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managerial accounting

Fundamental Managerial Accounting Concepts 6th Edition Edmonds, Tsay, olds - Solutions

Fastidious Vincent washed his hair at home and then went to a barbershop for a haircut. The barber explained that shop policy is to shampoo each customer’s hair before cutting, regardless of how recently it had been washed. Somewhat annoyed, Vincent submitted to the shampoo, after which the
Garcin Manufacturing Company was started on January 1, 2011, when it acquired $180,000 cash by issuing common stock. Garcin immediately purchased office furniture and manufacturing equipment costing $20,000 and $38,000, respectively. The office furniture had a fouryear useful life and a zero
Effect of product versus selling, general, and administrative costs on financial statements Windsor Company experienced the following accounting events during its first year of operation. With the exception of the adjusting entries for depreciation, all transactions were cash transactions.1.
The following transactions pertain to 2012, the first year of operations of Jardine Company. All inventory was started and completed during the accounting period. All transactions were cash transactions.1. Acquired $56,000 of contributed capital from its owners.2. Paid $9,600 for materials used to
Knoll Company began operations on January 1, 2012, by issuing common stock for $94,000 cash. During 2012, Knoll received $77,000 cash from revenue and incurred costs that required $90,000 of cash payments.RequiredPrepare an income statement and a balance sheet for Knoll Company for 2012, under
Livy Company was started when it acquired $70,000 by issuing common stock. During the first year of operations, the company incurred specifically identifiable product costs (materials, labor, and overhead) amounting to $40,000. Livy also incurred $20,000 of product development costs. There was a
Olsen Automobile Dealership, Inc. (OAD), buys and sells a variety of cars made by Great Motor Corporation. OAD maintains about 30 new cars in its parking lot for customers’ selection; the cost of this inventory is approximately $400,000. Additionally, OAD hires security guards to protect the
Mark’s Hamburger is a small fast-food shop in a busy shopping center that operates only during lunch hours. Mark Haygood, the owner and manager of the shop, is confused. On some days, he does not have enough hamburgers to satisfy customer demand. On other days, he has more hamburgers than he can
The CEO and the CFO of Automation Company were both aware that the company’s controller was reporting fraudulent revenues. Upper level executives are paid very large bonuses when the company meets the earnings goals established in the company’s budgets. While the CEO had pushed the CFO and
Ellen Milan visited her personal physician for treatment of flu symptoms. She was greeted by the receptionist, who gave her personal history and insurance forms to complete. She needed no instructions; she completed these same forms every time she visited the doctor. After completing the forms, Ms.
The following information was taken from the 2008 and 2009 Form 10-Ks for Dell, Inc.Requireda. Explain whether each line of information in the table above would best be described as being primarily financial accounting or managerial accounting in nature.b. Provide some additional examples of
Victor Holt, the accounting manager of Sexton, Inc., gathered the following information for 2011. Some of it can be used to construct an income statement for 2011. Ignore items that do not appear on an income statement. Some computation may be required. For example, the cost of manufacturing
Use the 2008 Form 10-K for Snap-on Inc. to complete the requirements below. To obtain the Form 10-K you can use either use the EDGAR system following the instructions in Appendix A, or it can be found under “Corporate Information” on the company’s corporate website; www.snapon.com. Read
An annual report of the Maytag Corporation contained the following excerpt: The Company announced the restructuring of its major appliance operations in an effort to strengthen its position in the industry and to deliver improved performance to both customers and shareowners. This included the
Emma Emerson is a proud woman with a problem. Her daughter has been accepted into a prestigious law school. While Ms. Emerson beams with pride, she is worried sick about how to pay for the school; she is a single parent who has worked hard to support herself and her three children. She had to go
The following transactions pertain to 2011, the first year of operations of the Barlett Company. All inventory was started and completed during 2011. Assume that all transactions are cash transactions.1. Acquired $2,000 cash by issuing common stock.2. Paid $400 for materials used to produce
Mantooth Manufacturing Company experienced the following accounting events during its first year of operation. With the exception of the adjusting entries for depreciation, assume that all transactions are cash transactions.1. Acquired $50,000 by issuing common stock.2. Paid $8,000 for the
Magnificent Modems, Inc., makes modem cards that are used in notebook computers. The company completed the following transactions during 2010. All purchases and sales were made with cash.1. Acquired $750,000 of cash from the owners.2. Purchased $270,000 of manufacturing equipment. The equipment has
Define fixed cost and variable cost and give an example of each.
How can knowing cost behavior relative to volume fluctuations affect decision making?
Define the term operating leverage and explain how it affects profits.
How is operating leverage calculated?
Explain the limitations of using operating leverage to predict profitability.
If volume is increasing, would a company benefit more from a pure variable or a pure fixed cost structure? Which cost structure would be advantageous if volume is decreasing?
When are economies of scale possible? In what types of businesses would you most likely find economies of scale?
Explain the risk and rewards to a company that result from having fixed costs.
Are companies with predominately fixed cost structures likely to be more profitable?
How is the relevant range of activity related to fixed and variable cost? Give an example of how the definitions of these costs become invalid when volume is outside the relevant range.
Sam’s Garage is trying to determine the cost of providing an oil change. Why would the average cost of this service be more relevant information than the actual cost for each customer?
When would the high-low method be appropriate for estimating variable and fixed costs? When would least-squares regression be the most desirable?
Which cost structure has the greater risk? Explain.
The president of Bright Corporation tells you that he sees a dim future for his company. He feels that his hands are tied because fixed costs are too high. He says that fixed costs do not change and therefore the situation is hopeless. Do you agree? Explain.
All costs are variable because if a business ceases operations, its costs fall to zero. Do you agree with the statement? Explain.
Because of seasonal fluctuations, Norel Corporation has a problem determining the unit cost of the products it produces. For example, high heating costs during the winter months causes per-unit cost to be higher than per-unit cost in the summer months even when the same number of units of product
Verna Salsbury tells you that she thinks the terms fixed cost and variable cost are confusing. She notes that fixed cost per unit changes when the number of units changes. Furthermore, variable cost per unit remains fixed regardless of how many units are produced. She concludes that the terminology
Deer Valley Kitchen, a fast-food restaurant company, operates a chain of restaurants across the nation. Each restaurant employs eight people; one is a manager paid a salary plus a bonus equal to 3 percent of sales. Other employees, two cooks, one dishwasher, and four waitresses, are paid salaries.
At the various activity levels shown, Ambrose Company incurred the following costs:RequiredIdentify each of these costs as fixed, variable, or mixed.
Henke Corporation incurs the following annual fixed costs:RequiredDetermine the total fixed cost per unit of production, assuming that Henke produces 4,000, 4,500, or 5,000 units.
The following variable production costs apply to goods made by Watson Manufacturing Corporation: .:.RequiredDetermine the total variable production cost, assuming that Watson makes 5,000, 15,000, or 25,000 units.
Robbins Company’s cost and production data for two recent months included the following: .:.Requireda. Separately calculate the rental cost per unit and the utilities cost per unit for both March and April.b. Identify which cost is variable and which is fixed. Explain your answer.
Lovvern Trophies makes and sells trophies it distributes to little league ballplayers. The company normally produces and sells between 8,000 and 14,000 trophies per year. The following cost data apply to various activity levels: .:.Requireda. Complete the preceding table by filling in the
Harrell Entertainment sponsors rock concerts. The company is considering a contract to hire a band at a cost of $75,000 per concert.Requireda. What are the total band cost and the cost per person if concert attendance is 2,000, 2,500, 3,000, 3,500, or 4,000?b. Is the cost of hiring the band a fixed
Harrell Entertainment sells souvenir T-shirts at each rock concert that it sponsors. The shirts cost $9 each. Any excess shirts can be returned to the manufacturer for a full refund of the purchase price. The sales price is $15 per shirt. Requireda. What are the total cost of shirts and cost
The following graph setups depict the dollar amount of fixed cost on the vertical axes and the level of activity on the horizontal axes:Requireda. Draw a line that depicts the relationship between total fixed cost and the level of activity.b. Draw a line that depicts the relationship between fixed
The following graph setups depict the dollar amount of variable cost on the vertical axes and the level of activity on the horizontal axes:Requireda. Draw a line that depicts the relationship between total variable cost and the level of activity.b. Draw a line that depicts the relationship between
Omar Corporation paid one of its sales representatives $4,300 during the month of March. The rep is paid a base salary plus $15 per unit of product sold. During March, the rep sold 200 units. RequiredCalculate the total monthly cost of the sales representative’s salary for each of the
The following income statements illustrate different cost structures for two competing companies: Requireda. Reconstruct Hank’s income statement, assuming that it serves 160 customers when it lures 80 customers away from Rank by lowering the sales price to $150 per customer.b.
The following income statement was drawn from the records of Ulrich Company, a merchandising firm: .:.Requireda. Reconstruct the income statement using the contribution margin format.b. Calculate the magnitude of operating leverage.c. Use the measure of operating leverage to determine the
The following income statement applies to Stuart Company for the current year: .:.Requireda. Use the contribution margin approach to calculate the magnitude of operating leverage.b. Use the operating leverage measure computed in Requirement a to determine the amount of net income that Stuart
Getaway Camps, Inc., leases the land on which it builds camp sites. Getaway is considering opening a new site on land that requires $3,000 of rental payment per month. The variable cost of providing service is expected to be $7 per camper. The following chart shows the number of campers Getaway
Knox Boat Company makes inexpensive aluminum fishing boats. Production is seasonal, with considerable activity occurring in the spring and summer. Sales and production tend to decline in the fall and winter months. During 2011, the high point in activity occurred in June when it produced 200 boats
Identify the following costs as fixed or variable: Costs related to plane trips between Seattle, Washington, and Orlando, Florida, follow. Pilots are paid on a per-trip basis.a. Pilots’ salaries relative to the number of trips flown.b. Depreciation relative to the number of planes in service.c.
Carlia Weaver has decided to start Carlia Cleaning, a residential housecleaning service company. She is able to rent cleaning equipment at a cost of $750 per month. Labor costs are expected to be $75 per house cleaned and supplies are expected to cost $6 per house. Requireda. Determine the
Context-sensitive nature of cost behavior classifications Pacific Bank’s start-up division establishes new branch banks. Each branch opens with three tellers. Total teller cost per branch is $90,000 per year. The three tellers combined can process up to 90,000 customer transactions per year. If a
Context-sensitive nature of cost behavior classifications Susan Hicks operates a sales booth in computer software trade shows, selling an accounting software package, Dollar System. She purchases the package from a software manufacturer for $175 each. Booth space at the convention hall costs
Effects of operating leverage on profitability Webster Training Services (WTS) provides instruction on the use of computer software for the employees of its corporate clients. It offers courses in the clients’ offices on the clients’ equipment. The only major expense WTS incurs is instructor
Effects of fixed and variable cost behavior on the risk and rewards of business opportunities Eastern and Western Universities offer executive training courses to corporate clients. Eastern pays its instructors $5,310 per course taught. Western pays its instructors $295 per student enrolled in the
Justin Zinder is a venture capitalist facing two alternative investment opportunities. He intends to invest $1 million in a start-up firm. He is nervous, however, about future economic volatility. He asks you to analyze the following financial data for the past year’s operations of the two firms
Trinkle Cinemas is considering a contract to rent a movie for $1,800 per day. The contract requires a minimum one-week rental period. Estimated attendance is as follows: .:.Requireda. Determine the average cost per person of the movie rental contract separately for each day.b. Suppose that
Cliff Corporation, offers mountain-climbing expeditions for its customers, providing food, equipment, and guides. Climbs normally require one week to complete. The company’s accountant is reviewing historical cost data to establish a pricing strategy for the coming year. The accountant has
Newteh Computer Services, Inc., has been in business for six months. The following are basic operating data for that period. .:.Requireda. What is the average service revenue per hour for the six-month time period?b. Use the high-low method to estimate the total monthly fixed cost and the
Nabil Woodcraft Company (NWC) manufactures “antique” wooden cabinets to house modern radio and CD players. NWC began operations in January of last year. Paul Nabil, the owner, asks for your assistance. He believes that he needs to better understand the cost of the cabinets for pricing purposes.
Latif and Koehler Tax Services Company has 31 branch offices in the nation. Each office has about three to six professional accountants and one to two secretaries. In a busy season, the office manager, who is also a professional accountant, can hire temporary employees for support work such as
Parker Copies Company provides professional copying services to customers through the 35 copy stores it operates in the southwestern United States. Each store employs a manager and four assistants. The manager earns $4,000 per month plus a bonus of 3 percent of sales. The assistants earn hourly
At the various sales levels shown, Kukreja Company incurred the following costs: .:.Required Identify each of these costs as fixed, variable, or mixed.
Miranda Corporation incurs the following annual fixed production costs.:.RequiredDetermine the total fixed production cost per unit if Miranda produces 10,000, 20,000, or 50,000 units.
The following variable manufacturing costs apply to goods produced by King Manufacturing Corporation: .:.RequiredDetermine the total variable manufacturing cost if King produces 4,000, 6,000, or 8,000 units.
Griffin Company’s production and total cost data for two recent months follow: .:.Requireda. Separately calculate the depreciation cost per unit and the factory supplies cost per unit for both January and February.b. Identify which cost is variable and which is fixed. Explain your
Satcher Chairs Corporation produces ergonomically designed chairs favored by architects. The company normally produces and sells from 4,000 to 10,000 chairs per year. The following cost data apply to various production activity levels: .:.Requireda. Complete the preceding table by filling in
Dennis Owen needs extra money quickly to help cover some unexpected school expenses. Mr. Owen has learned fortune-telling skills through his long friendship with Joel Allman, who tells fortunes during the day at the city market. Mr. Allman has agreed to let Mr. Owen use his booth to tell
In the evenings, Dennis Owen works telling fortunes using his friend Joel Allman’s booth at the city market. Mr. Allman pays the booth rental, so Mr. Owen has no rental cost. As a courtesy, Mr. Owen provides each customer a soft drink. The drinks cost him $0.50 per customer. Requireda. What
Saeed Computers leases space in a mall at a monthly rental cost of $3,000. The following graph setups depict rental cost on the vertical axes and activity level on the horizontal axes: .:.Requireda. Draw a line that depicts the relationship between the total monthly rental cost and
Graphing variable cost behavior Dubovsky Computers purchases computers from a manufacturer for $500 per computer. The following graph setups depict product cost on the vertical axes and activity level on the horizontal axes: .:.Requireda. Draw a line that depicts the relationship between total
Blackwell Hats Corporation uses workers in Indonesia to manually weave straw hats. The company pays the workers a daily base wage plus $0.25 per completed hat. On Monday, workers produced 100 hats for which the company paid wages of $70. Required Calculate the total cost of the workers’
Bland and Strand compete in the same market. The following budgeted income statements illustrate their cost structures: .:.Requireda. Assume that Bland can lure all 100 customers away from Strand by lowering its sales price to $60 per customer. Reconstruct Bland’s income statement based on
Using a contribution margin format income statement to measure the magnitude of operating leverage Willig Company, a merchandising firm, reported the following operating results: .:.Requireda. Reconstruct the income statement using the contribution margin format.b. Calculate the magnitude of
The following budgeted income statement applies to Biggio Company: .:.Requireda. Use the contribution margin approach to calculate the magnitude of operating leverage.b. Use the operating leverage measure computed in Requirement α to determine the amount of net income that Biggio Company will
Averaging costs Nuttall Entertainment Company operates a movie theater that has monthly fixed expenses of $5,000. In addition, the company pays film distributors $1.00 per ticket sold. The following chart shows the number of tickets Nuttall expects to sell in the coming year: .:.RequiredAssume
Estimating fixed and variable costs using the high-low method Conry Ice Cream Company produces various ice cream products for which demand is highly seasonal. The company sells more ice cream in warmer months and less in colder ones. Last year, the high point in production activity occurred in
Identify the following costs as fixed or variable: Costs related to operating a retail gasoline company.a. Depreciation of equipment relative to the number of stations.b. Cashiers’ wages relative to the number of customers served in a station.c. Salary of a manager of a particular station
Andy Posey asks you to analyze the operating cost of his lawn services business. He has bought the needed equipment with a cash payment of $45,000. Upon your recommendation, he agrees to adopt straight-line depreciation. The equipment has an expected life of three years and no salvage value. Mr.
Context-sensitive nature of cost behavior classifications Warren and Carter Tax Services’ Development Department is responsible for establishing new community branches. Each branch opens with two tax accountants. Total cost of payroll per branch is $108,000 per year. Together the two accountants
Context-sensitive nature of cost behavior classifications Kevin Munden sells a newly developed camera, Sharp Vision. He purchases the cameras from the manufacturer for $70 each and rents a store in a shopping mall for $5,000 per month. Requireda. Determine the average cost of sales per unit if
CPAs R Us conducts CPA review courses. Public universities that permit free use of a classroom support the classes. The only major expense incurred by CPAs R Us is the salary of instructors, which is $6,000 per course taught. The company recently planned to offer a review course in Houston for $320
Effects of fixed and variable cost behavior on the risk and rewards of business opportunities Beach Club and Mountain Club are competing health and recreation clubs in Chicago. They both offer tennis training clinics to adults. Beach pays its coaches $9,000 per season. Mountain pays its coaches
Analysis of operating leverage Rachel Geer has invested in two start-up companies. At the end of the first year, she asks you to evaluate their operating performance. The following operating data apply to the first year: .:.Requireda. Use the contribution margin approach to compute the
Selecting the appropriate time period for cost averaging The Vaughan Amusement Park is considering signing a contract to hire a circus at a cost of $2,400 per day. The contract requires a minimum performance period of one week. Estimated circus attendance is as follows: .:.Requireda. For each
Sahara Tours, Inc., organizes adventure tours for people interested in visiting a desert environment. A desert tour generally lasts three days. Sahara provides food, equipment, and guides. Larry Jobaria, the president of Sahara Tours, needs to set prices for the coming year. He has available the
Hanno Legal Services provides legal advice to clients. The following data apply to the first six months of operation: .:.Requireda. What is the average service revenue per hour for the six-month time period?b. Use the high-low method to estimate the total monthly fixed cost and the variable
Vicardo Frames Company, which manufactures ornate frames for original art work, began operations in January 2011. Sam Waits, the owner, asks for your assistance. He believes that he needs to better understand the cost of the frames for pricing purposes. You have collected the following data
Estimating fixed and variable cost using the regression method Ray Rogers, the production manager of Martin Construction Components, is trying to figure out the cost behavior of his factory supplies cost. The company uses machine hours as the cost driver. Victor Hoover, the assistant manager,
Amazon.com, Inc. Amazon.com opened its virtual doors on the World Wide Web in July 1995 and we offer Earth’s Biggest Selection. We seek to be Earth’s most customer-centric company for three primary customer sets: consumer customers, seller customers and developer customers. In addition, we
The Parent Teacher Association (PTA) of Meadow High School is planning a fund-raising campaign. The PTA is considering the possibility of hiring Eric Logan, a world-renowned investment counselor, to address the public. Tickets would sell for $28 each. The school has agreed to let the PTA use
Use the 2008 Form 10-K for Black & Decker Corp. (B&D) (not StanleyBlack & Decker) to complete the requirements below. To obtain the Form 10-K you can use either use the EDGAR system following the instructions in Appendix A, or it can be found under “Investor Relations” on the
Candice Sterling is a veterinarian. She has always been concerned for the pets of low-income families. These families love their pets but frequently do not have the means to provide them proper veterinary care. Dr. Sterling decides to open a part-time veterinary practice in a low- income
Ethical Dilemma Profitability versus social conscience ( effects of cost behavior ) Advances in biological technology have enabled two research companies, Bio Labs, Inc., and Scientific Associates, to develop an insect-resistant corn seed. Neither company is financially strong enough to develop the
Charlie Stork rented a truck for his business on two previous occasions. Since he will soon be renting a truck again, he would like to analyze his bills and determine how the rental fee is calculated. His two bills for truck rental show that on September 1, he drove 1,000 miles and the bill was
Siwa Company makes and sells a decorative ceramic statue. Each statue costs $50 to manufacture and sells for $75. Siwa spends $3 to ship the statue to customers and pays salespersons a $2 commission for each statue sold. The remaining annual expenses of operation are administrative salaries,
Use the same transaction data for Magnificent Modems, Inc., as was used in Chapter 1 (see page 52).Requireda. Based on these data, identify each cost incurred by the company as (1) fixed versus variable relative to the number of units produced and sold; and (2) product versus selling, general, and
What does the term break-even point mean? Name the two ways it can be measured.

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