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Managerial Accounting 13th Edition Ray H. Garrison, Eric W. Noreen, Peter C. Brewer - Solutions
The questions in this exercise are based on JetBlue Airways Corporation. To answer the questions, you will need to download JetBlue’s Form 10-K/A for the year ended December 31, 2004 at www.sec.gov/edgar/searchedgar/companysearch.html. Once at this website, input CIK code 1158463 and hit enter.
Fairway Golf Corporation produces private label golf clubs for pro shops throughout North America. The company uses activity-based costing to evaluate the profitability of serving its customers. This analysis is based on categorizing the company’s costs as follows, using the ease of adjustment
Second-Stage Allocation Using the Action Analysis Approach This exercise should be assigned in conjunction with Exercise 8—8. The results of the first-stage allocation of the activity-based costing system at Durban Metal Products, Ltd., in which the activity rates were computed, appear
Refer to the data for Foam Products, Inc., in Exercise 8—12 and the following additional details concerning the activity rates in the activity-based costing system:Management has provided their ease of adjustment codes for the purpose of preparing action analyses.Required: Using
Refer to the data for Advanced Products Corporation in Exercise 8—14.Required:1. Using Exhibit 8A—1 as a guide, prepare a report showing the first-stage allocations of overhead costs to the activity cost pools.2. Using Exhibit
Refer to the data for Pixel Studio, Inc., in Problem 8—18. In addition, the company has provided the following details concerning its activity rates:Management has provided the following ease of adjustment codes for the various costs:These codes created some controversy. In particular, some
Stillicum Corporation makes ultra light-weight backpacking tents. Data concerning the company’s 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 overhead and
Harrison Company makes two products and uses a traditional costing system in which a single plantwide predetermined overhead rate is computed based on direct labor-hours. Data for the two products for the upcoming year follow:These products are customized to some degree for specific
Siegel Company manufactures a product that is available in both a deluxe model and a regular model. The company has manufactured the regular model for years. The deluxe model was introduced several years ago to tap a new segment of the market. Since introduction of the deluxe model, the company’s
Ellix Company manufactures two models of ultra-high fidelity speakers, the X200 model and the X99 model. Data regarding the two products follow:Additional information about the company follows:a. Model X200 requires $72 in direct materials per unit, and model X99
What is a budget? What is budgetary control?
Discuss some of the major benefits to be gained from budgeting.
What is meant by the term responsibility accounting?
What is a master budget? Briefly describe its contents.
Why is the sales forecast the starting point in budgeting?
As a practical matter, planning and control mean exactly the same thing. Do you agree? Explain.
Describe the flow of budget data in an organization. Who are the participants in the budgeting process, and how do they participate?
What is a self-imposed budget? What are the major advantages of self-imposed budgets? What caution must be exercised in their use?
How can budgeting assist a company in planning its workforce staffing levels?
The principal purpose of the cash budget is to see how much cash the company will have in the bank at the end of the year. Do you agree? Explain.
Silver Company makes a product that is very popular as a Mother’s Day gift. Thus, peak sales occur in May of each year, ad shown in the company’s sales budget for the second quarter given below:From past experience, the company has learned that 20% of month’s sales are collected in the month
Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows:The company is now in the process of preparing a production budget for the second quarter. Past experience has shown that end-of-month inventory levels must equal 10% of the
Three grams of musk oil are required for each bottle of Mink Caress, a very popular perfume made by a small company in western Siberia. The cost of the musk oil is 150 roubles per kilogram. (Siberia is located in Russia, whose currency is the rouble.) Budgeted production of Mink Caress is given
The production manager of Rordan Corporation has submitted the following of units to be produced by quarter for the upcoming fiscal year:Each unit requires 0.35 direct labor-hours, and direct laborers are paid $12.00 per hour.Required:1. Construct the company’s
The direct labor budget of Yuvwell Corporation fiscal year contains the following details concerning budgeted direct labor-hours:The company’s variable manufacturing overhead rate is $3.25 per direct labor-hour and the company’s fixed manufacturing overhead is $48,000 per quarter. The only
The budget unit sales of Weller Company for the upcoming fiscal year are provided below:The company’s variable selling and administrated expense per unit is $2.50. Fixed selling and administrative expenses include advertisement expenses of $8,000 per quarter, executives salaries of $ 35,000 per
Garden depot is a retailer that is preparing its budget for the upcoming fiscal year. Management has prepared the following summary of its budgeted cash flows:The company’s beginning cash balance for the upcoming fiscal year will be $20,000. The company requires a minimum cash balance of $10,000
Gig Harbor boating is the wholesale distributor of a small recreational catamaran sailboat. Management has prepared the following summary data to use in its annual budgeting processRequired:Prepare the company’s budgeted income statement. Use the absorption costing income statement format shown
The management of Mecca Copy, a photocopying center located on University Avenue, has compiled the following data to use in preparing its budgeted balance sheet for next year:The beginning balance of retained earnings was $28,000, net income is budgeted to be $ 11,500 and dividends are budgeted to
A cash budget, by quarters, is given below for a retail company (000 omitted). The company requires a minimum cash balance of at least $5,000 to start each quarter.Required:Fill in the missing amounts in the above table.
The marketing department of Gaeber Industries has submitted the following sales forecast for the upcoming fiscal year:The company expects to start due the first quarter with 1,600 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 20%
The marketing department of Jessi Corporation has submitted the following sales forecast tor the upcoming fiscal year (all sales are on account):The selling price of the company’s product is $18.00 per unit. Management expects to collect 65% of sales in the quarter in which the sales are made,
The production department of Hareston Company has submitted the following forecast of units to be produce by quarter for the upcoming fiscal yearIn addition, the beginning raw materials inventory for the first quarter is budgets to be 1,400 pounds and the beginning accounts payables for the first
The production department of Raredon Corporation has submitted the following forecast of units to be produced by quarter for the upcoming fiscal year:Each unit requires 0.70 direct labor-hours, and direct labor- hour workers are paid $10.50 per hour.In addition, the variable manufacturing overhead
Pearl Products Limited of Shenzhen, China, manufactures and distributes toys throughout South East Asia. Three cubic centimeters (cc) of solvent H300 are required to manufacture each unit of Supermix, one of the company’s products. The company is now planning raw materials needs for the third
The Production Department of Hruska Corporation has submitted the following forecast of unit to be produced by quarter for the upcoming fiscal year:Each unit requires 0.2 direct labor-hours and direct laborers are paid $12.00 per hour.In addition, the variable manufacturing overhead rate is $1.75
You have been asked to prepare a December cash budget for Ashton Company, a distributor of exercise equipment. The following information is available about the company’s operations:(a) The cash balance on December 1 is $40,000.(b)
The production department of Zan Corporation 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 6,000 grams and the beginning accounts payable for the 1st
Minden Company is a wholesale distributor of premium European chocolates. The company’s balance sheet as of April 30 is given below:The company is in the process of preparing budget data for May. A number of budget items have already been prepared, as stated below:(a)
Norton Company, a manufacture of infant furniture and carriages, is in the initial stages of preparing the annual budget for next year. Scott Ford recently joined Norton’s accounting staff and is interested to learn as much as possible about the company’s budgeting process. During a recent
The president of the retailer Prime 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. Because the company has had some difficulty in paying off its loans in the past, the loan
Springfield Corporation operates on a calendar-year basis. It begins the annual budgeting process in late August, when the president establishes targets for total sales dollars and net operating income before taxes for the next year. The sales target is given to the marketing Department, where the
Herbal Care Corp., a distributor of herb-based sunscreens, is ready to begin its third quarter, in which peak sales occur. The company has requested a $40,000, 90-day loan from its bank to help meet cash requirements during the quarter. Since Herbal Care has experienced difficulty in paying off its
Garden Sales, Inc. sells garden supplies. Management is planning its cash needs for the second quarter. The company usually has to borrow money during May. The following information has been assembled to assist in preparing a cash budget for the quarter:(a) Budgeted
The following data relate to the operations of Shilow Company, a wholesale distributor of consumer goods:(a) The gross margin in 25% of sales(b) Actual and budgeted sales data:(c) Sales are 60% for cash
Westex Products is a wholesale distributor of industrial cleaning products. When the treasurer of Westex Products approached the company’s bank late in the current year seeking short-tern financing, he was told that money was very tight and that any borrowing over the next year would have to be
Hillyard Company, an office supplies specialty store, prepares its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the first quarter:(a) As of December 31 (the end of the prior quarter), the
Tom Emory and Jim Morris strolled back to their plant from the administrative offices of Ferguson & Son Manufacturing Company. Tom is manager of the machine shop in the company’s factory; Jim is manager of the equipment maintenance department. The men had just attended the monthly performance
You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country. In the past, the company has done very little in the way of budgeting and at certain times of the year has experienced a
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.pci.com!investors/annualreports.jhtml and briefly refer to
What is a static planning budget?
What is a flexible budget and how does it differ from a static planning budget?
What are some of the possible reasons that actual results may differ from what had been budgeted at the beginning of a period?
Why is it difficult to interpret a difference between how much expense was budgeted and how much was actually spent?
What is an activity variance and what does it mean’?
What is a revenue variance and what does it mean?
What is a spending variance and what does it mean?
What does a flexible budget performance report do that a simple comparison of budgeted to actual results does not do?
How does a flexible budget based on two cost drivers differ from a flexible budget based on a single cost driver?
What assumption is implicitly made about cost behavior when a budget is directly compared to actual results? Why is this assumption questionable?
What assumption is implicitly made about cost behavior when all of the items in a budget are adjusted in proportion to a change in activity? Why is this assumption questionable?
Puget Sound Divers is a company that provides diving services such as underwater ship repairs to clients in the Puget Sound area. The company’s planning budget for May appears below:Required:During May, the company’s activity was actually 105 diving-hours. Prepare a flexible budget for that
Flight Café is a company that prepares in-flight meals for airlines in its kitchen located next to the local airport. The company’s planning budget for July appears below:In July, 17,800 meals were actually served. The company’s flexible budget for this level of activity appears
Quilcene Oysteria farms and sells oysters in the Pacific Northwest. The company harvested and sold 8,000 pounds of oysters in August. The company’s flexible budget for August appears below: The actual results for August appear below:.Required:Prepare a report showing the company’s revenue
Vulcan Flyovers offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in 1982. Data concerning the company’s operations in July appear below:The company measures its activity in terms of flights. Customers can buy individual tickets for
Tours operates day tours of coastal glaciers in Alaska on its tour boat the Blue Glacier. Management has identified two cost drivers—the number of cruises and the number of passengers—that it uses in its budgeting and performance reports. The company publishes a schedule of day cruises that it
Terminator Inc. provides on-site residential pest extermination services. The company has several mobile teams who are dispatched from a central location in company-owned trucks. The company uses the number of jobs to measure activity. At the beginning of April, the company budgeted for 100 jobs,
Refer to the data for The Terminator Inc. in Exercise 10—6. A management intern has suggested that the budgeted revenues and costs should be adjusted for the actual level of activity in April before they are compared to the actual revenues and costs. Because the actual level of activity was 5%
Lavage Rapide is a Canadian company that owns and operates a large automatic carwash facility near Montreal. The following table provides data concerning the company’s costs:For example, electricity costs are $1,200 per month plus $0.15 per car washed. The company expects to wash 9,000 cars in
Refer to the data for Lavage Rapide in Exercise 10—8. The company actually washed 8,800 cars in August.Required:Prepare the company’s flexible budget for August.
Refer to the data for Lavage Rapide in Exercise 10—8. The actual operating results for August appear on the following page.Data from problem Exercise 10-8Required:Prepare a report showing the company’s activity variances for August.
Refer to the data for Lavage Rapide in Exercises 10—8 and 10-40.Required:Prepare a report showing the company’s revenue and spending variances for August.
Refer to the data for Lavage Rapide in Exercises 10—8 and 10—10.Required:Prepare a flexible budget performance report that shows the company’s activity variances and revenue and spending variances for August.
Wyckam Manufacturing Inc. has provided the following information concerning its manufacturing costs:For example, utilities should be $1,400 per month plus $0.05 per machine-hour. The company expects to work 5,000 machine-hours in June. Note that the company’s direct labor is a fixed
Jake’s Roof Repair has provided the following data concerning its costs:
Via Gelato is a popular neighborhood gelato shop. The company has provided the following data concerning its operations:While gelato is sold by the cone or cup, the shop measures its activity in terms of the total number of liters of gelato sold. For example, wages should be $5,600 plus $1.40 per
AirQual Test Corporation provides on-site air quality testing services. The company has provided the following data concerning its operations:The company uses the number of jobs as its measure of activity. For example, mobile lab operating expenses should be $2,900 plus $35 per job, and the actual
The Gourmand Cooking School runs short cooking courses at its small campus. Management has identified two cost drivers that it uses in its budgeting and performance reports—the number of courses and the total number of students. For example, the school might run two courses in a month and have a
Packaging Solutions Corporation manufactures and sells a wide variety of packaging products. Performance reports are prepared monthly for each department. The planning budget and flexible budget for the Production Department are based on the following formulas, where q is the number of labor-hours
TipTop Flight School offers flying lessons at a small municipal airport. The school’s owner and manager has been attempting to evaluate performance and control costs using a variance report that compares the planning budget to actual results. A recent variance report appears below:After several
The St. Lucia 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
Several years ago, Westmont Corporation developed a comprehensive budgeting system for profit planning and control purposes. While departmental supervisors have been happy with the system, the factory manager has expressed considerable dissatisfaction with the information being generated by the
Milano Pizza is a small neighborhood pizzeria that has a small area for in-store dining as well as offering take-out and free home delivery services. The pizzeria’s owner has determined that the shop has two major cost drivers—the number of pizzas sold and the number of deliveries made. Data
You have just been hired by FAB Corporation, the manufacturer of a revolutionary new garage door opening device. The president has asked that you review the company’s costing system and “do what you can to help us get better control of our manufacturing overhead costs:” You find that the
Frank Weston, supervisor of the Freemont Corporation’s Machining Department, was visibly upset after being reprimanded for his department’s poor performance over the prior month. The department’s cost control report is given below:“1 just can’t understand all the red ink,” Weston
Exchange Corp. is a company that acts as a facilitator in tax-favored real estate swaps. Such swaps, know as 1031 exchanges, permit participants to avoid some or all of the capital gains taxes that would otherwise be due. The bookkeeper for the company has been asked to prepare a report for the
Little Theatre is a nonprofit organization devoted to staging plays for children. The theater has a very small full-time professional administrative staff. Through a special arrangement with the actors’ union, actors and directors rehearse without pay and are paid only for actual performances.The
Tom Kemper is the controller of the Wichita manufacturing facility of Prudhom Enterprises, Inc. The annual cost control report is one of the many reports that must be filed with corporate headquarters and is due at corporate headquarters shortly after the beginning of the New Year. Kemper does not
Boyne University offers an extensive continuing education program in many cities throughout the state. For the convenience of its faculty and administrative staff and to save costs, the university operates a motor pool. The motor pool operated with 20 vehicles until February, when an additional
Maple Products, Ltd., manufactures a super-strong hockey stick. The standard cost of one hockey stick is:Last year, 8,000 hockey sticks were produced and sold. Selected cost data relating to last year’s operations follow:The following additional information is available for last year’s
Distinguish between ideal and practical standards.
What is meant by the term management by exception?
Why are separate price and quantity variances computed?
Who is generally responsible for the materials price variance? The materials quantity variance? The labor efficiency variance?
The materials price variance can be computed at what two different points in time? Which point is better? Why?
If the materials price variance is favorable but the materials quantity variance is unfavorable, what might this indicate?
Should standards be used to identify who to blame for problems?
“Our workers are all under labor contracts; therefore, our labor rate variance is bound to be zero.” Discuss
What effect, if any, would you expect poor-quality materials to have on direct labor variances?
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