at this level of operations the cost per ton of wire is as
For The Ages Inc. produces solid-oak umbrella stands. Each stand is handmade and hand finished using the finest materials available. The firm has been operating at capacity (2,000 stands per year) for the past three years. Based on this capacity of operations, the firm’s costs per stand are as
Operations of Borderland Oil Drilling Services are separated into two geographical divisions: United States and Mexico. The operating results of each division for 2010 are as follows:Corporate fixed costs are allocated to the divisions based on relative sales. Assume that all of a division's direct
Lakeland Financial Services provides outsourcing services for three areas: payroll, general ledger (GL), and tax compliance. The company is currently contemplating the elimination of the GL area because it is showing a pre-tax loss. An annual income statement follows.a. Should corporate management
New York Fabrics makes three clothing items: pants, shorts, and shirts. Contribution margins for the products are $4.25, $4.05, and $2.70 per unit, respectively. The company's manager must decide what mix of clothes to make. New York Fabrics has 800 labor hours and 4,000 yards of material
Ludmilla Sanches is a college student with a food budget of $250 per month. She wants to get a certain level of nutritional benefits from the food she buys. The following table lists the foods she can buy with the nutritional information per serving.Write the objective function and constraints to
Janet Cosgrove is the manager of Saratoga Sporting Goods, a division of Global Sports. Cosgrove’s division sells a variety of sporting goods and supplies to wholesalers and retail chains throughout the Pacific Northwest and Latin America. Saratoga Sporting Goods has a single manufacturing
Arizona Mechanical recently created a new product, a computer-controlled, laser-precise lathe, and Ohio Ornamental Metals is considering purchasing one. Ohio's CFO received the following information from the accounting department regarding the company's existing lathe and the new Arizona Mechanical
Missouri River Energy Company provides electrical services to several rural counties in Nebraska and South Dakota. Its efficiency has been greatly affected by changes in technology. The company is currently considering the replacement of its main steam turbine, which was put in place in the 1980s
Tate Electronics manufactures computers and all required components. Its purchasing agent informed the company owner, Mervin Tate, that another the company had offered to supply keyboards for Tate computers at prices below the variable costs at which Tate can make them. Incredulous, Tate hired an
Louisiana Luggage Components manufactures handles for suitcases and other luggage. Attaching each handle to the luggage requires, depending on the size of the luggage piece, between two and six standard fasteners, which the company has historically produced. The costs to produce one fastener (based
Structural Steel Systems manufactures steel buildings for agricultural and home applications. Currently, managers are trying to decide between two alternatives regarding a major overhead door assembly for the company's buildings. The alternatives are as follows:• Purchase new equipment with a
The officers of Bardwell Company are reviewing the profitability of the company's four products and the potential effects of several proposals for varying the product mix. The following is an excerpt from the income statement and other data.Each of the following proposals is to be considered
Riedel Motors uses ten units of Part No. T305 each month in the production of large diesel engines. The cost to manufacture one unit of T305 is presented below:Direct material ...................$ 2,000Material handling (20% of direct materials) ......... 400Direct labor ....................
Garrity Manufacturing has assembled the data appearing below pertaining to two products. Past experience has shown that the unavoidable fixed factory overhead included in the cost per machine hour averages $10. Direct labor is paid $18 per hour. Garrity has a policy of filling all sales orders,
Kantrovitz Company is a manufacturer of industrial components. One of its products that is used as a subcomponent in appliance manufacturing is AP110. This product has the following information per unit:Selling price .............$150Costs:Direct material ............ $20Direct labor .............
In November 2005, Microsoft introduced its highly anticipated new video game player, the Xbox 360.In early July 2007, Microsoft announced it was extending the warranty on its Xbox 360 to three years for a certain type of malfunction indicated by three flashing red lights on the game console. The
Leather Accessories produces leather belts and key fobs that sell for $40 and $10, respectively. The company currently sells 100,000 units of each type with the following operating results:Corporate management has expressed its disappointment with the income being generated from the sales of these
San Fran Cycles manually manufactures three unique bicycle models: racing, touring, and basic. All of the skilled craftspeople employed at San Fran can make each of the three models. Because it takes about a year to train each craftsperson, labor is a fixed production constraint over the short
Layton Ironworks manufactures a variety of industrial valves and pipe fittings sold primarily to customers in the United States. Currently, the company is operating at 70 percent of capacity and is earning a satisfactory return on investment.Prince Industries Ltd. of Scotland has approached
Gilfeather Food Service sells high-quality ice cream and steaks via overnight delivery. Income statements showing revenues and costs of fiscal year 2010 for each product line are as follows.Management is concerned about profitability of steaks and is considering dropping the line and estimates that
You have been hired to assist the management of Great Bend Office Systems in resolving certain issues. The company has its home office in Montana and leases facilities in Montana, Idaho, and North Dakota, where it produces a high-quality bean bag chair designed for residential use. Great Bend
Louisville Jar Co. has processing plants in Kentucky and Pennsylvania. Both plants use recycled glass to produce jars that a variety of food processors use in food canning. The jars sell for $10 per hundred units. Budgeted revenues and costs for the year ending December 31, 2011, in thousands of
Classic Clothes is a retail organization in the Northeast that sells upscale clothing. Each year, store managers in consultation with their supervisors establish financial goals, and then a monthly reporting system captures actual performance.One of the firm's sales districts, District A, has three
Clean-N-Brite is a multiproduct company with several manufacturing plants. The Cincinnati plant manufactures and distributes two household cleaning and polishing compounds, regular and heavy-duty, under the HouseSafe label. The forecasted operating results for the first six months of 2011, when
Upstate Leisure makes three outdoor leisure products: chairs, tables, and umbrellas. The company has significant demand for all three products but must manage certain constraints in its operations. Following are sales price and cost information for each product.The company faces machine time and
Why should all levels of management and all departments participate in preparing and submitting budget estimates?
At the beginning of the period, the Assembly Department budgeted direct labor of $110,500 and property taxes of $50,000 for 8,500 hours of production. The department actually completed 10,000 hours of production. Determine the budget for the department, assuming that it uses flexible budgeting.
At the beginning of the period, the Fabricating Department budgeted direct labor of $18,400 and equipment depreciation of $14,000 for 800 hours of production. The department actually completed 700 hours of production. Determine the budget for the department, assuming that it uses flexible budgeting.
OnTime Publishers Inc. projected sales of 220,000 schedule planners for 2008. The estimated January 1, 2008, inventory is 15,000 units, and the desired December 31, 2008, inventory is 11,000 units. What is the budgeted production (in units) for 2008?
New England Candle Co. projected sales of 95,000 candles for 2008. The estimated January 1, 2008, inventory is 2,400 units, and the desired December 31, 2008, inventory is 3,000 units. What is the budgeted production (in units) for 2008?
OnTime Publishers Inc. budgeted production of 216,000 schedule planners in 2008. Paper is required to produce a planner. Assume 90 square feet of paper are required for each planner. The estimated January 1, 2008, paper inventory is 100,000 square feet. The desired December 31, 2008, paper
New England Candle, Co. budgeted production of 95,600 candles in 2008. Wax is required to produce a candle. Assume 8 ounces (one half of a pound) of wax is required for each candle. The estimated January 1, 2008, wax inventory is 1,400 pounds. The desired December 31, 2008, wax inventory is 1,100
OnTime Publishers Inc. budgeted production of 216,000 schedule planners in 2008. Each planner requires assembly. Assume that 15 minutes are required to assemble each planner. If assembly labor costs $12.50 per hour, determine the direct labor cost budget for 2008.
New England Candle Co. budgeted production of 95,600 candles in 2008. Each candle requires molding. Assume that 12 minutes are required to mold each candle. If molding labor costs $14.00 per hour, determine the direct labor cost budget for 2008.
Prepare a cost of goods sold budget for OnTime Publishers Inc. using the information in Practice Exercises 22-3A and 22-4A. Assume the estimated inventories on January 1, 2008, for finished goods and work in process were $43,000 and $22,000, respectively. Also assume the desired inventories on
Prepare a cost of goods sold budget for New England Candle Co. using the information in Practice Exercises 22-3B and 22-4B. Assume the estimated inventories on January 1, 2008, for finished goods and work in process were $14,000 and $6,300, respectively. Also assume the desired inventories on

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