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cost accounting

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

For each of the following cases, compute the missingamounts.
In a manufacturing company, overhead allocations are made for three reasons: (1) to determine the full cost of a product; (2) to encourage efficient resource usage; and (3) to compare alternative courses of action for management purposes.a. Why must overhead be considered a product cost under
August 2010 inventory and cost data for Petersham Company are as follows:Direct labor .................$182,400Direct material purchased ............. 196,300Direct material used .................... 195,800Selling and administrative expenses ........ 171,200Factory overhead ...............
Flex-Em began business in July 2010. The firm makes an exercise machine for home and gym use. Following are data taken from the firm’s accounting records that pertain to its first month of operations.Direct material purchased on account .......$900,000Direct material issued to production ........
On August 1, 2010, Sietens Corporation had the following account balances:Raw Material Inventory (both direct and indirect) .... $72,000Work in Process Inventory ............. 108,000Finished Goods Inventory .............. 24,000During August, the following transactions took place.1. Raw material
Rapid Response Manufacturing Company suffered major losses in a fire on June 18, 2010. In addition to destroying several buildings, the blaze destroyed the company’s Work in Process Inventory for an entire product line. Fortunately, the company was insured; however, it needs to substantiate the
What is the difference between variable and mixed costs, considering that both change in total with changes in activity levels?
The high–low method of analyzing mixed costs uses only two observation points: the high and the low points of activity. Are these always the best points for prediction purposes? Why or why not?
Discuss the reasons a company would use a predetermined overhead rate rather than actual overhead to determine cost of products or services.
Why are departmental predetermined OH rates more useful for managerial decision making than plantwide OH rates? Why do firms use separate variable and fixed rates rather than total rates?
Why would regression analysis provide a more accurate cost formula than the high– low method for a mixed cost?
How does absorption costing differ from variable costing in cost accumulation and income statement presentation?
What is meant by classifying costs (a) functionally and (b) behaviorally? Why would a company be concerned about functional and behavioral classifications?
Is variable or absorption costing generally required for external reporting? Why is this method preferred to the alternative?
Why does variable costing provide more useful information than absorption costing for making internal decisions?
What are the income relationships between absorption and variable costing when production volume differs from sales volume? What causes these relationships to occur?
Lansing Mfg. prepared the following 2010 abbreviated flexible budget for different levels of machine hours:Each product requires 4 hours of machine time, and the company expects to produce 10,000 units in 2010. Production is expected to be evenly distributed throughout the year.a. Calculate
Use the information in Exercise 11 and assume that Lansing Mfg. has decided to use units of production to apply overhead to production. In April 2010, the company produced 875 units and incurred $7,500 and $26,500 of variable and fixed overhead, respectively.a. What amount of variable manufacturing
For 2010, Omaha Mechanical has a monthly overhead cost formula of $42,900 + $6 per direct labor hour. The firm’s 2010 expected annual capacity is 78,000 direct labor hours, to be incurred evenly each month. Making one unit of the company’s product requires 1.5 direct labor hours.a. Determine
Langston Automotive Accessories applies overhead using a combined rate for fixed and variable overhead. The rate is 250 percent of direct labor cost. During the first three months of the current year, actual costs incurred were as follows:a. What amount of overhead was applied to production in each
Roddickton Manufacturing Co. has gathered the following information to develop predetermined OH rates for 2010. The company produces a wide variety of energy-saving products that are processed through two departments, Assembly (automated) and Finishing (labor intensive). Budgeted total overhead:
At the end of 2010, Jackson Tank Company’s accounts showed a $66,000 credit balance in Manufacturing Overhead Control. In addition, the company had the following account balances:Work in Process Inventory .........$384,000Finished Goods Inventory .......... 96,000Cost of Goods Sold .............
Davidson's Dolls had the following information in its Work in Process Inventory account for June 2010:All workers are paid the same rate per hour. Factory overhead is applied to Work in Process Inventory on the basis of direct labor hours. The only work left in process at the end of the month had a
At year-end 2010, Dub's Wind Generator Co. had a $40,000 debit balance in its Manufacturing Overhead Control account. Overhead is applied to products based on direct labor cost. Relevant account balance information at year-end follows:a. What predetermined OH rate was used during the year?b.
For 2010, Milltown Iron Manufacturing has estimated its production capacities as follows:Theoretical capacity .........400,000 unitsPractical capacity ..........300,000 unitsNormal capacity .................260,000 unitsExpected capacity ...........200,000 unitsMilltown is trying to choose which
Alberton Electronics makes inexpensive GPS navigation devices and uses a normal cost system that applies overhead based on machine hours. The following 2010 budgeted data are available:Variable factory overhead at 100,000 machine hours......... $1,250,000Variable factory overhead at 150,000 machine
Information about Indiana Industrial's utility cost for the last six months of 2010 follows. The highâ€“low method will be used to develop a cost formula to predict 2011 utility charges, and the number of machine hours has been found to be an appropriate cost driver. Data for the first half of
Wyoming Wholesale has gathered the following data on the number of shipments received and the cost of receiving reports for the first seven weeks of 2010.Number of Weekly Cost ofShipments Received Receiving Reports50 ......... $17544 ......... 16240 ......... 15435 ......... 14253
La Mia’s Casas builds replicas of residences of famous and infamous people. The company is highly automated, and the new accountant-owner has decided to use machine hours as the basis for predicting maintenance costs. The following data are available from the company’s most recent eight months
Refer to the information in Exercise 22 for Wyoming Wholesale.a. Using the least squares method, develop the equation for predicting weekly receiving report costs based on the number of shipments received.b. What is the predicted amount of receiving report costs for a month (assume a month is
UpTop Mining has compiled the following data to analyze utility costs:Use the least squares method to develop a formula for budgeting utilitycost.
Tijuana Tile has gathered the following information on its utility costs for the past six months.Machine Hours Utility Cost1,300 ......$ 9401,700 ......1,0751,250 ....... 9001,800 ......1,1321,900 ......1,1601,500 ...... 990a. Using the high–low method, determine the cost formula for utility
The Sioux City Storage System's plant prepared the following flexible overhead budget for three levels of activity within the plant's relevant range.After discussion with the home office, the plant managers planned to produce 16,000 units of its single product during 2010. However, demand for the
Tom’s Shoe Repair provides a variety of shoe and repair services. Analysis of monthly costs revealed the following cost formulas when direct labor hours are used as the basis of cost determination:Supplies: y = $0 + $4.00XProduction supervision and direct labor: y = $500 + $7.00XUtilities: y =
Pete’s Plant Stands manufactures wooden stands used by plant nurseries. In May 2010, the company manufactured 18,000 and sold 16,560 stands. The cost per unit for the 18,000 stands produced was as follows:Direct material ......... $ 9.00Direct labor ......... 6.00Variable overhead ........
Reese’s Tot Toy Boxes uses variable costing to manage its internal operations. The following data relate to the company’s first year of operation, when 25,000 units were produced and 21,000 units were sold.Variable costs per unitDirect material ............. $50Direct labor ............
Ollie’s Olive Oil began business in 2010, during which it produced 104,000 quarts of olive oil. In 2010, the company sold 100,000 quarts of olive oil. Costs incurred during the year were as follows:Ingredients used .............$228,800Direct labor ............... 104,000Variable overhead
Tennessee Tack manufactures horse blankets. In 2010, fixed overhead was applied to products at the rate of $8 per unit. Variable cost per unit remained constant throughout the year. In July 2010, income under variable costing was $188,000. July’s beginning and ending inventories were 20,000 and
The April 2010 income statement for Fabio's Fashions has just been received by Diana Caffrey, Vice-President of Marketing. The firm uses a variable costing system for internal reporting purposes.The following notes were attached to the statements:â€¢ Unit sales price for April averaged
Porta Light manufactures a high-quality LED flashlight for home/office use. Data pertaining to the company’s 2010 operations are as follows:Production for the year ................45,000 unitsSales for the year (sales price per unit, $8) ..........48,750 unitsBeginning 2010 inventory
Because your professor is scheduled to address a national professional meeting at the time your class ordinarily meets, the class has been divided into teams to discuss selected issues. Your team’s assignment is to prepare a report arguing whether fixed manufacturing overhead should be included
Last June, Lacy Dalton had just been appointed CFO of Garland & Wreath when she received some interesting reports about the profitability of the company€™s three most important product lines. One of the products, GW1, was produced in a very labor-intensive production process; another
Sunny Systems manufactures solar panels. The company has a theoretical capacity of 50,000 units annually. Practical capacity is 80 percent of theoretical capacity, and normal capacity is 80 percent of practical capacity. The firm is expecting to produce 30,000 units next year. The company
Battle Creek Storage Systems budgeted the following factory overhead costs for the upcoming year to help calculate variable and fixed predetermined overhead rates.Indirect material: $2.50 per unit producedIndirect labor: $3.00 per unit producedFactory utilities: $3,000 plus $0.02 per unit
Idaho Mechanical Systems has two departments: Fabrication and Finishing. Three workers oversee the 25 machines in Fabrication. Finishing uses 35 crafters to hand-polish output, which is then run through buffing machines. Product CG9832-09 uses the following amounts of direct labor and machine time
Red River Farm Machine makes a wide variety of products, all of which must be processed in the Cutting and Assembly departments. For the year 2010, Red River budgeted total overhead of $993,000, of which $385,500 will be incurred in Cutting and the remainder will be incurred in Assembly. Budgeted
Grand Island Brake Co. budgeted the following variable and fixed overhead costs for 2010:Variable indirect labor ....... $100,000Variable indirect materials ......... 20,000Variable utilities ........... 80,000Variable portion of other mixed costs .. 120,000Fixed machinery depreciation ......
Wisconsin Dairy determined that the total predetermined OH rate for costing purposes is $26.80 per cow per day (referred to as an animal day). Of this, $25.20 is the variable portion. Overhead cost information for two levels of activity within the relevant range are as follows:a. Determine the
Green Shade manufactures insulated windows. The firm's repair and maintenance (R&M) cost is mixed and varies most directly with machine hours worked. The following data have been gathered from recent operations:a. Use the highâ€“low method to estimate a cost formula for repairs and
Bon Voyage provides charter cruises in the eastern Caribbean. Tina Louise, the owner, wants to understand how her labor costs change per month. She recognizes that the cost is neither strictly fixed nor strictly variable. She has gathered the following information and has identified two potential
Joe’s Lawn Care Service primarily mows lawns for residential customers. Management has determined direct labor hours is the primary cost driver and has developed the following cost equations based on direct labor hours:Grooming supplies (variable) y = $0 + $4.00XDirect labor (variable) y = $0 +
The Splash makes large fiberglass swimming pools and uses machine hours and direct labor hours to apply overhead in the Production and Installation departments, respectively. The monthly cost formula for overhead in Production is y = $7,950 + $4.05 MH; the overhead cost formula in Installation is y
Tom Snider is a staff accountant for BigBiz. Snider was recently given the task of developing a monthly flexible budget formula for several manufacturing costs. He was told that his equations would be used as an aid in developing future budgets for these manufacturing costs and he was told to put
Georgia Shacks produces small outdoor buildings. The company began operations in 2010, producing 2,000 buildings and selling 1,500. A variable costing income statement for 2010 follows. During the year, variable production costs per unit were $800 for direct material, $300 for direct labor, and
Bird's Eye View manufactures satellite dishes used in residential and commercial installations for satellite-broadcasted television. For each unit, the following costs apply: $50 for direct material, $100 for direct labor, and $60 for variable overhead. The company's annual fixed overhead cost is
Since opening in 2009, Akron Aviation has built light aircraft engines and has gained a reputation for reliable and quality products. Factory overhead is applied to production using direct labor hours and any underapplied or overapplied overhead is closed at year-end to Cost of Goods Sold. The
Prior to the start of fiscal 2010, managers of MultiTech hosted a Web conference for their shareholders, financial analysts, and members of the financial press. During the conference, the CEO and CFO released the following financial projections for 2010 to the attendees (amounts in millions):Sales
Tomm's T's is a New Yorkâ€“based company that produces and sells t-shirts. The firm uses variable costing for internal purposes and absorption costing for external purposes. At year-end, financial information must be converted from variable costing to absorption costing to satisfy external
How does budgeting provide important information to managers and operating personnel?
How does the strategic plan influence preparation of the master budget?
Distinguish between a strategic plan and a tactical plan. How are these plans related?
After a master budget has been prepared, what is its role in managerial control?
Differentiate between the operating and financial budgets that are contained in a master budget. Why are both types needed?
Discuss the sequence in which the major components of the master budget are prepared. Why is it necessary to prepare the components in such a sequence?
Why is a firm’s production budget influenced by the finished goods inventory policy?
Assume that in preparing the cash budget, the accountant discovers that a cash shortage will likely occur in a specific month. What actions might the accountant recommend to management to deal with the cash shortage?
The cash budget and the budgeted statement of cash flows both provide information about cash. What information about cash is common to these two sources, and what information is unique to the two sources?
Why is continuous (rolling) budgeting becoming more popular than it was in the past for organizational managers?
If the majority of companies find that their forecasts are inaccurate, why should managers engage in budgeting at all?
What is budgetary slack, and what might top managers do to rid their firms’ budgets of slack?
Why is it helpful for a company to prepare a budget manual?
Before a budget can be prepared, company management considers “what if” changes that might occur during the forecast period. Prepare a list of five possible questions about changes that you might want to consider if you were a manager in aa. Global manufacturing company.b. Local retailer.
When engaging in strategic planning, company management often prepares a SWOT analysis. What is a SWOT analysis and why is it useful in the planning process?
People, as well as businesses, need to budget. Assume that you and your spouse are having difficulties living within your combined incomes. Prepare a list of at least 10 recommendations on how to “do things differently” to help manage your finances.
High-level executives have often indicated that competitors’ actions are the top external factor affecting their businesses and their business plans.a. Why are competitors’ actions so important to business planning?b. How would competitors’ actions affect a business’s internal planning?c.
In 2010, Grand Falls Bank (GFB) had $4,000,000 in business loans at an average interest rate of 3.5 percent as well as $3,200,000 in consumer loans with an average rate of 8 percent. GFB also has $750,000 invested in government securities that pay interest at an average rate of 2.5 percent.For
Pataky Co.'s sales manager estimates that 2,000,000 units of product RI#698 will be sold in 2011. The product's selling price is expected to decline as the result of technology changes during the year and estimates of the sales price are as follows:In talking with customers, the sales department
Seguin Inc. has the following projected unit sales for the first four months of 2011:January .........102,400February ....... 96,000March ........128,000April ..........153,600Company policy is to have an ending monthly inventory equal to 5 percent of next month’s estimated sales; however, this
Nafari Company’s sales budget has the following unit sales projections for each quarter of calendar year 2011:January–March ..........1,080,000April–June ...........1,360,000July–September ......... 980,000October–December .........1,100,000Total ..............4,520,000Sales for the first
Gerrad Manufacturing has projected sales of its product for the next six months as follows:January ........ 300 unitsFebruary ......... 700 unitsMarch .........1,000 unitsApril ......... 900 unitsMay .......... 400 unitsJune .......... 300 unitsThe finished product requires 3 pounds of raw material
Gap’O has projected sales of 325,000 hospital gowns in October. Each gown requires 2.5 yards of fabric. The beginning inventory of fabric and gowns, respectively, are 5,000 yards and 21,000 gowns. Gap’O wants to have 4,550 yards of fabric and 15,800 gowns on hand at the end of October. The
Hard Core had budgeted sales of 190,000 feet of its concrete culvert products for June 2010. Each foot of product requires 4 pounds of concrete ($0.10 per pound) and 7.5 pounds of gravel ($0.04 per pound). Actual beginning inventories and projected ending inventories follow.a. How many pounds of
Goldstein Inc. manufactures and sells plastic boxes and trays. Sales are projected to be evenly spread over the annual period. Estimated product sales and material needs for each unit of product follow.Overhead is applied at a rate of $1.60 per direct labor hour.Material A costs $0.05 per pound,
Grenfell Company is preparing a cash budge for 2010 for purchases of Calvos. Budgeted data are as follows:Cost of goods sold for the year 2010 ......... $600,000Accounts payable, 1/1/10 .............. 40,000Inventory, 1/1/10 ................. 60,000Desired inventory, 12/31/10 .............
The treasurer of Homeyra Corp. needs to estimate cash collections from accounts receivable for September, October, and November 2011. Forty percent of the company’s customers pay in cash and the rest are credit customers. The collection pattern for the credit customers is 20 percent in the month
Ridenour Ltd. is preparing its first-quarter monthly cash budget for 2011. The following information is available about actual 2010 sales and expected 2011 sales:Tracing collections from prior year monthly sales and discussions with the credit manager helped develop a profile of collection
Miriam Irby is president of MI Corp. Irby has decided to take a month’s vacation with her family to South Africa, Zimbabwe, and Angola. Irby has researched the trip and determined that the total cost of the trip for her family will be approximately $50,000—she wants to go first-class on
Total June 2010 sales for Roy’s Catering are expected to be $450,000. Of each month’s sales, 80 percent is expected to be on credit. The Accounts Receivable balance at May 31 is $119,600; of which $90,000 represents the remainder of May credit sales. There are no receivables from months prior
The October 1, 2010, Accounts Receivable balance for Darin Landscaping is $632,500. Of that balance, $480,000 represents remaining accounts receivable from September billings. The normal collection pattern for the firm is 20 percent of billings in the month of service, 55 percent in the month
Campbell Manufacturing intends to start business on January 1, 2011. Production plans for the first four months of operations are as follows:January .....20,000 unitsFebruary ....50,000 unitsMarch .....70,000 unitsApril ......70,000 unitsEach unit requires 2 pounds of material. The firm would like
The following budgeted May 2010 cash information is available for Salado Corp.:Net after-tax income ............. $336,000Depreciation expense ............ 56,200Accrued income tax expense ............... 82,000Increase in Accounts Receivable for month .... 8,000Decrease in Accounts
The following budgeted information about Reeves Co. is available for September 2010:Sales for September ..................... $2,700,000Gross profit on sales .................... 40%Decrease in Merchandise Inventory during September ........ $43,750Wages expense for September
The following cash budget is for the third quarter of 2011. Solve for the missing numbers on the cash budget, assuming that the accountant has requested a minimum cash balance of $7,000 at the start of each month. All borrowings, repayments, and investments are made in even $1,000 amounts. No
Compute the required answer for each of the following independent situations.a. For next year, Penny Suits projects $8,000,000 of sales and total fixed manufacturing costs of $2,000,000. Variable manufacturing costs are estimated at 65 percent of sales. Assuming no change in inventory, what is the
Last year€™s income statement for Cooper Company is as follows:This year, unit sales are expected to increase by 25 percent; material and labor costs are expected to increase by 10 percent per unit. Overhead is applied to production based on a percentage of direct labor costs. Fixed
The operating results in summarized form for a retail computer store for 2010 are:Revenue:Hardware sales ...........$4,800,000Software sales ........... 2,000,000Maintenance contracts ........ 1,200,000Total revenue ............$8,000,000Costs and expenses:Cost of hardware sales
In preparing its budget for July, Wade Inc. has the following information available:Accounts Receivable at June 30 ...................$750,000Estimated credit sales for July .................... 900,000Estimated collections in July for credit sales in July and prior months ..... 660,000Estimated
The following budget information is available for Sluyter Corp. for May 2011:• Sales are expected to be $400,000. All sales are on account, and a provision for bad debts is accrued monthly at 3 percent of sales.• Inventory was $35,000 on April 30 and an increase of $10,000 is planned for
Alyssa Co. is planning to purchase a new piece of production equipment. The equipment will increase fixed overhead by $700,000 per year in depreciation but reduce variable expenses per unit by 20 percent. Budgeted 2011 sales of the company’s products are 240,000 units at an average selling price
Many managers believe that if all amounts in their spending budgets are not spent during a period, they will lose allocations in future periods and that they will receive little or no recognition for the cost savings. Prepare an essay that discusses the behavioral and ethical issues involved in a

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