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managerial accounting
Accounting Principles 9th Edition Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso - Solutions
Grissom Company estimates that variable costs will be 60% of sales, and fixed costs will total $800,000.The selling price of the product is $4.Instructions(a) Prepare a CVP graph, assuming maximum sales of $3,200,000. (Note: Use $400,000 increments for sales and costs and 100,000 increments for
In 2010, Hadicke Company had a break-even point of $350,000 based on a selling price of $7 per unit and fixed costs of $105,000. In 2011, the selling price and the variable cost per unit did not change, but the break-even point increased to $420,000.Instructions(a) Compute the variable cost per
NIU Company has the following information available for September 2010.Unit selling price of video game consoles ........$ 400Unit variable costs ..................$ 270Total fixed costs ..................$52,000Units sold .....................620Instructions(a) Prepare a CVP income statement that
Lynn Company had $150,000 of net income in 2010 when the selling price per unit was$150, the variable costs per unit were $90, and the fixed costs were $570,000. Management expects per unit data and total fixed costs to remain the same in 2011. The president of Lynn Company is under pressure from
Moran Company reports the following operating results for the month of August: Sales $350,000 (units 5,000); variable costs $210,000; and fixed costs $90,000. Management is considering the following independent courses of action to increase net income.1. Increase selling price by 10% with no change
Polzin Company had sales in 2010 of $1,500,000 on 60,000 units. Variable costs totaled $840,000, and fixed costs totaled $500,000.A new raw material is available that will decrease the variable costs per unit by 20% (or $2.80). However, to process the new raw material, fixed operating costs will
Titus Equipment Company manufactures and distributes industrial air compressors. The following costs are available for the year ended December 31, 2010.The company has no beginning inventory. In 2010, 1,500 units were produced, but only 1,300 units were sold. The unit selling price was $4,500.
Cowell Corporation produces one product. Its cost includes direct materials ($10 per unit), direct labor ($8 per unit), variable overhead ($6 per unit), fixed manufacturing ($250,000), and fixed selling and administrative ($30,000). In October 2010, Cowell produced 25,000 units and sold 20,000 at
Matt Reiss owns the Fredonia Barber Shop. He employs five barbers and pays each a base rate of $1,000 per month. One of the barbers serves as the manager and receives an extra $500 per month. In addition to the base rate, each barber also receives a commission of $5.50 per haircut.Other costs are
Utech Company bottles and distributes Livit, a diet soft drink. The beverage is sold for 50 cents per 16-ounce bottle to retailers, who charge customers 75 cents per bottle. For the year 2010, management estimates the following revenues and costs. Instructions(a) Prepare a CVP income statement
Gorham Manufacturing’s sales slumped badly in 2010. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling 600,000 units of product: Net sales $2,400,000; total costs and expenses 2,540,000; and net loss $140,000. Costs
Alice Shoemaker is the advertising manager for Value Shoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $34,000 in fixed costs to the $270,000 currently spent. In addition, Alice
Poole Corporation has collected the following information after its first year of sales. Net sales were $1,600,000 on 100,000 units; selling expenses $240,000 (40% variable and 60% fixed); direct materials $511,000; direct labor $285,000; administrative expenses $280,000 (20% variable and 80%
TLR produces plastic that is used for injection molding applications such as gears for small motors. In 2010, the first year of operations, TLR produced 6,000 tons of plastic and sold 5,000 tons. In 2011, the production and sales results were exactly reversed. In each year, selling price per ton
The McCune Barber Shop employs four barbers. One barber, who also serves as the manager, is paid a salary of $3,900 per month. The other barbers are paid $1,900 per month. In addition, each barber is paid a commission of $2 per haircut. Other monthly costs are: store rent $700 plus 60 cents per
Huber Company bottles and distributes No-FIZZ, a fruit drink. The beverage is sold for 50 cents per 16-ounce bottle to retailers, who charge customers 70 cents per bottle. For the year 2010, management estimates the following revenues and costs. Instructions(a) Prepare a CVP income statement
Keppel Manufacturing had a bad year in 2010. For the first time in its history it operated at a loss.The company's income statement showed the following results from selling 60,000 units of product: Net sales $1,500,000; total costs and expenses $1,890,000; and net loss $390,000. Costs and expenses
Jane Greinke is the advertising manager for Payless Shoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $24,000 in fixed costs to the $210,000 currently spent. In addition, Jane
Mortonsen Corporation has collected the following information after its first year of sales. Net sales were $2,000,000 on 100,000 units; selling expenses $400,000 (30% variable and 70% fixed); direct materials $600,000; direct labor $340,000; administrative expenses $500,000 (30% variable and 70%
Blanco Metal Company produces the steel wire that goes into the production of paper clips. In 2010, the first year of operations, Blanco produced 50,000 miles of wire and sold 45,000 miles. In 2011, the production and sales results were exactly reversed. In each year, selling price per mile was
Gagliano Company has decided to introduce a new product. The new product can be manufactured by either a capital-intensive method or a labor-intensive method. The manufacturing method will not affect the quality of the product. The estimated manufacturing costs by the two methods are as
The condensed income statement for the Terri and Jerri partnership for 2010 is as follows. A cost behavior analysis indicates that 75% of the cost of goods sold are variable, 50% of the selling expenses are variable, and 25% of the administrative expenses are variable.Instructions(Round to
The Coca-Cola Company hardly needs an introduction. A line taken from the cover of a recent annual report says it all: If you measured time in servings of Coca-Cola, “a billion Coca- Cola’s ago was yesterday morning.” On average, every U.S. citizen drinks 363 8-ounce servings of Coca-Cola
Ganong Bros. Ltd., located in St. Stephen, New Brunswick, is Canada’s oldest independent candy company. Its products are distributed worldwide. In 1885, Ganong invented the popular “chicken bone,” a cinnamon flavored, pink, hard candy jacket over a chocolate center. The home page of Ganong,
Your roommate asks your help on the following questions about CVP analysis formulas.(a) How can the mathematical equation for break-even sales show both sales units and sales dollars?(b) How do the formulas differ for contribution margin per unit and contribution margin ratio?(c) How can
Kenny Hampton is an accountant for Bartley Company. Early this year Kenny made a highly favorable projection of sales and profits over the next 3 years for Bartley’s hot-selling computer PLEX. As a result of the projections Kenny presented to senior management, they decided to expand production
In the All About You feature in this chapter, you learned that cost-volumeprofit analysis can be used in making personal financial decisions. The purchase of a new car is one of your biggest personal expenditures. It is important that you carefully analyze your options.Suppose that you are
What steps are frequently involved in management’s decision-making process?
Your roommate, Matt Mikan, contends that accounting contributes to most of the steps in management’s decision- making process. Is your roommate correct? Explain.
Jerry Karr asks your help concerning the relevance of variable and fixed costs in incremental analysis. Help Jerry with his problem.
Define the term “opportunity cost.” How may this cost be relevant in a make-or-buy decision?
How is the contribution margin per unit of limited resources computed?
Describe the process a company may use in screening and approving the capital expenditure budget.
Hector Ruiz is trying to understand the term “cost of capital.” Define the term, and indicate its relevance to the decision rule under the annual rate of return technique.
Pete Hetzel claims the formula for the cash payback technique is the same as the formula for the annual rate of return technique. Is Pete correct? What is the formula for the cash payback technique?
What are the advantages and disadvantages of the cash payback technique?
Two types of present value tables may be used with the discounted cash flow technique. Identify the tables and the circumstance(s) when each table should be used.
Identify the steps required in using the internal rate of return method.
Gillaspie Company uses the internal rate of return method. What is the decision rule for this method?
The steps in management’s decision-making process are listed in random order below.Indicate the order in which the steps should be executed.—Make a decision. .........—Review results of the decision.—Identify the problem and .....—Determine and evaluateassign responsibility.
Ming Company is considering two alternatives. Alternative A will have sales of $150,000 and costs of $100,000. Alternative B will have sales of $180,000 and costs of $120,000. Compare Alternative A to Alternative B showing incremental revenues, costs, and net income. Which alternative should you
In Karnes Company it costs $30 per unit ($20 variable and $10 fixed) to make a product that normally sells for $45. A foreign wholesaler offers to buy 4,000 units at $23 each. Karnes will incur special shipping costs of $1 per unit. Assuming that Karnes has excess operating capacity, prepare an
Bartley Manufacturing incurs unit costs of $8 ($5 variable and $3 fixed) in making a sub-assembly part for its finished product. A supplier offers to make 10,000 of the part at $5.30 per unit. If the offer is accepted, Bartley will save all variable costs but no fixed costs. Prepare an analysis
Stanton Inc. makes unfinished bookcases that it sells for $60. Production costs are $30 variable and $10 fixed. Because it has unused capacity, Stanton is considering finishing the bookcases and selling them for $72.Variable finishing costs are expected to be $8 per unit with no increase in fixed
Felton Company has a factory machine with a book value of $90,000 and a remaining useful life of 4 years. A new machine is available at a cost of $200,000. This machine will have a 4-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $600,000
Derby, Inc. manufactures golf clubs in three models. For the year, the Eagle line has a net loss of $20,000 from sales $200,000, variable expenses $180,000, and fixed expenses $40,000. If the Eagle line is eliminated, $34,000 of fixed costs will remain. Prepare an analysis showing whether the Eagle
In Nevitt Company, data concerning two products are: Contribution margin per unit—Product A $11, Product B $12; machine hours required for one unit—Product A 2, Product B 2.5. Compute the Contribution margin per unit of limited resource for each product.
Adler Company is considering purchasing new equipment for $300,000. It is expected that the equipment will produce annual net income of $10,000 over its 10-year useful life. Annual depreciation will be $30,000. Compute the cash payback period.
Engles Oil Company is considering investing in a new oil well. It is expected that the oil well will increase annual revenues by $130,000 and will increase annual expenses by $80,000 including depreciation. The oil well will cost $490,000 and will have a $10,000 salvage value at the end of its
Harry Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $395,000, has an expected useful life of 10 years, a salvage value of zero, and is expected to increase net annual cash flows by $70,000. Project B will cost $270,000, has an expected
Frost Company is evaluating the purchase of a rebuilt spot-welding machine to be used in the manufacture of a new product. The machine will cost $170,000, has an estimated useful life of 7 years, a salvage value of zero, and will increase net annual cash flows by $33,740.What is its approximate
Horak Company accumulates the following data concerning a proposed capital investment: cash cost $225,000, net annual cash flow $34,000, present value factor of cash inflows for 10 years 6.71 (rounded). Determine the net present value, and indicate whether the investment should be made.
Corn Company incurs a cost of $35 per unit, of which $20 is variable, to make a product that normally sells for $58. A foreign wholesaler offers to buy 6,000 units at $31 each. Corn will incur additional costs of $2 per unit to imprint a logo and to pay for shipping. Compute the increase or
Barney Company must decide whether to make or buy some of its components.The costs of producing 60,000 switches for its generators are as follows.Direct materials $30,000 Variable overhead $45,000Direct labor $42,000 Fixed overhead $60,000Instead of making the switches at an average cost of $2.95
Lion Corporation manufactures several types of accessories. For the year, the gloves and mittens line had sales of $500,000, variable expenses of $375,000, and fixed expenses of $150,000.Therefore, the gloves and mittens line had a net loss of $25,000. If Lion eliminates the line, $40,000 of fixed
Beacon Company is considering purchasing new equipment for $350,000.The equipment has a 5-year useful life, and depreciation would be $70,000 (assuming straight-line depreciation and zero salvage value).The purchase of the equipment should increase net income by $40,000 each year for 5 years.(a)
Maranantha Box Corporation is considering adding another machine for the manufacture of corrugated cardboard. The machine would cost $700,000. It would have an estimated life of 6 years and no salvage value. The company estimates that annual cash inflows would increase by $300,000 and that annual
Pender has prepared the following list of statements about decision making and incremental analysis.1. The first step in management’s decision-making process is, “Determine and evaluate possible courses of action.”2. The final step in management’s decision-making process is to actually make
Wyco Company manufactures toasters. For the first 8 months of 2011, the company reported the following operating results while operating at 75% of plant capacity.Sales (400,000 units) ... .$4,000,000Cost of goods sold .....2,400,000Gross profit ........1,600,000Operating expenses ...... 900,000Net
Innova Company produces golf discs which it normally sells to retailers for $7 each. The cost of manufacturing 20,000 golf discs is:Materials .....$ 10,000Labor .......30,000Variable overhead ..20,000Fixed overhead... 40,000Total .......$100,000Innova also incurs 5% sales commission ($0.35) on each
Shannon Inc. has been manufacturing its own shades for its table lamps. The company is currently operating at 100% of capacity. Variable manufacturing overhead is charged to production at the rate of 50% of direct labor cost. The direct materials and direct labor cost per unit to make the lamp
Stacy McGuire recently opened her own basketweaving studio. She sells finished baskets in addition to the raw materials needed by customers to weave baskets of their own. Stacy has put together a variety of raw material kits, each including materials at various stages of completion. Unfortunately,
Donkey Bikes could sell its bicycles to retailers either assembled or unassembled. The cost of an unassembled bike is as follows.Direct materials ............$150Direct labor ..............70Variable overhead (70% of direct labor)....49Fixed overhead (30% of direct labor) .....21Manufacturing cost
Crone Enterprises uses a word processing computer to handle its sales invoices. Lately, business has been so good that it takes an extra 3 hours per night, plus every third Saturday, to keep up with the volume of sales invoices. Management is considering updating its computer with a faster model
Judy Herzog, a recent graduate of Rolling’s accounting program, evaluated the operating performance of Klumpe Company’s six divisions. Judy made the following presentation to the Klumpe board of directors and suggested the Ketchum Division be eliminated. “If the Ketchum Division is
Shatner Company makes three models of phasers. Information on the three products is given below.Fixed expenses consist of $300,000 of common costs allocated to the three products based on relative sales, and additional fixed expenses of $30,000 (Stunner), $75,000 (Double-Set), and $30,000
Freese Company manufactures and sells three products. Relevant per unit data concerning each product are given below.Instructions(a) Compute the contribution margin per unit of the limited resource (machine hour) for each product.(b) Assuming 3,000 additional machine hours are available, which
Carleton Service Center just purchased an automobile hoist for $15,000.The hoist has a 5-year life and an estimated salvage value of $1,080. Installation costs were $2,900, and freight charges were $820. Carleton uses straight-line depreciation.The new hoist will be used to replace mufflers and
Suzaki Manufacturing Company is considering three new projects, each requiring an equipment investment of $22,000. Each project will last for 3 years and produce the following cash inflows.The equipment’s salvage value is zero. Suzaki uses straight-line depreciation. Suzaki will not accept any
Rondello Company is considering a capital investment of $150,000 in additional productive facilities. The new machinery is expected to have a useful life of 5 years with no salvage value. Depreciation is by the straight-line method. During the life of the investment, annual net income and cash
Omega Company is considering three capital expenditure projects. Relevant data for the projects are as follows.Annual income is constant over the life of the project. Each project is expected to have zero salvage value at the end of the project. Omega Company uses the straight-line method of
Vasquez Corporation is considering investing in two different projects. It could invest in both, neither, or just one of the projects. The forecasts for the projects are as follows.The minimum rate of return acceptable to Vasquez is 10%.Instructions(a) Compute the net present value of the two
Korte Company is currently producing 16,000 units per month, which is 80% of its production capacity. Variable manufacturing costs are currently $8.00 per unit. Fixed manufacturing costs are $56,000 per month. Korte pays a 9% sales commission to its sales people, has $30,000 in fixed administrative
The management of Martinez Manufacturing Company has asked for your assistance in deciding whether to continue manufacturing a part or to buy it from an outside supplier. The part, called Tropica, is a component of Martinez’s finished product.An analysis of the accounting records and the
Deskins Manufacturing Company has four operating divisions. During the first quarter of 2010 the company reported total income from operations of $61,000 and the following results for the divisions. Analysis reveals the following percentages of variable costs in each division. Discontinuance
Timmons Corporation is considering three long-term capital investment proposals.Relevant data on each project are as follows.Salvage value is expected to be zero at the end of each project. Depreciation is computed by the straight-line method. The company’s minimum rate of return is the
Wendy Dobson is the managing director of the Wichita Day Care Center. Wichita is currently set up as a full-time child care facility for children between the ages of 12 months and 6 years. Wendy is trying to determine whether the center should expand its facilities to incorporate a newborn care
Aqua Tech Testing is considering investing in a new testing device. It has two options: Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 5 years. Option B would require no rebuilding expenditure, but its maintenance costs would be higher.
Haslett Inc. manufactures basketballs for the National Basketball Association (NBA). For the first 6 months of 2011, the company reported the following operating results while operating at 90% of plant capacity. Fixed costs for the period were: Cost of goods sold $900,000, and selling and
The management of Finnigan Manufacturing Company is trying to decide whether to continue manufacturing a part or to buy it from an outside supplier. The part, called BIZBE, is a component of the company’s finished product.The following information was collected from the accounting records and
Tryon Manufacturing Company has four operating divisions. During the first quarter of 2011, the company reported aggregate income from operations of $135,000 and the divisional results shown on the next page.Analysis reveals the following percentages of variable costs in each
Bensen Corporation is considering three long-term capital investment proposals. Each investment has a useful life of 5 years. Relevant data on each project are as follows.Depreciation is computed by the straight-line method with no salvage value. The company’s cost of capital is
Betty Dillman is an accounting major at a midwestern state university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan area and visit their homes regularly on the weekends. Betty, an entrepreneur at heart, realizes that few
Oklahoma Clinic is considering investing in new heart-monitoring equipment. It has two options: Option A would have an initial lower cost but would require a significant expenditure for rebuilding after 4 years. Option B would require no rebuilding expenditure, but its maintenance costs would be
Morganstern Company is considering the purchase of a new machine. The invoice rice of the machine is $170,000, freight charges are estimated to be $4,000, and installation costs are expected to be $6,000. Salvage value of the new equipment is expected to be zero after a useful life of 4 years.
Barone Company manufactures private-label small electronic products, such as alarm clocks, calculators, kitchen timers, stopwatches, and automatic pencil sharpeners. Some of the products are sold as sets, and others are sold individually. Products are studied as to their sales potential, and then
Founded in 1983, the Beverly Hills Fan Company is located in Woodland Hills, California. With 23 employees and sales of less than $10 million, the company is relatively small. Management feels that there is potential for growth in the upscale market for ceiling fans and lighting. They are
Campbell Soup Company is an international provider of soup products. Management is very interested in continuing to grow the company in its core business, while “spinning off” those businesses that are not part of its core operation.Address: www.campbellsoups.com, or go to
Refer back to E26-11 to address the following.InstructionsPrepare a memo to Angie Baden, your supervisor. Show your calculations from E26-11, parts (a) And (b). In one or two paragraphs, discuss important nonfinancial considerations. Make any assumptions you believe to be necessary. Make a
DeVito Company operates in a state where corporate taxes and workmen’s compensation insurance rates have recently doubled. DeVito’s president has assigned you the task of preparing an economic analysis and making a recommendation about whether to move the company’s entire operation to
Managerial accounting techniques can be used in a wide variety of settings. As we have frequently pointed out, you can use them in many personal situations. They also can be useful in trying to find solutions for societal issues that appear to be hard to solve.InstructionsRead the Fortune article
(a) “Managerial accounting is a field of accounting that provides economic information for all interested parties.” Do you agree? Explain.(b) Mary Barett believes that managerial accounting serves only manufacturing firms. Is Mary correct? Explain.
Distinguish between managerial and financial accounting as to(a) Primary users of reports,(b) Types and frequency of reports, and(c) Purpose of reports.
How does the content of reports and the verification of reports differ between managerial and financial accounting?
In what ways can the budgeting process create incentives for unethical behavior?
Karen Fritz is studying for the next accounting mid-term examination. Summarize for Karen what she should know about management functions.
“Decision making is management’s most important function.” Do you agree? Why or why not?
What new rules were enacted under the Sarbanes-Oxley Act to address unethical accounting practices?
Stan Kaiser is studying for his next accounting examination. Explain to Stan what he should know about the differences between the income statements for a manufacturing and for a merchandising company.
Terry Lemay is unclear as to the difference between the balance sheets of a merchandising company and a manufacturing company. Explain the difference to Terry.
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