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managerial accounting

Managerial Accounting 13th Edition Ray H. Garrison, Eric W. Noreen, Peter C. Brewer - Solutions

Hokuriku-Seika Co., Ltd., of Yokohama, Japan, is a subcontractor to local manufacturing companies. The company specializes in precision metal cutting using focused high-pressure water jets and high-energy lasers. The company has a traditional job-order costing system in which direct labor and
This question should be answered only after Research and Application 5—20 are completed.Required:1. Referring to the data for Blue Nile in Research and Application 5-20 and the data on net sales available on the company’s website, estimate the variable and fixed components of the company’s
What is meant by a product’s contribution margin ratio? How is this ratio useful in planning business operations?
In all respects, Company A and Company B are identical except that Company A’s costs are mostly variable, whereas Company B’s costs are mostly fixed, When sales increase, which Company will tend to realize the greatest increase in profits? Explain.
What is meant by the term operating leverage?
In response to a request from your immediate supervisor, you have prepared a CVP graph portraying the cost and revenue characteristics of your company’s product and operations. Explain how the lines on the graph and the break-even point would change if(a) The selling price per unit decreased,(b)
Explain how a shift in the sales mix could result in both a higher break-even point and a lower net income.
Whirly Corporation’s most recent income statement is shown below:Required:Prepare a new contribution format income statement under each of the following conditions (consider each case independently):1. The sales volume increases by 100 units.2. The sales volume decreases by 100 units.3. The sales
Karlik Enterprises distributes a single product whose selling price is $24 and whose variable expense is $18 per unit. The company’s monthly fixed expense is $24,000.Required:1. Prepare a cost-volume-profit graph for the company up to a sales level of 8,000 units.2. Estimate the company’s
Jaffre Enterprises distributes a single product whose selling price is $16 and whose variable expense is $11 per unit. The company’s fixed expense is $16,000 per month.Required:1. Prepare a profit graph for the company up to a sales level of 4,000 units.2. Estimate the company’s break-even
Last month when Holiday Creations, Inc., sold 50,000 units, total sales were $200,000, total van- able expenses were $120,000, and fixed expenses were $65,000.Required:1. What is the company’s contribution margin (CM) ratio?2. Estimate the change in the company’s net operating income if it were
Data for Hermann Corporation are shown below:Fixed expenses are $30,000 per month and the company is selling 2,000 units per month.Required:1. The marketing manager argues that a $5,000 increase in the monthly advertising budget would increase monthly sales by $9,000. Should the advertising budget
Profit Lin Corporation has a single product whose selling price is $120 and whose variable expense is $80 per unit. The company’s monthly fixed expense is $50,000.Required:1. Using the equation method, solve for the unit sales that are required to earn a target profit of $10,000.2. Using the
Products distributes a single product, a woven basket whose selling price is $15 and whose variable expense is $12 per unit. The company’s monthly fixed expense is $4,200.Required:1. Solve for the company’s break-even point in unit sales using the equation method.2. Solve for the company’s
Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the next month’s budget appear below:Required:1. Compute the company’s margin of safety.2. Compute the company’s margin of safety as a percentage of its sales.
Engberg Company installs lawn sod in home yards. The company’s most recent monthly contribution format income statement follows:Required:1. Compute the company’s degree of operating leverage.2. Using the degree of operating leverage, estimate the impact on net operating income of a 5% increase
Lucido Products markets two computer games: Claimjumper and Makeover. A contribution format income statement for a recent month for the two games appears on the following page:Required:1. Compute the overall contribution margin (CM) ratio for the company.2. Compute the overall break-even point for
Miller Company’s most recent contribution format income statement is shown below:Required:Prepare a new contribution format income statement under each of the following conditions (consider each case independently):1. The number of units sold increases by 15%.2. The selling price decreases by
Menlo Company distributes a single product. The company’s sales and expenses for last month follow:Required:1. What is the monthly break-even point in units sold and in sales dollars?2. Without resorting to computations, what is the total contribution margin at the break-even point?3. How many
Lindon Company is the exclusive distributor for an automotive product that sells for $40 per unit and has a CM ratio of 30%. The company’s fixed expenses are $180,000 per year. The company plans to sell 16,000 units this year.Required:1. What are the variable expenses per unit?2. Using the
Fill in the missing amounts in each of the eight case situations below. Each case is independent of the othersa. Assume that only one product is being sold in each of the four following case situations:b. Assume that more than one product is being sold in each of the four following case situations:
Realm, Inc., has developed a new fantasy board game. The company sold 15,000 games last year at a selling price of $20 per game. Fixed costs associated with the game total $182,000 per year, and variable costs are $6 per game. Production of the game is entrusted to a printing contractor. Variable
Outback Outfitters sells recreational equipment. One of the company’s products, a small camp stove, sells for $50 per unit. Variable expenses are $32 per stove, and fixed expenses associated with the stove total $108,000 per month.Required:1. Compute the break-even point in number of stoves and
The Hartford Symphony Guild is planning its annual dinner-dance. The dinner-dance committee has assembled the following expected costs for the event:The committee members would like to charge $35 per person for the evening’s activities.Required:1. Compute the break-even point for the dinner-dance
Olongapo Sports Corporation is the distributor in the Philippines of two premium golf balls—the Flight Dynamic and the Sure Shot. Monthly sales, expressed in pesos (P), and the contribution margin ratios for the two products follow:Fixed expenses total P183,750 per month.Required:1. Prepare a
Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable costs are $8 per unit, and fixed costs total $180,000 per year. Required: Answer the following independent questions: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the
Gold Star Rice, Ltd., of Thailand exports Thai rice throughout Asia. The company grows three varieties of rice—Fragrant, White, and Loonzain. (The currency in Thailand is the baht. which is denoted by B.) Budgeted sales by product and in total for the coming month are shown below:As shown by
The Fashion Shoe Company operates a chain of women’s shoe shops around the country. The shops carry many styles of shoes that are all sold at the same price. Sales personnel in the shops are paid a substantial commission on each pair of shoes sold (in addition to a small basic salary) in order to
Cost Structure to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM, Inc., has been experiencing difficulty for some time. The company’s contribution format income statement for the most recent month is given below:Required:1. Compute the company’s CM ratio
Island Novelties, Inc., of Palau makes two products, Hawaiian Fantasy and Tahitian Joy. Present revenue, cost, and sales data for the two products follow:Fixed expenses total $475,800 per year. The Republic of Palau uses the U.S. dollar as its currency.Required:1. Assuming the sales mix given
A CVP graph such as the one shown below is a useful technique for showing relationships among an organization’s costs, volume, and profits.Required:1. Identify the numbered components in the CVP graph.2. State the effect of each of the following actions on line 3, line 9, and the break-even
Carbex, Inc., produces cutlery sets out of high-quality wood and steel. The company makes a standard cutlery set and a deluxe set and sells them to retail department stores throughout the country. The standard set sells for $60, and the deluxe set sells for $75. The variable expenses associated
Minden Company introduced a new product last year for which it is trying to find an optimal selling price. Marketing studies suggest that the company can increase sales by 5,000 units for each $2 reduction in the selling price. The company’s present selling price is $70 per unit, and variable
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable costs are high, totaling $15 per ball, of which 60% is direct labor cost. Last year, the company
Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, a store that specializes in fashionable sandals. Angie has just received a degree in business and she is anxious to apply the principles she has learned to her business. In time, she hopes to open a chain of sandal shops. As a
Changes in Cost Structure; Break-Even Analysis; Operating Leverage; Margin of Safety Morton Company’s contribution format income statement for last month is given below:The industry in which Morton Company operates is quite sensitive to cyclical movements in the economy. Thus, profits vary
The Shirt Works sells a large variety of tee shirts and sweatshirts. Steve Hooper, the owner, is thinking of expanding his sales by hiring local high school students, on a commission basis, to sell sweatshirts bearing the name and mascot of the local high school. These sweatshirts would have to be
Changes in Fixed and Variable Costs; Target Profit and Break-Even Analysis Neptune Company produces toys and other items for use in beach and resort areas. A small, inflatable toy has come onto the market that the company is anxious to produce and sell. The new toy will sell for $3 per unit. Enough
Cheryl Montoya picked up the phone and called her boss, Wes Chan, the vice president of marketing at Piedmont Fasteners Corporation: “Wes, I’m not sure how to go about answering the questions that came up at the meeting with the president yesterday:’“What’s the problem?”“The president
Company is a small but growing manufacturer of telecommunications equipment. The company has no sales force of its own; rather, it relies completely on independent sales agents to market its products. These agents are paid a commission of 15% of selling price for all items sold. Barbara Cheney,
The questions in this exercise are based on the Benetton Group, a company headquartered in Italy and known in the United States primarily for one of its brands of fashion apparel—United Colors of Benetton. To answer the questions, you will need to download the Benetton Group’s 2004 Annual
What is the basic difference between absorption costing and variable costing?
Are selling and administrative expenses treated as product costs or as period costs under variable costing?
Explain how fixed manufacturing overhead Costs are shifted from one period to another under absorption costing.
What are the arguments in favor of treating fixed manufacturing overhead costs as product costs?
What are the arguments in favor of treating fixed manufacturing overhead costs as period costs?
If the units produced and unit sales are equal, which method would you expect to show the higher net operating income, variable costing or absorption costing? Why?
If the units produced exceed unit sales, which method would you expect to show the higher net operating income, variable costing or absorption costing? Why?
If fixed manufacturing overhead costs are released from inventory under absorption costing, what does this tell you about the level of production in relation to the level of sales?
Under absorption costing, how is it possible to increase net operating income without increasing sales?
How does Lean Production reduce or eliminate the difference in reported net operating income between absorption and variable costing?
Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The sounding bars are cast from brass and hand-filed to attain just
Variable Costing Income Statement; Explanation of Difference in Net Operating Income Refer to the data in Exercise 7—1 for Ida Sidha Karya Company. The absorption costing income statement prepared by the company’s accountant for last year appears below (all currency values are in thousands
Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for municipalities. The company uses variable costing for internal management reports and absorption costing for external reports to shareholders, creditors, and the government. The company has provided the following data:The
The questions below pertain to two different scenarios involving a manufacturing company. In each scenario, the cost structure of the company is constant from year to year. Selling prices, unit variable costs, and total fixed costs are the same in every year. However, unit sales and/or unit
Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations: During the year, the company produced 25,000 units and 20,000 sold company's product is $50 per unit. Required: 1. Assume that the company uses absorption
Sierra Company incurs the following costs to produce and sell a single product.During the last year, 25,000 units were produced and 22,000 units were sold. The Finished Goods inventory account at the end of the year shows a balance of $72,000 for the 3,000 unsold units.Required;1.
Whitman Company has just completed its first year of operations. The company’s absorption costing income statement for the year appears below:The company’s selling and administrative expenses consist of $210,000 per year in fixed expenses and $2 per unit sold in variable expenses. The $16 per
Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $210. Data for last year’s operations follow:Required:1. Assume that the company uses variable costing. Compute the unit product cost for one barbecue grill.2.
Absorption Costing Unit Product Cost and Income Statement Refer to the data in Exercise 7—8 for Chuck Wagon Grills. Assume in this exercise that the company uses absorption costing.Required:1. Compute the unit product cost for one barbecue grill.2.
Parker Products Joe, a manufacturer, reported $123 million in sales and a loss of $18 million in its annual report to shareholders. According to a CVP analysis prepared for management, the company’s break-even point is $115 million in sales.Required:Assuming that the CVP analysis is correct, is
During Heaton Company’s first two years of operations, the company reported absorption costing net operating income as follows:The company’s $18 unit product cost is computed as follows:Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists of
Variable and Absorption Costing Unit Product Costs and Income Statements; Explanation of Difference in Net Operating Income High Country, Inc., produces and sells many recreational products. The company has just opened a new plant to produce a folding camp cot that will be marketed throughout the
Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Tyler’s personal finances. The following income statement for the first quarter was prepared by
Company manufactures and sells a single product. Cost data for the product are given below:The product sells for $60 per unit. Production and sales data for July and August, the first two months of operations, follow:The company’s Accounting Department has prepared absorption costing income
Far North Telecom, Ltd., of Ontario, has organized a new division to manufacture and sell specialty cellular telephones. The division’s monthly costs are shown below:Far North Telecom regards all of its workers as full-time employees and the company has a long-standing no layoff policy.
Prepare and Interpret Income Statements; Changes in Both Sales and Production; Lean Production Starfax, Inc., manufactures a small part that is ‘widely used in various electronic products such as home computers. Operating results for the first three years of activity were as follows (absorption
Carlos Cavalas, the manager of Echo Products’ Brazilian Division, is trying to set the production schedule for the last quarter of the year. The Brazilian Division had planned to sell 3,600 units during the year, but by September 30 only the following activity had been reported:The division can
This makes no sense at all, said Bill Sharp, president of Essex Company. “We sold the same number of units this year as we did last year, yet our profits have more than doubled. Who made the goof—the computer or the people who operate it?” The statements to which Mr. Sharp was referring are
These statements can’t be right, said Ben Yoder, president of Rayco, Inc. “Our sales in the second quarter were up by 25% over the first quarter, yet these income statements show a precipitous drop in net operating income for the second quarter. Those accounting people have fouled something
Guochang Li was hired as chief executive officer (CEO) in late November by the board of directors of ContactGlobal, a company that produces an advanced global positioning system (GPS) device. The previous CEO had been fired by the board of directors due to a series of shady business practices
In what fundamental ways does activity-based costing differ from traditional costing methods such as those described?
Why is direct labor a poor base for allocating overhead in many companies?
Why is top management support crucial when attempting to implement an activity-based costing system?
What are unit-level, batch-level, product-level, customer-level, and organization-sustaining activities?
What types of costs should not be assigned to products in an activity-based costing system?
Why is the activity-based costing described in this chapter unacceptable for external financial reports?
Why is the first stage of the allocation process in activity-based costing often based on inter- views?
When activity-based costing is used, why do manufacturing overhead costs often shift from high-volume products to low-volume products?
How can the activity rates (i.e., cost per activity) for the various activities be used to target process improvements?
Java Source, Inc. (JSI), is a processor and distributor of a variety of blends of coffee. The company buys coffee beans from around the world and roasts, blends, and packages them for resale. JSI offers a large variety of different coffees that it sells to gourmet shops in one-pound bags. The major
The following activities occur at Greenwich Corporation, a company that manufactures a variety of products.a. Receive raw materials from suppliers.b. Manage parts inventories.c. Do rough milling work on products.d. Interview and process new employees in the personnel department.e. Design new
SecuriCorp operates a fleet of armored cars that make scheduled pickups and deliveries in the Los Angeles area. The company is implementing an activity-based costing system that has four activity cost pools: Travel, Pickup and Delivery, Customer Service, and Other. The activity measures are miles
Green Thumb Gardening is a small gardening service that uses activity-based costing to estimate costs for pricing and other purposes. The proprietor of the company believes that costs are driven primarily by the size of customer lawns, the size of customer garden beds, the distance to travel to
Klumper Corporation is a diversified manufacturer of industrial goods. The company’s activity- based costing system contains the following six activity cost pools and activity rates:Activity data have been supplied for the following two products:Required:Determine the total overhead cost that
Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity
Various activities at Ming Corporation, a manufacturing company, are listed below. Each activity has been classified as a unit-level, batch-level, product-level, or customer-level activity.Required:Complete the table by providing an example of an activity measure for each activity.
Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding the two products follow:Additional information about the company follows:a. Hubs require $32 in direct materials per unit, and Sprockets require $18.b.
Durban Metal Products, Ltd., of the Republic of South Africa makes specialty metal parts used in applications ranging from the cutting edges of bulldozer blades to replacement parts for Land Rovers. The company uses an activity-based costing system for internal decision-making purposes. The company
The operations vice president of Security Home Bank has been interested in investigating the efficiency of the bank’s operations. She has been particularly concerned about the costs of handling routine transactions at the bank and would like to compare these costs at the bank’s various
(This exercise is a continuation of Exercise 8—9; it should be assigned only if Exercise 8—9 is also assigned.) The manager of the Westfield branch of Security Home Bank has provided the following data concerning the transactions of the branch during the past year:The lowest costs reported by
CD Express, Inc., provides CD duplicating services to software companies. The customer provides a master CD from which CD Express makes copies. An order from a customer can be for a single copy or for thousands of copies. Most jobs are broken down into batches to allow smaller jobs, with higher
Foam Products, Inc., makes foam seat cushions for the automotive and aerospace industries. The company’s activity-based costing system has four activity cost pools, which are listed below along with their activity measures and activity rates:The company just completed a single order from
Model X100 sells for $120 per unit whereas Model X200 offers advanced features and sells for S500 per unit. Management expects to sell 50,000 units of Model X100 and 5,000 units of Model X200 next year. The direct material cost per unit is $50 for Model X100 and $220 for Model X200. The company’s
Advanced Products Corporation has supplied the following data from its activity-based costing system:During the year, Advanced Products completed one order for a new customer, Shenzhen Enterprises. This customer did not order any other products during the year. Data concerning that order
Hiram’s Lakeside is a popular restaurant located on Lake Washington in Seattle. The owner of the restaurant has been trying to better understand costs at the restaurant and has hired a student intern to conduct an activity-based costing study. The intern, in consultation with the owner,
Smoky Mountain Corporation makes two types of hiking boots—Xtreme and the Pathfinder. Data concerning these two product lines appear below:The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Data concerning manufacturing
Gallatin Carpet Cleaning is a small, family-owned business operating out of Bozeman, Montana. For its services, the company has always charged a flat fee per hundred square feet of carpet cleaned. The current fee is $28 per hundred square feet. However, there is some question about whether the
Pixel Studio, Inc., is a small company that creates computer-generated animations for films and television. Much of the company’s work consists of short commercials for television, but the company also does realistic computer animations for special effects in movies.The young founders of the
Mercer Asbestos Removal Company removes potentially toxic asbestos insulation and related products from buildings. There has been a long-simmering dispute between the company’s estimator and the work supervisors. The on-site supervisors claim that the estimators do not adequately distinguish

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