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managerial accounting

Managerial Accounting 12th Edition Ray H. Garrison, Eric W. Noreen, Peter C. Brewer - Solutions

Five years ago, Jack Cadence left his position at a large company to start Advanced Technologies Co. (ATC), a software design company. ATC’s first product was a unique software package that seamlessly integrates networked PCs. Robust sales of this initial product permitted the company to begin
Calgon Products, a distributor of organic beverages, needs a cash budget for September. The following information is available:a. The cash balance at the beginning of September is $9,000.b. Actual sales for July and August and expected sales for September are as follows:Sales on account are
Granger Stokes, managing partner of the venture capital firm of Halston and Stokes, was dissatisfied with the top management of PrimeDrive, a manufacturer of computer disk drives. Halston and Stokes had invested $20 million in PrimeDrive, and the return on their investment had been unsatisfactory
Tonga Toys manufactures and distributes a number of products to retailers. One of these products, Playclay, requires three pounds of material A135 in the manufacture of each unit. The company is now planning raw materials needs for the third quarter—July, August, and September. Peak sales of
The production department of Priston Company has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year.In addition, the beginning raw materials inventory for the 1st Quarter is budgeted to be 3,600 pounds and the beginning accounts payable for the 1st
The Production Department of Harveton Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year.Each unit requires 0.80 direct labor-hours and direct labor-hour workers are paid $11.50 per hour.In addition, the variable manufacturing overhead
Jodi Horton, president of the retailer Crestline Products, has just approached the company€™s bank with a request for a $30,000, 90-day loan. The purpose of the loan is to assist the company in acquiring inventories in support of peak April sales. Since the company has had some difficulty
The balance sheet of Phototec, Inc., a distributor of photographic supplies, as of May 31 is given below:Phototec, Inc., has not budgeted previously, and for this reason it is limiting its master budget planning horizon to just one month ahead€”namely, June. The company has assembled the
Crydon, Inc., manufactures an advanced swim fi n for scuba divers. Management is now preparing detailed budgets for the third quarter, July through September, and has assembled the following information to assist in preparing the budget:a. The Marketing Department has estimated sales as follows for
Nordic Company, a merchandising company, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparation of the master budget for the second quarter.a. As of March 31 (the end of the prior quarter), the company’s balance sheet showed the following
The president of Univax, Inc., has just approached the company€™s bank seeking short-term financing for the coming year, Year 2. Univax is a distributor of commercial vacuum cleaners. The bank has stated that the loan request must be accompanied by a detailed cash budget that shows the
Janus Products, Inc., is a merchandising company that sells binders, paper, and other school supplies. The company is planning its cash needs for the third quarter. In the past, Janus Products has had to borrow money during the third quarter to support peak sales of back-to-school materials, which
The East Division of Kensic Company manufactures a vital component that is used in one of Kensic€™s major product lines. The East Division has been experiencing some difficulty in coordinating activities between its various departments, which has resulted in some shortages of the
The following data relate to the operations of Picanuy Corporation, a wholesale distributor of consumer goods:Current assets as of December 31:Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,000Accounts receivable . . . . . . . . . . . . . . . . . . $36,000Inventory. . . . . . .
You have just been hired as a management trainee by Cravat Sales Company, a nationwide distributor of a designer's silk ties. The company has an exclusive franchise on the distribution of the ties, and sales have grown so rapidly over the last few years that it has become necessary to add new
The questions in this exercise give you an appreciation for the complexity of budgeting in a large multinational corporation. To answer the questions, you will need to download the Procter & Gamble (P&G) 2005 Annual Report at www.pg.com/investors/sectionmain.jhtml and briefly refer to “Item
What is a quantity standard? What is a price standard?
If employees are chronically unable to meet a standard, what effect would you expect this to have on their productivity?
What is the difference between a standard and a budget?
What is meant by the term variance?
If variable manufacturing overhead is applied to production on the basis of direct labor-hours and the direct labor efficiency variance is unfavorable, will the variable overhead efficiency variance be favorable or unfavorable, or could it be either? Explain.
What are the advantages of making formal journal entries in the accounting records for variances?
Svenska Pharmicia, a Swedish pharmaceutical company, makes an anticoagulant drug. The main ingredient in the drug is a raw material called Alpha SR40. Information concerning the purchase and use of Alpha SR40 follows:Purchase of Alpha SR40: The raw material Alpha SR40 is purchased in 2-kilogram
Harmon Household Products, Inc., manufactures a number of consumer items for general household use. One of these products, a chopping board, requires an expensive hardwood. During a recent month, the company manufactured 4,000 chopping boards using 11,000 board feet of hardwood. The hardwood cost
AirMeals, Inc., prepares in-flight meals for a number of major airlines. One of the company’s products is stuffed cannelloni with roasted pepper sauce, fresh baby corn, and spring salad. During the most recent week, the company prepared 6,000 of these meals using 1,150 direct labor-hours. The
Order Up, Inc., provides order fulfillment services for dot.com merchants. The company maintains warehouses that stock items carried by its dot.com clients. When a client receives an order from a customer, the order is forwarded to Order Up, which pulls the item from storage, packs it, and ships it
Lipex, Ltd., of Birmingham, England, is interested in cutting the amount of time between when a customer places an order and when the order is completed. For the first quarter of the year, the following data were reported:Inspection time . . . . . . . 0.5 daysProcess time . . . . . . . . . 2.8
Kinkel Corporation makes a product with the following standard costs for direct material and direct labor:Direct material: 1.50 meters at $5.40 per meter . . . . . . . $8.10Direct labor: 0.25 hours at $14.00 per hour . . . . . . . . . . . $3.50During the most recent month, 8,000 units were
Czar Nicholas Chocolatier, Ltd. , makes premium handcrafted chocolate confections in London. The owner of the company is setting up a standard cost system and has collected the following data for one of the company’s products, the Imperial Truffle. This product is made with the fi nest white
Topper Toys has developed a new toy called the Brainbuster. The company has a standard cost system to help control costs and has established the following standards for the Brainbuster toy:Direct materials: 8 diodes per toy at $0.30 per diodeDirect labor: 1.2 hours per toy at $7 per hourDuring
Sonne Company produces a perfume called Whim. The direct materials and direct labor standards for one bottle of Whim are given below:During the most recent month, the following activity was recorded:a. Twenty thousand ounces of material were purchased at a cost of $2.40 per ounce.b. All of the
Refer to the data in Exercise 10-10. Assume that instead of producing 2,500 bottles of Whim during the month, the company produced only 2,000 bottles using 16,000 ounces of material. (The rest of the material purchased remained in raw materials inventory.)Required:Compute the direct materials price
Hollowell Audio, Inc., manufactures military-specification compact discs. The company uses standards to control its costs. The labor standards that have been set for one disc are as follows:During July, 8,500 hours of direct labor time were recorded to make 20,000 discs. The direct labor cost
The Worldwide Credit Card, Inc. , uses standards to control the labor time involved in opening mail from card holders and recording the enclosed remittances. Incoming mail is gathered into batches, and a standard time is set for opening and recording each batch. The labor standards relating to one
Aspen Products, Inc., began production of a new product on April 1. The company uses a standard cost system and has established the following standards for one unit of the new product:During April, the following activity was recorded regarding the new product:a. Purchased 7,000 feet of material at
Portland Company's Ironton Plant produces precast ingots for industrial use. Carlos Santiago, who was recently appointed general manager of the Ironton Plant, has just been handed the plant's income statement for October. The statement is shown below:Mr. Santiago was shocked to see the loss for the
“What’s going on in that lab?” asked Derek Warren, chief administrator for Cottonwood Hospital, as he studied the prior month’s reports. “Every month the lab teeters between a profit and a loss. Are we going to have to increase our lab fees again?”“We can’t,” replied Lois Ankers,
Vermont Mills, Inc., is a large producer of men's and women's clothing. The company uses standard costs for all of its products. The standard costs and actual costs for a recent period are given below for one of the company's product lines (per unit of product):During this period, the company
Barberry, Inc., manufactures a product called Fruta. The company uses a standard cost system and has established the following standards for one unit of Fruta:During June, the company recorded this activity relative to production of Fruta:a. The company produced 3,000 units during June.b. A total
MacIntyre Fabrications, Ltd., of Aberdeen, Scotland, has recently begun a continuous improvement campaign in conjunction with a move toward Lean Production. Management has developed new performance measures as part of this campaign. The following operating data have been gathered over the last four
L’Essence is a small cosmetics company located in the perfume center of Grasse in southern France. The company plans to introduce a new body oil, called Energique, for which it needs to develop a standard product cost. The following information is available on the production of Energique:a. The
Exeter Corporation has recently begun a continuous improvement campaign. As a consequence, there have been many changes in operating procedures. Progress has been slow, particularly in trying to develop new performance measures for the factory. Management has been gathering the following data over
Deer Creek ski resort was for many years a small, family-owned resort serving day skiers from nearby towns. Deer Creek was recently acquired by Mountain Associates, a major ski resort operator with destination resorts in several western states. The new owners have plans to upgrade the resort into a
Le Forestier, S.A., is a small company that processes wild mushrooms found in the forests of central France. For many years, Le Forestier’s products have had strong sales in France. However, companies from other countries in the European common market such as Italy and Spain have begun marketing
Topaz Company produces a single product. The company has set standards as follows for materials and labor:During the past month, the company purchased 6,000 pounds of direct materials at a cost of $16,500.All of this material was used in the production of 1,400 units of product. Direct labor cost
Topline Surf Boards manufactures a single product. The standard cost of one unit of this product is as follows:Direct materials: 6 feet at $1 per foot . . . . . . . . . . . . . . . . . . . . . . $ 6.00Direct labor: 1 hour at $4.50 per hour . . . . . . . . . . . . . . . . . . . . . . . .
Helix Company produces several products in its factory, including a karate robe. The company uses a standard cost system to assist in the control of costs. According to the standards that have been set for the robes, the factory should work 780 direct labor-hours each month and produce 1,950 robes.
Vitalite, Inc., produces a number of products, including a body-wrap kit. Standard variable costs relating to a single kit are given below:During August, 500 kits were manufactured and sold. Selected information relating to the month's production is given below:The following additional information
Weierman Department Store is located in the downtown area of a medium-sized city in the American Midwest. While the store had been profitable for many years, it is facing increasing competition from large national chains that have set up stores in the city’s suburbs. Recently the downtown area
What is a static budget?
Name three criteria that should be considered in choosing an activity base on which to construct a flexible budget.
In a performance report for variable overhead, what variance(s) will be produced if the flexible budget is based on actual hours worked? On both actual hours worked and standard hours allowed?
What is meant by the term standard hours allowed?
How does the variable manufacturing overhead spending variance differ from the materials price variance?
Why is the term overhead efficiency variance potentially misleading?
What is meant by the term denominator level of activity?
Why do we apply overhead to work in process on the basis of standard hours allowed in Chapter 11 when we applied it on the basis of actual hours in Chapter 3? What is the difference in costing systems between the two chapters?
In a standard cost system, what two variances are computed for fixed manufacturing overhead?
Under what circumstances would you expect the volume variance to be favorable? Unfavorable? Does the variance measure deviations in spending for fixed overhead items? Explain.
What is the danger in expressing fixed costs on a per unit basis?
Underapplied or overapplied overhead can be broken down into what four variances?
If factory overhead is overapplied for August, would you expect the total of the overhead variances to be favorable or unfavorable?
The cost formulas for Swan Company’s manufacturing overhead costs are given below. The costs cover a range of 8,000 to 10,000 machine-hours.Overhead Costs Cost FormulaSupplies . . . . . . . . . . . . . . $0.20 per machine-hourIndirect labor . . . . . . . . . . $10,000 plus $0.25 per
Canyonland Boat Charter Service rents live-aboard houseboats for cruising on the lake that traverses most of the Glen Canyon National Recreation area in Southern Utah. The company bases its overhead cost budgets on the following data:Variable overhead costs:Cleaning . . . . . . . . . . . . . . . .
Jessel Corporation bases its variable overhead performance report on the actual direct labor-hours of the period. Data concerning the most recent year that ended on December 31 are as follows:Budgeted direct labor-hours . . . . . . . . . . . . . 42,000Actual direct labor-hours . . . . . . . . . . .
Refer to the data in Exercise 11-3 for Jessel Corporation. Management would like to compute both spending and efficiency variances for variable overhead in the company’s variable overhead performance report.Required:Prepare a variable overhead performance report using the format in Exhibit
Mosbach Corporation has a standard cost system in which it applies overhead to products based on the standard direct labor-hours allowed for the actual output of the period. Data concerning the most recent year appear below:Variable overhead cost per direct labor-hour . . . . . . . . . . . . . . .
Lusive Corporation has a standard cost system in which it applies overhead to products based on the standard direct labor-hours allowed for the actual output of the period. Data concerning the most recent year appear below:Total budgeted fixed overhead cost for the year . . . . . . . . . . . . . .
An incomplete flexible budget for overhead is given below for AutoPutz, Gmbh, a German company that owns and operates a large automatic carwash facility near KÃ¶ln. The German currency is the euro, which is denoted by ‚¬.Required:Fill in the missing data in the flexiblebudget.
Refer to the data in Exercise 11-7. AutoPutz, Gmbh?s owner-manager would like to prepare a budget for August assuming an activity level of 8,200 cars. Data from Exercise 11-7 Required: Prepare a static budget for August.
Refer to the data in Exercise 11-7. AutoPutz, Gmbh’s actual level of activity during August was 8,300 cars, although the owner had constructed his static budget for the month assuming the level of activity would be 8,200 cars. The actual overhead costs incurred during August are given below:Data
The variable portion of Whaley Company€™s flexible budget for manufacturing overhead is as follows:During a recent period, the company recorded 16,000 machine-hours of activity. The variable overhead costs incurred were as follows:Utilities . . . . . . . . . . . . $20,000Supplies . . . .
Weller Company's flexible budget for manufacturing overhead (in condensed form) followsThe following information is available for a recent period:a. The denominator activity of 8,000 machine-hours was chosen to compute the predetermined overhead rate.b. At the 8,000 standard machine-hours level of
The standard cost card for the single product manufactured by Prince Company is given below:Standard Cost Card'Per UnitDirect materials, 3.5 feet at $4 per foot . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14.00Direct labor, 0.8 direct labor-hours at $18 per direct labor-hour
The check-clearing office of San Juan Bank is responsible for processing all checks that come to the bank for payment. Managers at the bank believe that variable overhead costs are essentially proportional to the number of labor-hours worked in the office, so labor-hours are used as the activity
Selected information relating to the fixed overhead costs of Westwood Company for the most recent year is given below:Activity:Number of units produced . . . . . . . . . . . . . . . . . . . 9,500Standard machine-hours allowed per unit . . . . . . . 2Denominator activity (machine-hours) . . . . . .
Operating at a normal level of 24,000 direct labor-hours, Trone Company produces 8,000 units of product. The direct labor wage rate is $12.60 per hour. Two pounds of raw materials go into each unit of product at a cost of $4.20 per pound. A flexible budget is used to plan and control overhead
Selected operating information on three different companies for a recent period is given below:Required:For each company, state whether the volume variance would be favorable or unfavorable; also, explain in each case why the volume variance would be favorable orunfavorable.
Shipley Company has had a comprehensive budgeting system in operation for several years. Feelings vary among the managers as to the value and benefit of the system. The line supervisors are very happy with the reports being prepared on their performance, but upper management often expresses
It certainly is nice to see that small variance on the income statement after all the trouble we’ve had lately in controlling manufacturing costs,” said Linda White, vice president of Molina Company. “The $12,250 overall manufacturing variance reported last period is well below the 3% limit
Highland Shortbread, Ltd. , of Aberdeen, Scotland, produces a single product and uses a standard cost system to help control costs. Manufacturing overhead is applied to production on the basis of standard machine-hours. According to the company's flexible budget, the following overhead costs should
The KGV Blood Bank, a private charity partly supported by government grants, is located on the Caribbean island of St. Lucia. The blood bank has just finished its operations for September, which was a particularly busy month due to a powerful hurricane that hit neighboring islands, causing many
Dresser Company uses a standard cost system and sets predetermined overhead rates on the basis of direct labor-hours. The following data are taken from the company’s budget for the current year:Denominator activity (direct labor-hours) . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rowe Company manufactures a variety of products in several departments. Budgeted costs for the company's Finishing Department for the year have been set as follows:Variable costs:Direct materials . . . . . . . . . . . . . . . $ 600,000Direct labor . . . . . . . . . . . . . . . . . . .
Elgin Company has recently introduced budgeting as an integral part of its corporate planning process. An inexperienced member of the accounting staff was given the assignment of constructing a flexible budget for manufacturing overhead costs and prepared it in the format that follows:The company
Wymont Company produces a single product that requires a large amount of labor time. Overhead cost is applied on the basis of standard direct labor-hours. The company's condensed flexible budget for manufacturing overhead is given below:The company's product requires 4 feet of direct material that
Durrant Company has had great difficulty in controlling manufacturing overhead costs. At a recent convention, the president heard about a control device for overhead costs known as a flexible budget, and he has hired you to implement this budgeting program in Durrant Company. After some effort, you
Ronald Davis, superintendent of Mason Company€™s Milling Department, is very happy with his performance report for the past month. The report follows:Upon receiving a copy of this report, John Arnold, the production manager, commented, €œI€™ve been getting these
The condensed flexible budget for manufacturing overhead of the Scott Company is as follows:The company produces a single product that requires 2.5 direct labor-hours to complete. The direct labor wage rate is $20 per hour. Three yards of raw material are required for each unit of product, at a
Ronson Products, Ltd., an Australian company, has the following cost formulas (expressed in Australian dollars) for variable overhead costs in one of its machine shops:Variable Cost FormulaOverhead Cost (per machine-hour)Supplies . . . . . . . . . . .
The Munchkin Theater is a nonprofit organization devoted to staging theater productions of plays for children in Toronto, Canada. The theater has a very small full-time professional administrative staff. Through a special arrangement with the actors€™ union, actors and directors rehearse
Mark Fletcher, president of SoftGro Inc., was looking forward to seeing the performance reports for November because he knew the company€™s sales for the month had exceeded budget by a considerable margin. SoftGro, a distributor of educational software packages, had been growing steadily
Lance Prating is the controller of the Colorado Springs manufacturing facility of Advance Macro, Incorporated. Among the many reports that must be fi led with corporate headquarters is the annual overhead performance report. The report covers the year which ends on December 31 and is due at
What does the price elasticity of demand measure? What is inelastic demand? What is elastic demand?
Kimio Nakimura owns an ice cream stand that she operates during the summer months in Jackson Hole, Wyoming. Her store caters primarily to tourists passing through town on their way to Yellowstone National Park.Kimio is unsure of how she should price her ice cream cones and has experimented with two
Naylor Company is considering the introduction of a new product. Management has gathered the following information:Number of units to be produced and sold each year . . . . . . . . . 12,500Unit product cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $30Projected annual
Eastern Auto Supply, Inc., produces and distributes auto supplies. The company is anxious to enter the rapidly growing market for long-life batteries that is based on lithium technology. Management believes that to be fully competitive, the price of the new battery that the company is developing
Euclid Fashions, Inc., is introducing a sports jacket. A standard cost card has been prepared for the new jacket, as shown below:The following additional information relating to the new jacket is available:a. The only variable selling and administrative cost will be $4 per jacket for shipping.
The postal service of St. Lucia, an island in the West Indies, obtains a significant portion of its revenues from sales of special souvenir sheets to stamp collectors. The souvenir sheets usually contain several high-value St. Lucia stamps depicting a common theme, such as the anniversary of
Softway, Inc., was started by two young software engineers to market AdBlocker, a software application they had written that blocks ads when surfing the Internet. Sales of the software have been good at 20,000 units a month, but the company has been losing money as shown below:Sales (20,000 units

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