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Discuss the major issues in implementing BI.
Discuss the major issues in implementing BI.
What is BI governance?
What is intelligence gathering?
Describe the major types of BI users.
List some of the implementation topics addressed by Gartner's report.
List some other success factors of BI.
What is descriptive analytics? What are the various tools that are employed in descriptive analytics?
What is OLAP and how does it differ from OLTP?
List the alternative data warehousing architectures discussed in this section.
Why is the ETL process so important for data warehousing efforts?
Who is Edward Tufte? Why do you think we should know about his work?
What is the meaning of and motivation for balance in BSC?
Why should retailers, especially omni-channel retailers, pay extra attention to advanced analytics and data mining?
What are the sources of data that retailers such as Cabela's use for their data mining projects?
What do you think is the most prominent application area for data mining? Why?
What are some of the criteria for comparing and selecting the best classification technique?
What is social media analytics? What are the reasons behind its increasing popularity?
How can you measure the impact of social media analytics?
What are the most popular application areas for sentiment analysis? Why?
How does NLP relate to text mining?
What is the reason for normalizing word frequencies? What are the common methods for normalizing word frequencies?
What are the most popular application areas for sentiment analysis? Why?
What are some of the main challenges the Web poses for knowledge discovery?
What are the three types of data generated through Web page visits?
What is clickstream analysis? What is it used for?
What are the critical success factors for Big Data analytics?
What is meant by dynamic segmentation?
1. How can location-based analytics help retailers in targeting customers?
2. Research similar applications of location-based analytics in the retail domain.
1. Search online for other applications of consumer-oriented analytical applications.
2. How can location-based analytics help individual consumers?
3. How can smartphone data be used to predict medical conditions?
4. How is ParkPGH different from a "parking space-reporting" app?
How can one move from a technology provider cluster to a user cluster?
Define Web 2.0.
Describe the impacts of ADS systems.
Management accountants need a wide variety of skills for their roles in organizations. These skills can be classified as either technical or nontechnical.
Requirement
For each of the following skills, indicate whether it is a technical competency or a nontechnical competency for a management accountant.
a. Planning, budgeting, and forecasting
b. Leadership
c. Financial statement analysis
d. Adaptability
e. Strategic thinking
f. Change management
g. Investment decision making
h. Cost management
i. Technology
j. Internal financial reporting
k. Collaboration
l. Process improvement
m. Performance management
n. Customer service
o. Enterprise risk management
p. Decision analysis
q. Communication
r. Ethics
s. Internal controls
t. Business acumen
Management accountants need a wide variety of skills for their roles in organizations. These skills can be classified as either technical or nontechnical.
Requirement
For each of the following skills, indicate whether it is a technical competency or a nontechnical competency for a management accountant.
a. Planning, budgeting, and forecasting
b. Leadership
c. Financial statement analysis
d. Adaptability
e. Strategic thinking
f. Change management
g. Investment decision making
h. Cost management
i. Technology
j. Internal financial reporting
k. Collaboration
l. Process improvement
m. Performance management
n. Customer service
o. Enterprise risk management
p. Decision analysis
q. Communication
r. Ethics
s. Internal controls
t. Business acumen
As CEO of Aqua Marine, Carrie Easton knows it is important to control costs and to respond quickly to changes in the highly competitive boat-building industry. When Rose Consulting proposes that Aqua Marine invest in an ERP system, she forms a team to evaluate the proposal: the plant engineer, the plant foreman, the systems specialist, the human resources director, the marketing director, and the management accountant. A month later, management accountant Mark Cole reports that the team and Rose estimate that if Aqua Marine implements the ERP system, it will incur the following costs:
a. $435,000 in software costs
b. $95,000 to customize the ERP software and load Aqua Marine's data into the new ERP system
c. $105,000 for employee training
The team estimates that the ERP system should provide several benefits:
a. More efficient order processing should lead to savings of $105,000.
b. Streamlining the manufacturing process so that it maps into the ERP system will create savings of $125,000.
c. Integrating purchasing, production, marketing, and distribution into a single system will allow Aqua Marine to reduce inventories, saving $225,000.
d. Higher customer satisfaction should increase sales, which, in turn, should increase profits by $155,000.
Requirements
1. If the ERP installation succeeds, what is the dollar amount of the benefits?
2. Should Aqua Marine install the ERP system? Why or why not? Show your calculations.
3. Why did Easton create a team to evaluate Rose's proposal? Consider each piece of cost-benefit information that management accountant Cole reported. Which person on the team is most likely to have contributed each item?
Ferguson Gas wants to move its sales order system online. Under the proposed system, gas stations and other merchants will use a secure site to check the availability and current price of various products and place an order. Currently, customer service representatives take dealers' orders over the phone; they record the information on a paper form, then manually enter it into the firm's computer system.
CFO Stacey Wilson believes that dealers will not adopt the new online system unless Ferguson Gas provides financial assistance to help them purchase or upgrade their computer systems. Wilson estimates this one-time cost at $760,000. Ferguson Gas will also have to invest $160,000 in upgrading its own computer hardware. The cost of the software and the consulting fee for installing the system will be $220,000. The online system will enable Ferguson Gas to eliminate 25 clerical positions. Wilson estimates that the benefits of the new system's lower labor costs will have saved the company $1,340,000.
Requirement
Use a cost-benefit analysis to recommend to Wilson whether Ferguson Gas should proceed with the online ordering system. Give your reasons, showing supporting calculations.
Wilson revises her estimates of the benefits from the new system's lower labor costs as calculated in P1-28A. She now thinks the savings will be only $935,000.
Requirements
1. Compute the expected benefits of the online ordering system.
2. Would you recommend that Ferguson Gas accept the proposal?
3. Before Wilson makes a final decision, what other factors should she consider?
Maria Dees is the new controller for Harmony Tennis, a designer and manufacturer of tennis attire. Shortly before the December 31 fiscal year-end, Harmony Sapp (the company president) asks Dees how things look for the year-end numbers. Sapp is not happy to learn that earnings growth may be below 10% for the first time in the company's five-year history. Sapp explains that financial analysts have again predicted a 12% earnings growth for the company and that she does not intend to disappoint them. She suggests that Dees talk to the assistant controller, who can explain how the previous controller dealt with this situation. The assistant controller suggests the following strategies:
a. Postpone planned advertising expenditures from December to January.
b. Do not record sales returns and allowances on the basis that they are individually immaterial.
c. Persuade retail customers to accelerate January orders to December.
d. Reduce the allowance for bad debts (and bad debts expense).
e. Harmony Tennis ships finished goods to public warehouses across the country for temporary storage until it receives firm orders from customers. As Harmony Tennis receives orders, it directs the warehouse to ship the goods to nearby customers. The assistant controller suggests recording goods sent to the public warehouses as sales.
Requirement
Which of these suggested strategies are inconsistent with IMA standards? What should Dees do if Sapp insists that she follow all of these suggestions?
As CEO of Riverside Marine, Rachel Moore knows it is important to control costs and to respond quickly to changes in the highly competitive boat-building industry. When Gerbig Consulting proposes that Riverside Marine invest in an ERP system, she forms a team to evaluate the proposal: the plant engineer, the plant foreman, the systems specialist, the human resources director, the marketing director, and the management accountant. A month later, management accountant Miles Cobalt reports that the team and Gerbig estimate that if Riverside Marine implements the ERP system, it will incur the following costs:
a. $390,000 in software costs
b. $85,000 to customize the ERP software and load Riverside Marine's data into the new ERP system
c. $112,000 for employee training
The team estimates that the ERP system should provide several benefits:
a. More efficient order processing should lead to savings of $185,000.
b. Streamlining the manufacturing process so that it maps into the ERP system will create savings of $255,000.
c. Integrating purchasing, production, marketing, and distribution into a single system will allow Riverside Marine to reduce inventories, saving $215,000.
d. Higher customer satisfaction should increase sales, which, in turn, should increase profits by $150,000.
Requirements
1. If the ERP installation succeeds, what is the dollar amount of the benefits?
2. Should Riverside Marine install the ERP system? Why or why not? Show your calculations.
3. Why did Moore create a team to evaluate Gerbig's proposal? Consider each piece of cost-benefit information that management accountant Cobalt reported. Which person on the team is most likely to have contributed each item?
Union Gas wants to move its sales order system online. Under the proposed system, gas stations and other merchants will use a secure site to check the availability and current price of various products and place an order. Currently, customer service representatives take dealers' orders over the phone; they record the information on a paper form, then manually enter it into the firm's computer system.
CFO Kate Bronson believes that dealers will not adopt the new online system unless Union Gas provides financial assistance to help them purchase or upgrade their computer network. Bronson estimates this one-time cost at $765,000. Union Gas will also have to invest $150,000 in upgrading its own computer hardware. The cost of the software and the consulting fee for installing the system will be $240,000. The online system will enable Union Gas to eliminate 25 clerical positions. Bronson estimates that the new system's lower labor costs will have saved the company $1,370,000.
Requirement
Use a cost-benefit analysis to recommend to Bronson whether Union Gas should proceed with the online ordering system. Give your reasons, showing supporting calculations.
Consider the Union Gas proposed entry into the online ordering system in P1-33B. Bronson revises her estimates of the benefits from the new system's lower labor costs. She now thinks the savings will be only $936,000.
Requirements
1. Compute the expected benefits of the online ordering system.
2. Would you recommend that Union Gas accept the proposal?
3. Before Bronson makes a final decision, what other factors should she consider?
Caesars Palace® Las Vegas, owned and operated by Caesars Entertainment Corporation (CZR), opened in 1966. The Nevada hotel-and-casino complex has been featured in several movies including Rain Man, Iron Man, and The Hangover Part III. Caesars Palace is the twelfth largest hotel in the world.17 Caesars Palace® Las Vegas, at the start of 2015, included six towers (named Augustus, NOBU Hotel, Julius (formerly named Roman), Palace, Octavius, and Forum) containing almost 4,000 guest rooms. Beyond guest accommodations, the complex also included casinos, retail shops, restaurants, nightclubs, a 4,296-seat entertainment venue, and a large convention facility.
Caesars Palace® Las Vegas made headlines when it undertook a $75 million renovation. In mid-September 2015, the hotel closed its then-named Roman Tower, which was last updated in 2001, and started a major renovation of the 567 rooms housed in that tower. On January 1, 2016, the newly renamed Julius Tower reopened, replacing the Roman Tower. In addition to renovating the existing rooms and suites in the former Roman Tower, 20 guest rooms were added to the tower.
Each guest room in the Julius Tower features designer furniture, including beds boasting a custom-upholstered headboard, thick carpet, contemporary paint colors, a 55-inch flat-screen TV, and upscale artwork. Each guest room has a stocked minibar, likely offering such standard favorites as gummy bears, candy bars, beer, vodka, water, carbonated soft drinks, chips, and other assorted snacks and beverages. Each bathroom has a double-sink floating vanity, custom-lighted vanity mirrors, a stone shower with two glass sides, and both a rain shower and a hand-held showerhead. In-room toiletries boast the luxurious Gilchrist & Soames-branded soap and shampoo.
With the renovation completed, Caesars expects the Julius Tower room rate to average around $149 per night. This increase, a $25 or 20.2% increase, reflects, in part, the room improvements.
Requirement
What types of decisions might the management of Caesars Palace® Las Vegas need to make over the next several years? In other words, how might managerial accounting information be useful to the management of Caesars Palace® Las Vegas?
1. What skills do employers value highly? What does that tell you about "what accountants do" at their companies?
2. Many accounting majors start their careers in public accounting. Do you think most of them stay in public accounting? Discuss what you consider to be a typical career track for accounting majors.
Jane is an accountant at Merelix, a large international firm where she works on potential acquisitions. When Merelix is preparing to acquire a company, Jane is involved in filing the necessary paperwork with the Securities and Exchange Commission (SEC).
Jane has been dating Tom for two years; they are now discussing marriage. Tom works as a salesperson for a golf equipment distributor.
Over the past two years, Jane has talked with Tom about what she's doing at work. She does not go into great detail, but does occasionally mention company names. Jane has given her phone pass code to Tom so he can answer calls for her or look things up for her when she' s the one driving. Tom has read some of her emails by using the phone pass code. He has also eavesdropped on a few phone conversations she has had when a colleague calls her from work with a question.
Unbeknownst to Jane, Tom has been sharing the information he has gotten from her with his stockbroker friend, Allen. Tom will call Allen to give him a "heads up" that Jane's company is going to be acquiring another company soon. Allen will then place an order to buy the stock of the company and will later split the profits with Tom.
Jane has not shared any information intentionally, nor has she directly profited from it.
Requirements
Using the IMA Statement of Ethical Professional Practice as an ethical framework, answer the following questions:
1. What is (are) the ethical issue(s) in this situation?
2. What are Jane's responsibilities as a management accountant?
3. Has Jane violated any part of the IMA Statement of Ethical Professional Practice? Support your answer.
Faced with rising pressure for a $15 per hour minimum wage rate, the farming industry is currently exploring the possible use of robotics to replace some farm workers. The Lettuce Bot is one such robot; its job is to thin out a field of lettuce, removing the least promising buds of lettuce. By removing these weaker plants, the stronger lettuce plants have more room to grow. Assume the following facts:
1. One Lettuce Bot would do the work of 20 farm workers.
2. Each farm worker typically works 40 hours on the lettuce thinning process each year.
3. Each farm worker would earn $15 per hour plus 7.65% payroll tax.
4. The Lettuce Bot is estimated to cost $8,000 plus $500 for delivery.
5. Annual costs of operating the Lettuce Bot are expected to be $1,500.
While the Lettuce Bot itself may be in workable condition for up to five years, assume that the farm would view its implementation as a one-year experiment.
Requirement
Perform a cost-benefit analysis for the first year of implementation to determine whether the Lettuce Bot would be a financially viable investment if the minimum wage is raised to $15 per hour
McIntyre Industries manufactures iPhone case covers. Sarabeth Anderson, the CEO, is trying to decide whether to adopt a lean thinking model. She expects that adopting lean production would save $77,000 in warehousing expenses and $39,600 in spoilage costs. Adopting lean production will require several one-time up-front expenditures: $25,000 for an employee training program, $89,000 to streamline the plant's production process, and $7,000 to identify suppliers that will guarantee zero defects and on-time delivery.
Requirements
1. What are the total costs of adopting lean production?
2. What are the total benefits of adopting lean production?
3. Should the company adopt lean production? Why or why not?
Sustainability involves more than just the impact of actions on the environment. The triple bottom line recognizes that a company has to measure its impact on its triple bottom line for its long-term viability. To follow are examples of green initiatives recently undertaken at PepsiCo., Inc. For each example, indicate whether this initiative would primarily impact environmental, social, or economic factors.
a. In 2015, PepsiCo increased its dividend to shareholders.
b. It created a new global ingredient standard in 2014 that helps to ensure ingredient safety and integrity.
c. In 2014, PepsiCo used 23% less water (considered to be a scarce resource) per unit of production than in 2006.
d. Almost 60% of beverage launches qualified as "Better-For-You" or "Good-For-You" products in 2014 (as opposed to PepsiCo's "Fun-For-You" category).
e. From 2008 to 2014, PepsiCo held its greenhouse gas emissions stable despite increasing production.
f. PepsiCo strengthened its Responsible Advertising to Children policy.
g. The return on PepsiCo's invested capital was above 13% for the fifth year in a row.
h. In 2014, PepsiCo increased its amount of recycled content in its packaging by 23%.
i. In 2014, 93% of PepsiCo's waste was not sent to landfills.
j. In 2014, approximately 20% of PepsiCo's net revenue came from its nutrition business since it has been making a concerted effort to promote more healthy food and beverage choices.
k. During 2014, 95% of PepsiCo's manufacturing sites underwent an independent food safety audit by the American Institute of Baking.
l. Since 2006, PepsiCo has reached more than 1.92 million children in 477 schools in India through its programs promoting nutrition and physical activity.
m. PepsiCo provided access to safe water for 6 million people.
n. Forty of PepsiCo's buildings have achieved LEED certification (LEED certification is a measure of energy efficiency).
Management accountants need a wide variety of skills for their roles in organizations. These skills can be classified as either technical or nontechnical.
Requirement
For each of the following skills, indicate whether it is a technical competency or a nontechnical competency for a management accountant.
a. Leadership
b. Communication
c. Collaboration
d. Internal controls
e. Change management
f. Cost management
g. Investment decision making
h. Technology
i. Customer service
j. Financial statement analysis
k. Business acumen
l. Performance management
m. Adaptability
n. Enterprise risk management
o. Planning, budgeting, and forecasting
p. Decision analysis
q. Internal financial reporting
r. Ethics
s. Process improvement
t. Strategic thinking
Faced with rising pressure for a $15 per hour minimum wage rate, the farming industry is currently exploring the possible use of robotics to replace some farm workers. The Lettuce Bot is one such robot; its job is to thin out a field of lettuce, removing the least promising buds of lettuce. By removing these weaker plants, the stronger lettuce plants have more room to grow. Assume the following facts:
1. One Lettuce Bot would do the work of 25 farm workers.
2. Each farm worker typically works 50 hours on the lettuce thinning process each year.
3. Each farm worker would earn $15 per hour plus 7.65% payroll tax.
4. The Lettuce Bot is estimated to cost $9,500 plus $1,000 for delivery.
5. Annual costs of operating the Lettuce Bot are expected to be $2,500. While the Lettuce Bot itself may be in workable condition for up to five years, assume that the farm would view its implementation as a one-year experiment.
Requirement
Perform a cost-benefit analysis for the first year of implementation to determine whether the Lettuce Bot would be a financially viable investment if the minimum wage is raised to $15 per hour.
Pittinger Industries manufactures iPhone case covers. Jeanne Thompson, the CEO, is trying to decide whether to adopt a lean thinking model. She expects that adopting lean production would save $63,000 in warehousing expenses and $39,600 in spoilage costs. Adopting lean production will require several one-time up-front expenditures: $11,500 for an employee training program, $41,500 to streamline the plant's production process, and $7,500 to identify suppliers that will guarantee zero defects and on-time delivery.
Requirements
1. What are the total costs of adopting lean production?
2. What are the total benefits of adopting lean production?
3. Should the company adopt lean production? Why or why not?
Sustainability involves more than just the impact of actions on the environment. The triple bottom line recognizes that a company has to measure its impact on its triple bottom line for its long-term viability. Following are examples of green initiatives recently undertaken at The Coca-Cola Company. For each example, indicate whether this initiative would primarily impact environmental, social, or economic factors.
a. Increased the number of countries where reduced-, low-, or no-calorie products represent more than 20% of the local product lineup.
b. For the twelfth consecutive year, improved overall water efficiency in manufacturing.
c. Achieved a 21% improvement in energy efficiency as compared to 2004.
d. Generated a profit for Coca-Cola's shareholders.
e. Worked with partners to recover and recycle the equivalent of 48% of bottles and cans used for finished beverages.
f. Exceeded the 2014 goal of 89% of direct suppliers' compliance with Coca-Cola's Supplier Guiding Principles (for human and workplace rights).
g. By 2014, Coca-Cola reduced the weight of its products sold by 15% since 2008.
h. By the end of 2014, 98% of Coca-Cola-owned facilities had achieved compliance with its Human Rights Policy.
i. Replaced a significant portion of the plastic used in its bottles with a plant-based material.
j. As of the end of 2014, 43% of Coca-Cola's U.S. workforce was multicultural.
k. Generated a positive economic benefit in every community in which Coca-Cola has facilities in the United States.
l. By the end of 2014, almost 80% of Coca-Cola' s plants had achieved both the ISO 9001 Quality Management standard and the FSSC 22000 Food Safety Management System standard.
m. Reduced emissions from manufacturing in developed countries by 13% since 2004.
n. Lost-time incident (accident) rate fell from 4.1 incidents per 200,000 hours worked in 2010 to 1.9 incidents per 200,000 hours worked in 2014.
Barb Perot is the new controller for EduTechno Software, which develops and sells educational software. Shortly before the December 31 fiscal year-end, Tony Cattrall, the company president, asks Perot how things look for the year-end numbers. He is not happy to learn that earnings growth may be below 15% for the first time in the company's five-year history. Cattrall explains that financial analysts have again predicted a 15% earnings growth for the company and that he does not intend to disappoint them. He suggests that Perot talk to the assistant controller, who can explain how the previous controller dealt with this situation. The assistant controller suggests the following strategies:
a. Persuade suppliers to postpone billing until January 1.
b. Record as sales certain software awaiting sale that is held in a public warehouse.
c. Delay the year-end closing a few days into January of the next year so that some of next year's sales are included as this year's sales.
d. Reduce the allowance for bad debts (and bad debts expense).
e. Postpone routine monthly maintenance expenditures from December to January.
Requirement
Which of these suggested strategies are inconsistent with IMA standards? What should Perot do if Cattrall insists that she follow all of these suggestions?
McKay Frames manufactures picture frames. Suppose the company's January records include the items described below.
What is McKay Frames' total manufacturing overhead cost in January?
Oil for manufacturing equipment .......................................................................... $ 250
Wood for frames ............................................................................................. $ 46,000
Company president's salary ............................................................................ $ 26,500
Interest expense ................................................................................................ $ 1,500
Plant supervisor's salary ................................................................................... $ 3,100
Depreciation expense on company cars used by sales force ........................... $ 2,100
Plant janitor's salary .......................................................................................... $ 1,800
Plant depreciation expense ............................................................................... $ 6,000
Glue for picture frames ......................................................................................... $ 400
Salon Hair is a retail chain specializing in salon-quality hair-care products. During the year, Salon Hair had sales of $38,850,000. The company began the year with $3,500,000 of merchandise inventory and ended the year with $4,445,000 of inventory. During the year, Salon Hair purchased $23,975,000 of merchandise inventory. The company's selling, general, and administrative expenses totaled $7,100,000 for the year. Prepare Salon Hair's
income statement for the year.
Given the following information for a retailer, compute the cost of goods sold.
Ending inventory ............................................................................................. $ 5,900
Website maintenance ..................................................................................... $ 7,700
Revenues ..................................................................................................... $ 67,000
Freight-in ........................................................................................................ $ 3,700
Import duties ................................................................................................... $ 1,300
Marketing expenses ...................................................................................... $ 12,000
Delivery expenses ........................................................................................... $ 1,500
Purchases ..................................................................................................... $ 40,000
Beginning inventory ........................................................................................ $ 3,800
You are a new accounting intern at Mason Bikes. Your boss gives you the following information and asks you to compute the cost of direct materials used (assume that the company's raw materials inventory contains only direct materials).
Import duties ................................................................................................... $ 1,300
Beginning raw materials inventory .................................................................. $ 4,700
Ending raw materials inventory ....................................................................... $ 1,200
Freight-in ............................................................................................................ $ 400
Freight-out .......................................................................................................... $ 600
Purchases of direct materials ........................................................................ $ 16,000
Robinson Manufacturing found the following information in its accounting records: $519,800 of direct materials used, $223,500 of direct labor, and $775,115 of manufacturing overhead. The Work in Process Inventory account had a beginning balance of $72,400 and an ending balance of $87,600. Compute the company's Cost of Goods Manufactured.
Suppose Motor Shack incurred the following costs at its Ann Arbor, Michigan, store:
Newspaper advertisements ........................................................................... $ 5,100
Payment to consultant for advice on location of new store ........................... $ 2,700
Purchases of merchandise ......................................................................... $ 3 7,000
Freight-in ........................................................................................................ $ 3,700
Salespeople's salaries ................................................................................... $ 4,600
Depreciation expense on delivery trucks ....................................................... $ 1,500
Research on whether store should sell satellite radio service .......................... $ 250
Customer Complaint Department ..................................................................... $ 550
Rearranging store layout .................................................................................. $ 650
Requirements
1. Classify each cost as to which category of the value chain it belongs (R&D, Design, Purchases, Marketing, Distribution, or Customer Service).
2. Compute the total costs for each value chain category.
3. How much are the total product costs?
Suppose the smart phone manufacturer Kobo Electronics provides the following information for its costs last month (in millions):
Delivery expense to customers via UPS ................................................................ $ 9
Salaries of salespeople .......................................................................................... $ 4
Chipset (the set of chips used on a phone's motherboard) .................................. $56
Exterior case for phone .......................................................................................... $ 6
Assembly-line workers' wages ............................................................................... $ 8
Technical customer support hotline ....................................................................... $ 5
Depreciation on plant and equipment ................................................................... $60
Rearrangement of production process to accommodate new robot ...................... $ 3
1-800 (toll-free) line for customer orders ................................................................ $ 1
Salaries of scientists who developed new model .................................................. $10
Requirements
1. Classify each of these costs according to its place in the value chain (R&D, Design, Production, Marketing, Distribution, or Customer Service).
2. Within the production category, break the costs down further into three subcategories: Direct Materials, Direct Labor, and Manufacturing Overhead.
3. Compute the total costs for each value chain category.
4. How much are the total product costs?
5. How much are the total prime costs?
6. How much are the total conversion costs?
The current asset sections of the balance sheets of three companies follow. Which company is a service company? Which is a merchandiser? Which is a manufacturer? How can you tell?
An airline manufacturer incurred the following costs last month (in thousands of dollars):
a. Airplane seats ............................................................................................ $ 240
b. Production supervisors' salaries ................................................................ $ 100
c. Depreciation on forklifts in factory ................................................................ $ 40
d. Machine lubricants ....................................................................................... $ 35
e. Factory janitors' wages ................................................................................ $ 15
f. Assembly workers' wages .......................................................................... $ 620
g. Property tax on corporate marketing office .................................................. $ 30
h. Plant utilities ............................................................................................... $ 120
i. Cost of warranty repairs .............................................................................. $ 260
j. Machine operators' health insurance ............................................................ $ 10
k. Depreciation on administrative offices ......................................................... $ 60
l. Cost of designing new plant layout ............................................................. $ 170
m. Jet engines ........................................................................................... $ 1 ,400
Requirements
1. Assuming the cost object is an airplane, classify each cost as one of the following: direct material (DM), direct labor (DL), indirect labor (IL), indirect materials (IM), other manufacturing overhead (other MOH), or period cost. type of cost.) What is the total for each type of cost?
2. Calculate total manufacturing overhead costs.
3. Calculate total product costs.
4. Calculate total prime costs.
5. Calculate total conversion costs.
6. Calculate total period costs.
Outdoor Amenities is a manufacturer of backyard and deck furniture. Its products are in high demand, and it carries no inventory. Following is a list of selected account balances from its trial balance for the most recent year ended December 31 (in no particular order.)
Salaries and wages (for administrative and sales staff) ......................................... $ 37,400
Stain (used in manufacturing furniture) ................................................................... $ 12,700
Indirect labor costs (wages of maintenance workers in factory) ............................. $ 21,300
Other manufacturing overhead (includes factory insurance and property taxes) ..... $ 9,800
Rent and utilities (for administrative offices) ........................................................... $ 12,000
Utility costs (related to factory) ............................................................................... $ 11,200
Labor costs (wages of carpenters who build furniture) ........................................... $ 36,900
Accounts receivable ................................................................................................ $ 27,100
Marketing costs ....................................................................................................... $ 17,300
Wood (used in manufacturing furniture) ................................................................. $ 57,800
Sales revenues ..................................................................................................... $ 255,000
Accounts payable ...................................................................................................... $ 7,100
Requirements
Using the income statement accounts in the table, calculate:
1. Cost of goods sold.
2. Operating expenses.
3. Gross profit
Gamma Electronics manufactures and sells a line of smart phones. Unfortunately, Gamma Electronics suffered serious fire damage at its home office. As a result, the accounting records for October were partially destroyed-and completely jumbled. Gamma Electronics has hired you to help figure out the missing pieces of the accounting puzzle. Assume that the Raw Materials Inventory contains only direct materials.
Revenues in October ............................................................................................ $27,600
Work in process inventory, October 31 .................................................................. $ 1,700
Raw materials inventory, October 31 ..................................................................... $ 3,200
Direct labor in October ........................................................................................... $ 3,400
Manufacturing overhead in October ...................................................................... $ 6,300
Work in process inventory, October 1 ............................................................................. 0
Finished goods inventory, October 1 .................................................................... $ 4,900
Direct materials used in October ........................................................................... $ 8,600
Gross profit in October ......................................................................................... $12,800
Purchases of direct materials in October ............................................................... $ 9,200
Requirement
Find the following amounts:
a. Cost of Goods Sold in October
b. Beginning Raw Materials Inventory
c. Ending Finished Goods Inventory
Neil Webster is the sole proprietor of Prestigious Pugs, a business specializing in the sale of high-end pet gifts and accessories. Prestigious Pugs' sales totaled $1,105,000 during the most recent year. During the year, the company spent $55,000 on expenses relating to website maintenance, $30,500 on marketing, and $29,500 on wrapping, boxing, and shipping the goods to customers. Prestigious Pugs also spent $638,000 on inventory purchases and an additional $19,500 on freight-in charges. The company started the year with $16,250 of inventory on hand and ended the year with $16,000 of inventory. Prepare Prestigious Pugs' income statement for the most recent year.
Justine Industries is calculating its Cost of Goods Manufactured at year-end. The company's accounting records show the following: The Raw Materials Inventory account had a beginning balance of $17,000 and an ending balance of $12,000. During the year, the company purchased $55,000 of direct materials. Direct labor for the year totaled $121,000, while manufacturing overhead amounted to $151,000. The Work Process Inventory account had a beginning balance of $22,000 and an ending balance of $21,000. Assume that Raw Materials Inventory contains only direct materials. Compute the Cost of Goods Manufactured for the year.
Compute the Cost of Goods Manufactured and Cost of Goods Sold for West Nautical Company for the most recent year using the amounts described next. Assume that the Raw Materials Inventory contains only direct materials.
Prepare the income statement for West Nautical Company in E2-26A for the most recent year. Assume that the company sold 34,000 units of its product at a price of $12 each during the year.
Data from E2-26A
Bubbly Soda spends $2 on direct materials, direct labor, and variable manufacturing overhead for every unit (12-pack of soda) it produces. Fixed manufacturing overhead costs $7 million per year, the plant, which is currently operating at only 75% of capacity, produced 25 million units this year. Management plans to operate closer to full capacity next year, producing 35 million units. Management doesn't anticipate any changes in the prices it pays for materials, labor, and manufacturing overhead.
Requirements
1. What is the current total product cost (for the 25 million units), including fixed and variable costs?
2. What is the current average product cost per unit?
3. What is the current fixed cost per unit?
4. What is the forecasted total product cost next year (for the 35 million units), including fixed and variable costs?
5. What is the forecasted average product cost next year?
6. What is the forecasted fixed cost per unit?
7. Why does the average product cost decrease as production increases?
Classify each of The J. M. Smucker Company's costs as one of the six business functions in the value chain.
a. Cost of a prime-time TV ad featuring Smucker's® Fruit & Honey™ Fruit Spreads
b. Salary of engineers who are designing the new plant's layout
c. Depreciation on Orrville, Ohio, plant
d. Depreciation on delivery vehicles
e. Transportation costs to deliver Folgers Coffee® to retailers such as Kroger, Walmart, and Save-A-Lot
f. Costs of a customer support center website
g. Plant manager's salary
h. Purchase of strawberries used in Smucker's® Strawberry Preserves
i. Depreciation on food research lab
Suppose Electronics Shack incurred the following costs at its Forest Lake, Minnesota, store.
Newspaper advertisements ............................................................................. $ 5,700
Payment to consultant for advice on location of new store .............................. $ 2,100
Purchases of merchandise ............................................................................. $ 36,000
Freight-in ........................................................................................................... $ 3,500
Salespeople's salaries ...................................................................................... $ 4,100
Depreciation expense on delivery trucks .......................................................... $ 1,100
Research on whether store should sell satellite radio service ............................. $ 500
Customer Complaint Department ........................................................................ $ 550
Rearrangement of store layout ............................................................................ $ 900
Requirements
1. Classify each cost as to which category of the value chain it belongs (R&D, Design, Purchases, Marketing, Distribution, Customer Service).
2. Compute the total costs for each value chain category.
3. How much are the total product costs?
Suppose the smart phone manufacturer Sabre Electronics provides the following information for its costs last month (in millions):
Delivery expense to customers via UPS ......................................................................... $ 10
Salaries of salespeople ..................................................................................................... $ 6
Chipset (the set of chips used on a phone's motherboard) ............................................. $ 60
Exterior case for phone ..................................................................................................... $ 4
Assembly-line workers' wages ........................................................................................ $ 12
Technical customer-support hotline .................................................................................. $ 5
Depreciation on plant and equipment .............................................................................. $ 65
Rearrange production process to accommodate new robot .............................................. $ 1
1-800 (toll-free) line for customer orders ........................................................................... $ 3
Salaries of scientists who developed new model ............................................................ $ 11
Requirements
1. Classify each of these costs according to its place in the value chain (R&D, Design, Production, Marketing, Distribution, or Customer Service).
2. Within the production category, break the costs down further into three subcategories: Direct Materials, Direct Labor, and Manufacturing Overhead.
3. Compute the total costs for each value chain category.
4. How much are the total product costs?
5. How much are the total prime costs?
6. How much are the total conversion costs?
An airline manufacturer incurred the following costs last month (in thousands of dollars).
a. Airplane seats ............................................................................................ $ 300
b. Production supervisors' salaries ................................................................ $ 110
c. Depreciation on forklifts in factory ................................................................ $ 90
d. Machine lubricants ....................................................................................... $ 30
e. Factory janitors' wages ................................................................................ $ 50
f. Assembly workers' wages .......................................................................... $ 630
g. Property tax on corporate marketing offices ................................................ $ 20
h. Plant utilities ............................................................................................... $ 140
i. Cost of warranty repairs .............................................................................. $ 230
j. Machine operators' health insurance ............................................................ $ 40
k. Depreciation on administrative offices ........................................................ $ 100
l. Cost of designing new plant layout .............................................................. $ 160
m. Jet engines .............................................................................................. $ 1,400
Requirements
1. Assuming the cost object is an airplane, classify each cost as one of the following: direct material (DM), direct labor (DL), indirect labor (IL), indirect materials (IM), other manufacturing overhead (other MOH), or period cost. What is the total for each type of cost?
2. Calculate total manufacturing overhead costs.
3. Calculate total product costs.
4. Calculate total prime costs.
5. Calculate total conversion costs.
6. Calculate total period costs.
Backyard Amenities is a manufacturer of backyard and deck furniture. Its products are in high demand, and it carries no inventory. To follow is a list of selected account balances from its trial balance for the most recent year ended December 31 (in no particular order).
Salaries and wages (for administrative and sales staff) .......................................... $ 38,100
Stain (used in manufacturing furniture) ................................................................... $ 14,500
Indirect labor costs (wages of maintenance workers in factory) ............................. $ 23,700
Other manufacturing overhead (includes factory insurance and property taxes).... $ 11,300
Rent and utilities (for administrative offices) ........................................................... $ 13,200
Utility costs (related to factory) ............................................................................... $ 12,100
Labor costs (wages of carpenters who build furniture) ........................................... $ 33,700
Accounts receivable ................................................................................................ $ 31,200
Marketing costs ....................................................................................................... $ 15,200
Wood (used in manufacturing furniture) ................................................................. $ 59,100
Sales revenues ..................................................................................................... $ 267,000
Accounts payable ..................................................................................................... $ 8,200
Requirements
Using the income statement accounts in the table, calculate:
1. Cost of goods sold. Hint: Cost of goods sold can be calculated by summing the total product costs since there is no inventory.
2. Operating expenses. Hint: Operating expenses are the company's period costs.
3. Gross profit
4. Operating income
Swift Electronics manufactures and sells smartphones. Unfortunately, the company recently suffered serious fire damage at its home office. As a result, the accounting records for October were partially destroyed and completely jumbled. Swift has hired you to help figure out the missing pieces of the accounting puzzle. Assume that Swift Electronics'
Raw Materials Inventory contains only direct materials.
Work in process inventory, October 31 ...................................................................... $ 1,900
Finished goods inventory, October 1 ......................................................................... $ 4,300
Direct labor in October ............................................................................................... $ 3,300
Purchases of direct materials in October ................................................................... $ 9,700
Work in process inventory, October 1 .................................................................................. 0
Revenues in October ............................................................................................... $ 27,500
Gross profit in October ............................................................................................. $ 12,700
Direct materials used in October ................................................................................ $ 8,800
Raw materials inventory, October 31 ......................................................................... $ 3,200
Manufacturing overhead in October ........................................................................... $ 6,300
Requirement
Find the following amounts:
a. Cost of Goods Sold in October
b. Beginning Raw Materials Inventory
c. Ending Finished Goods Inventory
Sam Peters is the sole proprietor of Charismatic Cats, a business specializing in the sale of high-end pet gifts and accessories. Charismatic Cats' sales totaled $1,060,000 during the most recent year. During the year, the company spent $53,000 on expenses relating to website maintenance, $33,200 on marketing, and $28,500 on wrapping, boxing, and shipping the goods to customers. Charismatic Cats also spent $636,000 on inventory purchases and an additional $19,500 on freight-in charges. The company started the year with $19,800 of inventory on hand and ended the year with $13,100 of inventory. Prepare Charismatic Cats' income statement for the most recent year.
Laurel Industries is calculating its Cost of Goods Manufactured at year-end. The company's accounting records show the following: The Raw Materials Inventory account had a beginning balance of $14,000 and an ending balance of $19,000. During the year, the company purchased $63,000 of direct materials. Direct labor for the year totaled $133,000 while manufacturing overhead amounted to $162,000. The Work in Process Inventory account had a beginning balance of $25,000 and an ending balance of $24,000. Assume that Raw Materials Inventory contains only direct materials. Compute the Cost of Goods Manufactured for the year.
Compute the Cost of Goods Manufactured and Cost of Goods Sold for Golden Bay Company for the most recent year using the amounts described next. Assume that Raw Materials Inventory contains only direct materials.
Prepare the income statement for Golden Bay Company using the data in E2-38B for the most recent year. Assume that the company sold 39,000 units of its product at a price of $15 each during the year.
Crackling Soda spends $1 on direct materials, direct labor, and variable manufacturing overhead for every unit (12-pack of soda) it produces. Fixed manufacturing overhead costs $3 million per year. The plant, which is currently operating at only 85% of capacity, produced 20 million units this year. Management plans to operate closer to full capacity next year, producing 30 million units. Management doesn't anticipate any changes in the prices it pays for materials, labor, or manufacturing overhead.
Requirements
1. What is the current total product cost (for the 20 million units), including fixed and variable costs?
2. What is the current average product cost per unit?
3. What is the current fixed cost per unit?
4. What is the forecasted total product cost next year (for the 30 million units), including fixed and variable costs?
5. What is the forecasted average product cost next year?
6. What is the forecasted fixed cost per unit?
7. Why does the average product cost decrease as production increases?
Ravenna Cola produces a lemon-lime soda. The production process starts with workers mixing the lemon syrup and lime flavors in a secret recipe. The company enhances the combined syrup with caffeine. Finally, the company dilutes the mixture with carbonated water. Ravenna Cola incurs the following costs (in thousands):
Plant janitors' wages .............................................................................................. $ 1,100
Delivery truck drivers' wages ..................................................................................... $ 305
Payment for new recipe .......................................................................................... $ 1,260
Depreciation on delivery trucks .................................................................................. $ 250
Plant utilities ............................................................................................................... $ 450
Lime flavoring ............................................................................................................. $ 820
Rearrangement of plant layout ................................................................................ $ 1,600
Bottles ..................................................................................................................... $ 1,040
Salt ............................................................................................................................... $ 50
Sales commissions .................................................................................................... $ 425
Production costs of "cents-off" store coupons for customers ..................................... $ 800
Lemon syrup ......................................................................................................... $ 18,000
Replacement of products with expired dates upon customer complaint ...................... $ 30
Depreciation on plant and equipment ..................................................................... $ 3,400
Wages of workers who mix syrup ........................................................................... $ 8,300
Customer hotline ........................................................................................................ $ 210
Freight-in on materials ............................................................................................. $ 1,100
Requirements
1. Classify each of the listed costs according to its category in the value chain (R&D, Design, Production, Marketing, Distribution, or Customer Service).
2. Further break down production costs into three subcategories: Direct Materials (DM), Direct Labor (DL), or Manufacturing Overhead (MOH).
3. Compute the total costs for each value chain category.
4. How much are the total product costs?
5. Suppose the managers of the R&D and design functions receive year-end bonuses based on meeting their unit's target cost reductions. What are they likely to do? How might this affect costs incurred in other elements of the value chain?
Unique Displays designs and manufactures displays used in mobile devices. Serious flooding throughout the region affected Unique Displays' facilities. Inventory was completely ruined, and the company's computer system, including all accounting records, was destroyed.
Before the disaster recovery specialists clean the buildings, Louise Ditchey, the company controller, is anxious to salvage whatever records she can to support an insurance claim for the destroyed inventory. She is standing in what is left of the Accounting Department with Trent Parker, the cost accountant.
"I didn't know mud could smell so bad," Trent says. "What should I be looking for?"
"Don't worry about beginning inventory numbers," responds Louise. "We'll get them from last year's annual report. We need first-quarter cost data."
"I was working on the first-quarter results just before the storm hit," Trent says. "Look, my report's still in my desk drawer. But all I can make out is that for the first quarter, direct material purchases were $533,000 and that direct labor, manufacturing overhead (other than indirect materials), and total manufacturing costs to account for were $551,000; $218,000; and $1,491,000, respectively. Wait, and cost of goods available for sale was $1,615,000."
"Great," says Louise. "I remember that sales for the period were approximately $1.8 million. Given our gross profit of 30%, that's all you should need."
Trent is not sure about that but decides to see what he can do with this information. The beginning inventory numbers are as follows:
• Raw materials, $75,000
• Work in process, $226,000
• Finished goods, $213,000
He remembers several schedules he learned in college that may help him get started.
Requirement
Use exhibits in the chapter to determine the ending inventories of raw materials, work in process, and finished goods. Assume that Raw Materials Inventory contains only direct materials.
Part One: In 2015, Patsy Jackson opened Patsy's Posies, a small retail shop selling floral arrangements. On December 31, 2016, her accounting records show the following:
Sales revenue .................................................................................................. $53,000
Utilities for shop ................................................................................................. $ 1,100
Inventory on December 31, 2016 ...................................................................... $ 9,100
Inventory on January 1, 2016 ........................................................................... $12,000
Rent for shop ..................................................................................................... $ 4,600
Sales commissions ............................................................................................ $ 4,000
Purchases of merchandise ............................................................................... $36,000
Requirement
Prepare an income statement for Patsy's Posies, a merchandiser, for the year ended December 31, 2016.
Part Two: Patsy's Posies was so successful that Patsy decided to manufacture her own brand of floral supplies: Floral City Manufacturing. At the end of December 2017, her accounting records show the following:
Utilities for plant .............................................................................................. $ 4,900
Delivery expense ............................................................................................ $ 1,500
Sales salaries expense ................................................................................... $ 4,300
Plant janitorial services ................................................................................... $ 1,350
Work in process inventory, December 31, 2017 ............................................. $ 5,000
Finished goods inventory, December 31, 2016 ........................................................ 0
Finished goods inventory, December 31, 2017 .............................................. $ 2,500
Sales revenue ............................................................................................. $ 104,000
Customer service hotline expense .................................................................. $ 1,400
Direct labor .................................................................................................... $ 23,000
Direct material purchases .............................................................................. $ 30,000
Rent on manufacturing plant ........................................................................... $ 9,600
Raw materials inventory, December 31, 2016 .............................................. $ 14,000
Raw materials inventory, December 31, 2017 ................................................ $ 8,000
Work in process inventory, December 31, 2016 ....................................................... 0
Requirements
1. Calculate the Cost of Goods Manufactured for Floral City Manufacturing for the year ended December 31, 2017.
2. Prepare an income statement for Floral City Manufacturing for the year ended December 31, 2017.
3. How does the format of the income statement for Floral City Manufacturing differ from the income statement of Patsy's Posies?
Part Three: Show the ending inventories that would appear on these balance sheets:
1. Patsy's Posies at December 31, 2016
2. Floral City Manufacturing at December 31, 2017
You receive two job offers in the same big city. The first job is close to your parents' house, and they have offered to let you live at home for a year so you won't have to incur expenses for housing, food, or cable and Internet. This job pays $49,000 per year. The second job is far from your parents' house, so you'll have to rent an apartment with parking ($8,500 per year), buy your own food ($3,250 per year), and pay for your own cable and Internet ($650 per year). This job pays $54,000 per year. You still plan to do laundry at your parents' house once a week if you live in the city, and you plan to go into the city once a week to visit with friends if you live at home. Thus, the cost of operating your car will be about the same either way. In addition, your parents refuse to pay for your cell phone service ($670 per year).
Requirements
1. Based on this information alone, what is the net difference between the two alternatives (salary, net of relevant costs)?
2. What information is irrelevant? Why?
3. What qualitative information is relevant to your decision?
4. Assume that you really want to take Job #2, but you also want to live at home to cut costs. What new quantitative and qualitative information will you need to incorporate into your decision?
The owner of Marshall Restaurant is disappointed because the restaurant has been averaging 7,500 pizza sales per month, but the restaurant and wait staff can make and serve 10,000 pizzas per month. The variable cost (for example, ingredients) of each pizza is $1.55. Monthly fixed costs (for example, depreciation, property taxes, business license, and manager's salary) are $12,000 per month. The owner wants cost information about different volumes so that some operating decisions can be made.
Requirements
1. Fill in the following chart to provide the owner with the cost information. Then use the completed chart to help you answer the remaining questions.
2. From a cost standpoint, why do companies such as Marshall Restaurant want to operate near or at full capacity?
3. The owner has been considering ways to increase the sales volume. The owner thinks that 10,000 pizzas could be sold per month by cutting the selling price per pizza from $6.25 to $5.75. How much extra profit (above the current level) would be generated if the selling price were to be decreased?
Crystal Cola produces a lemon-lime soda. The production process starts with workers mixing the lemon syrup and lime flavors in a secret recipe. The company enhances the combined syrup with caffeine. Finally, the company dilutes the mixture with carbonated water. Crystal Cola incurs the following costs (in thousands):
Delivery truck drivers' wages ........................................................................ $ 285
Lemon syrup ............................................................................................ $ 16,000
Depreciation on delivery trucks ..................................................................... $ 175
Lime flavoring ............................................................................................. $ 1,020
Payment for new recipe .............................................................................. $ 1,090
Customer hotline ............................................................................................ $ 220
Sales commissions ........................................................................................ $ 450
Production costs of "cents-off" store coupons for customers ........................ $ 630
Rearrangement of plant layout ................................................................... $ 1,200
Freight-in on materials ................................................................................ $ 1,300
Depreciation on plant and equipment ......................................................... $ 2,900
Bottles ......................................................................................................... $ 1,490
Salt ................................................................................................................... $ 15
Plant utilities ................................................................................................ $ 1,250
Wages of workers who mix syrup ............................................................... $ 7,900
Plant janitors' wages ................................................................................... $ 1,000
Replacement of products with expired dates upon customer complaint ....... $ 40
Requirements
1. Classify each of the listed costs according to its category in the value chain (R&D, Design, Production, Marketing, Distribution, or Customer Service).
2. Further break down production costs into three subcategories: Direct Materials (DM), Direct Labor (DL), or Manufacturing Overhead (MOH).
3. Compute the total costs for each value chain category.
4. How much are the total product costs?
5. Suppose the managers of the R&D and design functions receive year-end bonuses based on meeting their unit's target cost reductions. What are they likely to do? How might this affect costs incurred in other elements of the value chain?
Finney Displays designs and manufactures displays used in mobile devices. Serious flooding throughout the region affected Finney Displays' facilities. Inventory was completely ruined, and the company's computer system, including all accounting records, was destroyed.
Before the disaster recovery specialists clean the buildings, Heather Bailey, the company controller, is anxious to salvage whatever records she can to support an insurance claim for the destroyed inventory. She is standing in what is left of the Accounting Department with Tad Myers, the cost accountant.
"I didn't know mud could smell so bad," Tad says. "What should I be looking for?"
"Don't worry about beginning inventory numbers," responds Heather. "We'll get them from last year's annual report. We need first-quarter cost data."
"I was working on the first-quarter results just before the storm hit," Tad says. "Look, my report's still in my desk drawer. But all I can make out is that for the first quarter, direct material purchases were $524,000 and that direct labor, manufacturing overhead (other than indirect materials), and total manufacturing costs to account for were $545,000; $218,000; and $1,508,000, respectively. Wait, and cost of goods available for sale was $1,615,000."
"Great," says Heather. "I remember that sales for the period were approximately $1.6 million. Given our gross profit of 15%, that's all you should need."
Tad is not sure about that but decides to see what he can do with this information.
The beginning inventory numbers are as follows:
• Raw materials, $85,000
• Work in process, $187,000
• Finished goods, $209,000
He remembers several schedules he learned in college that may help him get started.
Requirement
Use exhibits in the chapter to determine the ending inventories of raw materials, work in process, and finished goods. Assume that the Raw Materials Inventory contains only direct materials.
Part One: In 2015, Fran Lexa opened Fran's Flowers, a small shop selling floral arrangements. On December 31, 2016, her accounting records show the following:
Sales revenue .................................................................................................. $ 53,000
Utilities for shop ................................................................................................. $ 1,000
Inventory on December 31, 2016 ...................................................................... $ 9,200
Inventory on January 1, 2016 .......................................................................... $ 12,600
Rent for shop ..................................................................................................... $ 4,400
Sales commissions ............................................................................................ $ 4,100
Purchases of merchandise .............................................................................. $ 38,000
Requirement
Prepare an income statement for Fran's Flowers, a merchandiser, for the year ended December 31, 2016.
Part Two: Fran's Flowers succeeded so well that Fran decided to manufacture her own brand of floral supplies: Floral Place Manufacturing. At the end of December 2017, her accounting records show the following:
Utilities for plant ............................................................................................. $ 4,300
Delivery expense ........................................................................................... $ 3,800
Sales salaries expense .................................................................................. $ 4,800
Plant janitorial services .................................................................................. $ 1,250
Work in process inventory, December 31, 2017 ............................................ $ 4,000
Finished goods inventory, December 31, 2016 ........................................................ 0
Finished goods inventory, December 31, 2017 .............................................. $ 4,500
Sales revenue ............................................................................................ $ 109,000
Customer service hotline expense ................................................................. $ 1,700
Direct labor ................................................................................................... $ 22,000
Direct material purchases ............................................................................ $ 31,000
Rent on manufacturing plant .......................................................................... $ 9,400
Raw materials inventory, December 31, 2016 ............................................. $ 18,000
Raw materials inventory, December 31, 2017 ............................................... $ 7,500
Work in process inventory, December 31, 2016 ...................................................... 0
Requirements
1. Calculate the cost of goods manufactured for Floral Place Manufacturing for the year ended December 31, 2017.
2. Prepare an income statement for Floral Place Manufacturing for the year ended December 31, 2017.
3. How does the format of the income statement for Floral Place Manufacturing differ from the income statement of Fran's Flowers?
Part Three: Show the ending inventories that would appear on these balance sheets:
1. Fran's Flowers at December 31, 2016.
2. Floral Place Manufacturing at December 31, 2017.
You receive two job offers in the same big city. The first job is close to your parents' house, and they have offered to let you live at home for a year so you won't have to incur expenses for housing, food, or cable and Internet. This job pays $42,000 per year. The second job is far away from your parents' house, so you'll have to rent an apartment with parking ($12,000 per year), buy your own food ($3,000 per year), and pay for your own cable and Internet ($800 per year). This job pays $47,000 per year. You still plan to do laundry at your parents' house once a week if you live in the city and plan to go into the city once a week to visit with friends if you live at home. Thus, the cost of operating your car will be about the same either way. Additionally, your parents refuse to pay for your cell phone service ($740 per year).
Requirements
1. Based on this information alone, what is the net difference between the two alternatives (salary, net of relevant costs)?
2. What information is irrelevant? Why?
3. What qualitative information is relevant to your decision?
4. Assume you really want to take Job #2, but you also want to live at home to cut costs. What new quantitative and qualitative information will you need to incorporate in your decision?
The owner of Yoders Restaurant is disappointed because the restaurant has been averaging 8,000 pizza sales per month but the restaurant and wait staff can make and serve 10,000 pizzas per month. The variable cost (for example, ingredients) of each pizza is $1.45. Monthly fixed costs (for example, depreciation, property taxes, business license, and manager's salary) are $10,000 per month. The owner wants cost information about different volumes so that some operating decisions can be made.
Requirements
1. Fill in the chart to provide the owner with the cost information. Then use the completed chart to help you answer the remaining questions.
2. From a cost standpoint, why do companies such as Yoders Restaurant want to operate near or at full capacity?
3. The owner has been considering ways to increase the sales volume. The owner thinks that 10,000 pizzas could be sold per month by cutting the selling price from $6.25 per pizza to $5.75. How much extra profit (above the current level) would be generated if the selling price were to be decreased?
This case is a continuation of the Caesars Entertainment Corporation serial case that began in Chapter 1. Refer to the introductory story in Chapter 1 (see page 43) for additional background. (The components of the Caesars serial case can be completed in any order.)
What follows is a table listing condensed revenue and expense figures for Caesars Entertainment Corporation for the years ending December 31, 2012 through 2014.
Requirements
1. Using the data provided, construct income statements for each of the three years; include the proper headings.
2. Did Caesars's operating income increase or decrease over the three-year period presented?
3. Which division, Food and Beverage, Casino, Rooms, or Other generated the most revenue for Caesars in 2014? Which division generated the most operating income in 2014?
Brandon is the production manager of a large manufacturing firm. He is worried about the prospect of bonuses for the upcoming year. The company has paid out bonuses for the past ten years, so Brandon has been counting on the bonus to help pay some debts he has accumulated over the year. In addition, Brandon and his wife are expecting their first baby in two months. Due to the unexpected downturn in sales, bonuses appear to be unlikely this year.
Ryan is the accounting manager for the company. He and Brandon are good friends. Over lunch one day, Brandon confides in Ryan about his financial difficulties. He is stressed out over the bills and the baby on the way. He really needs that bonus.
Ryan wants to help Brandon. Ryan has been with the company for many years and knows that fundamentally the company is strong. This year is just an unusual year. He thinks about ways that he can help Brandon. Brandon is a good employee, and the company does not want to lose him if he were to go to work for a competitor.
Ryan thinks about how he can best help Brandon. He thinks about a few different options, including the following:
Option #1: Ryan could increase income for the year by adding sales commission costs and advertising costs to the products. If he does this, the product cost will be higher. However, there is still a large inventory of units on hand. The units that are still in ending inventory will shield these costs from decreasing net income until the units are sold in a future year.
Option #2: Ryan could quietly make Brandon a loan from the company to help him get back on his feet. The company does not have a policy prohibiting loans to employees, but neither does it have a policy of allowing such loans to employees. Ryan does not know what to do.
Requirements
Using the IMA Statement of Ethical Professional Practice as an ethical framework, answer the following questions:
a. If Ryan were to increase income by adding sales commission costs and advertising costs to product costs as described in Option #1, what ethical principles would be violated?
b. If Ryan were to make a company loan to Brandon (Option #2), what, if any, ethical principles would be violated?
c. What do you think Ryan should do in this situation?
During 2015, the price that Starbucks paid its suppliers for its coffee decreased. Despite the decrease in coffee costs, Starbucks raised the prices of its brewed coffee across the United States by an average of about 1% in 2015.14 Starbucks did not raise prices for its bagged coffee sold at grocery stores and at Starbucks stores.
In many of the regions in which Starbucks operates, laws have been passed to raise the minimum wage. In addition, the real estate market has recovered in several cities, causing the cost of retail space to increase. Starbucks also started an initiative in 2015 to cover the full cost of an online degree for its U.S. employees who work at least 20 hours per week.
Requirements
1. Would you consider Starbucks to be a service company, a merchandiser, a manufacturer, or some combination thereof? Support your answer with specific examples.
2. Describe the value chain for a cup of coffee at Starbucks. Use your imagination and brainstorm possible costs at each phase of the value chain. Where is the cost increases occurring in that value chain? Where are the cost decreases occurring in the value chain?
3. Think about a Starbucks café in Bellevue, Tennessee, and a cup of coffee served and consumed in that café.
a. What costs would be included in the cost of a cup of coffee served in the café? Separate these costs into direct materials, direct labor, and overhead costs. Which type(s) of costs (direct materials, direct labor, or overhead costs) would have increased in 2015 for Starbucks? Which type(s) would have decreased in 2015?
b. What are the direct costs of a cup of coffee, assuming that the cost object is the Bellevue location? What are the indirect costs of that same cup of coffee for the Bellevue location?
c. Assume now that the cost object is the Starbucks Corporation itself. What costs of that cup of coffee will now be reclassified as direct (as compared to using the Bellevue location as the cost object)?
4. Now think about a Starbucks café in Bellevue, Tennessee, and a pound of bagged ground coffee sold in that café (assume that the beans are ground in the store at the time of sale).
a. What costs are included in the cost of a pound of bagged ground coffee sold at the Bellevue location? Separate these costs into direct materials, direct labor, and overhead costs.
PEZ Candy Inc. produces the popular small candy that is dispensed in collectible flip-top dispensers. In the United States, PEZ candies are produced in a factory in Connecticut. The Connecticut location also houses PEZ's U.S. headquarters and a PEZ Visitors Center. PEZ candy is made from sugar, fruit flavoring, coloring, and corn syrup; the ingredients are put under pressure to form the hard tablets. About 95% of a PEZ tablet is sugar. The PEZ dispensers are popular with collectors; there are several PEZ collector conventions throughout the world.
In 2011, PEZ Candy Inc. opened a 6,000-square-foot Visitors Center in Connecticut. The Visitors Center houses the world's largest collection of PEZ memorabilia on public display. Visitors can also view the factory through special viewing windows. The center also has a touch-screen PEZ trivia game and interactive reviews of PEZ history. Birthday party packages are also offered in the Visitors Center; partygoers receive goodie bags that include a blank customizable PEZ dispenser, PEZ candy, a PEZ lanyard, and discount coupons.
Requirements
1. Is the cost of sugar in PEZ candies a product or a period cost? What about the wrappers that the candy is packaged in?
2. Is the cost of quality control testing in the manufacturing process for PEZ candies a product or a period cost?
3. Is the cost of the labor to make PEZ candy in the factory a product or a period cost? What about the cost of the benefits (i.e., health care, payroll taxes, vacation pay) for those workers?
4. Is the cost of staffing the PEZ Visitors Center a product or a period cost? What about the cost of the benefits (i.e., health care, payroll taxes, vacation pay) for those workers who work in the Visitors Center?
5. Assume that PEZ purchased the touch-screen PEZ trivia game from a custom video game developer. Is the cost of that game a product or a period cost? What about the costs of maintaining and updating the software and hardware for the game?
6. Is food cost for a birthday party in the PEZ Visitors Center a product or a period cost? What about the cost of the items included in the goodie bags?
Classify each of Ford Motor Company's costs as either product costs or period costs. Ford Motor Company is an automobile manufacturer headquartered in Detroit, Michigan.
a. Cost of chemical included in paint to inhibit rust
b. Life insurance for the CEO
c. Cost of electricity at the Lima Engine Plant in Ohio
d. Depreciation on the buildings at the Flat Rock Assembly Plant in Michigan
e. Cost of ad campaign and slogan called "By Design" to highlight the designs of Ford's cars
f. Purchase of aluminum to be used in car wheels
g. Salaries of Ford engineers researching ways to reduce CO2 emissions
h. Cost of new software to schedule production
i. Salaries of Ford Motor Company's top executives
Classify each of the following costs as a period cost or a product cost. If you classify the cost as a product cost, further classify it as direct material (DM), direct labor (DL), or manufacturing overhead (MOH).
a. Property taxes-30% of building is used for sales, marketing, and administrative offices; 70% of building is used for manufacturing
b. Wages and benefits paid to assembly-line workers in the manufacturing plant
c. Depreciation on automated production equipment
d. Salaries paid to quality control inspectors in the plant
e. Repairs and maintenance on factory equipment
f. Standard packaging materials used to package individual units of product for sale (for example, cereal boxes in which cereal is packaged)
g. Lease payment on administrative headquarters
h. Telecommunications costs for the customer service call center
Each of the following costs pertains to Bailey Dairy Products Company, a dairy processing company. Classify each of the company's costs as a period cost or a product cost. Further classify product costs as direct material (DM), direct labor (DL), or manufacturing overhead (MOH).
Chattanooga Tire manufactures tires for all-terrain vehicles. Chattanooga uses job costing and has a perpetual inventory system.
On June 22, Chattanooga received an order for 110 TX tires from ATV Corporation at a price of $90 each. The job, assigned number 298, was promised for July 10. After purchasing the materials, Chattanooga began production on June 30 and incurred the following direct labor and direct materials costs in completing the order:
Chattanooga allocates manufacturing overhead to jobs on the basis of the relation between expected overhead costs ($490,000) and expected direct labor hours (17,500). Job 298 was completed on July 3 and shipped to ATV on July 5.
Requirements
1. Prepare a job cost record for Job 298.
2. Calculate the total profit and the per-unit profit for Job 298.
Veon Homes manufactures prefabricated chalets in Colorado. The company uses a perpetual inventory system and a job cost system in which each chalet is a job. The following events occurred during May:
a. Purchased materials on account, $490,000.
b. Incurred total manufacturing wages of $115,000, which included both direct labor and indirect labor. Used direct labor in manufacturing as follows:
Direct Labor
Chalet 13 ..................................................................................... $14,200
Chalet 14 ..................................................................................... $28,500
Chalet 15 ..................................................................................... $19,900
Chalet 16 ..................................................................................... $21,900
c. Requisitioned direct materials in manufacturing as follows:
Direct Materials
Chalet 13 ..................................................................................... $41,400
Chalet 14 ..................................................................................... $56,700
Chalet 15 ..................................................................................... $62,400
Chalet 16 ..................................................................................... $66,500
d. Depreciation of manufacturing equipment used on different chalets, $6,300.
e. Other overhead costs incurred on Chalets 13-16:
Equipment rentals paid in cash ................................................... $10,600
Prepaid plant insurance expired .................................................. $ 8,000
f. Allocated overhead to jobs at the predetermined rate of 60% of direct labor cost.
g. Chalets completed: 13, 15, and 16.
h. Chalets sold on account: 13 for $92,000 and 16 for $141,000.
Requirements
1. Record the preceding events in the general journal.
2. Open T-accounts for Work in Process Inventory and Finished Goods Inventory. Post the appropriate entries to these accounts, identifying each entry by letter. Determine the ending account balances, assuming that the beginning balances were zero.
3. Summarize the job cost of the unfinished chalet and show that this equals the ending balance in Work in Process Inventory.
4. Summarize the job cost of the completed chalet that has not yet been sold and show that this equals the ending balance in Finished Goods Inventory.
5. Compute the gross profit on each chalet that was sold. What costs must the gross profit cover for Veon Homes?
Nicole Grand stone is a new staff accountant at James & Associates. She is paid a salary of $67,600 per year and is expected to work 2,600 hours per year on client jobs. The firm's indirect cost allocation rate is $25 per hour. The firm would like to achieve a profit equal to 20% of cost.
1. Convert Nicole's salary to an hourly wage rate for billing purposes.
2. Calculate the professional billing rate James & Associates would use for billing out Nicole's services.
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