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Cost Management Accounting And Control 6th Edition Don R. Hansen, Maryanne M. Mowen, Liming Guan - Solutions

Define static budget. Give an example that shows how reliance on a static budget could mislead management.
What are the two meanings of a flexible budget? How is the first type of flexible budget used? The second type?
What are the steps involved in building an activity-based budget? How do these steps differentiate the ABB from the master budget?
Weber Company produces floor mats used in gyms and dojos. The sales budget for four months of the year is as follows:Company policy requires that ending inventories for each month be 15 percent of next month's sales. At the beginning of April, the beginning inventory of mats met that
Sleepeze Company produces a variety of pillows for catalog sales. Two popular types are the standard pillow and the neck roll. The standard pillow sells for $4, and the neck roll sells for $3. Projected sales of the two types of pillows for the coming four quarters are as follows:The president of
Ivans Company produces stuffed toy animals; one of these is Randy the Reindeer. Each reindeer takes 0.10 yard of fabric and three ounces of polyfiberfill. Fabric costs $3.50 per yard, and polyfiberfill is $0.05 per ounce. Ivans has budgeted production of stuffed reindeer for the next four months as
Central Drug Store carries a variety of health and beauty aids, including elastic ankle braces. The sales budget for ankle braces for the first six months of the year is as follows:The owner of Central Drug believes that ending inventories should be sufficient to cover20 percent of the next month's
Crash Dobson, former all-state high school football player, owns a retail store that sells new and used sporting equipment. Crash has requested a cash budget for October. After examining the records of the company, you find the following:Central Drug Store carries a variety of health and beauty
Historically, Pine Hill Wood Products has had no significant bad debt experience with its customers. There are no cash sales; all sales are made on credit. Payments for credit sales have been received as follows:40 percent of credit sales in the month of the sale.30 percent of credit sales in the
Kevin Campbell’s is a men’s clothing store in Mesa, Arizona. Kevin Campbell’s has its own house charge accounts and has found from past experience that 20 percent of its sales are for cash. The remaining 80 percent are on credit. An aging schedule for accounts receivable reveals the
Rokat Corporation is a manufacturer of tables sold to schools, restaurants, hotels, and other institutions. The table tops are manufactured by Rokat, but the table legs are purchased from an outside supplier. The assembly department takes a manufactured table top and attaches the four purchased
In an effort to improve budgeting, the controller for Zebro Products has developed a flexible budget for overhead costs. Zebro Products makes two types of paper-based cloths: counter wipes and floor wipes. Zebro expects to produce 500,000 rolls of each product during the coming year. Counter wipes
Refer to Exercise 8-9. At the end of the year, Zebro Products actually produced 550,000 rolls of counter wipes and 500,000 of floor wipes. The actual overhead costs incurred were:Maintenance ......... $15,600Power ........... 17,250Indirect labor ......... 89,000Rent ...........
Baxtar, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for 2010 are 15,000 for the Sleepeze, 12,000 for the Plushette, and 5,000 for the Ultima. Gene Dixon, vice president of sales, has provided the following information:a. Salaries for
Refer to Exercise 8-11. Suppose Gene determines that next year€™s sales division activities include the following:Research€”researching current and future conditions in the industry Shipping€”arranging for shipping of mattresses and handling calls from purchasing
Electra Manufacturing, Inc., produces control valves used in the production of oil field equipment. The control valves are sold to various gas and oil engineering companies throughout the United States. Projected sales in units for the coming four months are as follows:January ......20,000February
Bernard Creighton is the controller for Creighton Hardware Store. In putting together the cash budget for the fourth quarter of the year, he has assembled the following data:a. SalesJuly (actual) ....... $100,000August (actual) ..... 120,000September (estimated) .. 90,000October (estimated)
Bullen & Company makes and sells high-quality glare filters for microcomputer monitors. John Crave, controller, is responsible for preparing Bullen€™s master budget and has assembled the following data for 2010.The direct labor rate includes wages and all employee-related benefits. Labor
Friendly Freddie’s is an independently owned major appliance and electronics discount chain with seven stores in a Midwest metropolitan area. Rapid expansion has created the need for careful planning of cash requirements to ensure that the chain is able to replenish stock adequately and meet
Dorian Dermatology Associates consists of a medical suite of offices with two MDs, one office manager, two medical assistants, and one receptionist. The office manager provided the following information on Dorian’s operations:a. Rent for the office suite is $1,200 per month.b. Depreciation on
Refer to Problem 8-17. Suppose that the accountant for the practice, Sally Bains, decides to prepare an activity-based budget for Dorian Dermatology Associates. Her interviews with the office manager, receptionist, and medical assistants provided the following information:a. There are essentially
An effective budget converts the goals and objectives of an organization into data. The budget serves as a blueprint for management’s plans. The budget is also the basis for control. Management performance can be evaluated by comparing actual results with the budget. Thus, creating the budget is
Norton Company, a manufacturer of infant furniture and carriages, is in the initial stages of preparing the annual budget for 2010. Scott Ford has recently joined Norton’s accounting staff and is interested in learning as much as possible about the company’s budgeting process. During a recent
Karmee Company has been accumulating operating data in order to prepare an annual profit plan. Details regarding Karmee€™s sales for the first six months of the coming year are as follows:Collection Pattern for Credit SalesMonth of sale ........... 30%First month following sale
How does the length of the time horizon affect the classification of a cost as fixed or variable? What is the meaning of short run? Long run?
Explain the difference between resource spending and resource usage.
What is the relationship between flexible resources and cost behavior?
What is the relationship between committed resources and cost behavior?
Describe the difference between a variable cost and a step-variable cost. When is it reasonable to treat step-variable costs as if they were variable costs?
Why is a scattergraph a good first step in separating mixed costs into their fixed and variable components?
What are the advantage(s) of the scatterplot method over the high-low method?
What is meant by the best-fitting line? Is the best-fitting line necessarily a good-fitting line? Explain.
When is multiple regression required to explain cost behavior?
Explain the meaning of the learning curve. How do managers determine the appropriate learning curve percentage to use?
Classify the following costs of activity inputs as variable, fixed, or mixed. Identify the activity and the associated activity driver that allow you to define the cost behavior. For example, assume that the resource input is "cloth in a shirt." The activity would be "sewing shirts," the cost
Abrams Company manufactures miniature speakers that are built into the headrests of high-end lounge chairs. Based on past experience, Abrams has found that its total annual overhead costs can be represented by the following formula: Overhead cost = $350,000 + $2.20X, where X = number of speakers.
Stella Company produces specialty tubing for large-scale construction applications. Its factory has six extruding lines that form tubing of different diameters. Each line can produce up to 5,000 feet of tubing per year. Each line has one supervisor who is paid $25,000 per year. Depreciation on
PhotoQuik is a film developing company. Customers mail their undeveloped rolls of film to the company and receive the completed photographs in return mail. The PhotoQuik facility is built and staffed to handle the processing of 100,000 rolls of film per year. The lab facility cost $330,000 to build
Sherwin, Inc., produces industrial machinery. Sherwin has a machining department and a group of direct laborers called machinists. Each machinist is paid $30,000 and can machine up to 500 units per year. Sherwin also hires supervisors to develop machine specification plans and to oversee production
Teri Hong opened a tanning salon in a new shopping center. She had anticipated that the costs for the tanning service would be primarily fixed, but she found that tanning salon costs increased with the number of visits. Costs for this service over the past nine months are as follows:Required:1.
Refer to the data in Exercise 3-6.Required:1. Compute the cost formula for tanning services using the method of least squares.2. Using the formula computed in Requirement 1, what is the predicted cost of tanning services for December for 1,900 appointments?3. What does the coefficient of
Kidstuff, Inc., was started 10 years ago by selling children€™s clothing through catalogs. Helena Cence, Kidstuff€™s controller, had determined that the cost of filling and shipping orders was fairly consistently related to the number of orders. She had been using the following
The graphs below represent cost behavior patterns that might occur in a company€™s cost structure. The vertical axis represents total cost, and the horizontal axis represents activity output.Required:For each of the following situations, choose the graph from the group a€“l that
PriceCut, a discount store, has gathered data on its overhead activities and associated costs for the past 10 months. Adrienne Sanjay, a member of the controller€™s department, believes that overhead activities and costs should be classified into groups that have the same driver. She has
The management of Corbin Company has decided to develop cost formulas for its major overhead activities. Corbin uses a highly automated manufacturing process, and power costs are a significant manufacturing cost. Cost analysts have decided that power costs are mixed; thus, they must be broken into
Oriental Bank is attempting to determine the cost behavior of its small business lending operations. One of the major activities is the application activity. Two possible activity drivers have been identified: application hours (number of hours to complete the application) and number of
The Lockit Company manufactures door knobs for residential homes and apartments. Lockit is considering the use of simple (single-driver) and multiple regression analyses to forecast annual sales because previous forecasts have been inaccurate. The new sales forecast will be used to initiate the
Benn Industries manufactures engines for the aerospace industry. It has completed manufacturing the first unit of the new ZX-9 engine design. Management believes that the 1,000 labor hours required to complete this unit are reasonable and is prepared to go forward with the manufacture of additional
What is a cost management system, and how does it differ from a financial accounting system?
What are the objectives of a cost management system?
Define and explain the two major subsystems of the cost management system.
Identify and discuss the factors that are affecting the focus and practice of cost management.
Describe the connection among planning, controlling, and feedback.
What is the role of cost management with respect to the objective of continuous improvement?
What role do performance reports play with respect to the control function?
What is business ethics? Is it possible to teach ethical behavior in a management accounting course?
Firms with higher ethical standards will experience a higher level of economic performance than firms with lower or poor ethical standards. Do you agree? Why or why not?
Review the code of ethical conduct for management accountants. Do you believe that the code will have an impact on the ethical behavior of management accountants? Explain.
Identify the three forms of accounting certification. Which form of certification do you believe is best for a management accountant? Why?
What are the four parts to the CMA examination? What do they indicate about cost and management accounting versus financial accounting?
Classify each of the following actions as either being associated with the financial accounting system (FS) or the cost management system (CMS):a. Determining the future cash flows of a proposed JIT manufacturing systemb. Filing financial reports with the SECc. Determining the cost of a customerd.
Myers Electronics, Inc., produces hand-held calculators. Three of the major electronic components are produced internally (components 2X334K, 5Y227M, and 8Z555L). There is a separate department in the plant for each component. The three manufactured components and other parts are assembled (by the
A number of mail-order computer and software companies have set up customer service telephone lines. Some are toll-free. Some are not. A customer can wait on hold anywhere from three seconds to 20 minutes.Required:Evaluate all of the costs that these companies might consider when setting up the
Consider the following thoughts of a manager at the end of the company’s third quarter: If I can increase my reported profit by $2 million, the actual earnings per share will exceed analysts’ expectations, and stock prices will increase, and the stock options that I am holding will become more
Terry Guentner, the production manager, was grumbling about the new quality cost system the plant controller wanted to put into place. “If we start trying to track every bit of spoiled material, we’ll never get any work done. Everybody knows when they ruin something. Why bother to keep track?
Each of the following scenarios requires the use of accounting information to carry out one or more of the following managerial activities: (1) Planning, (2) Control and evaluation, (3) Continuous improvement, or (4) Decision making.a. Manager: At the last board meeting, we established an objective
Sue Shapiro is a junior majoring in hotel and restaurant management. She wants to work for a large hotel chain with the goal of eventually managing a hotel. She is considering the possibility of taking a course in either financial accounting or cost management. Before choosing, however, she has
John Biggs and Patty Jorgenson are both cost accounting managers for a manufacturing division. During lunch yesterday, Patty told John that she was planning on quitting her job in three months because she had accepted a position as controller of a small company in a neighboring state. The starting
Allison Sheriff, controller of an oil exploration division, has just been approached by Tim Wilson, the divisional manager. Tim told Allison that the projected quarterly profits were unacceptable and that expenses need to be reduced. He suggested that a clean and easy way to reduce expenses is to
Silverado, Inc., is a closely held brokerage firm that has been very successful over the past five years, consistently providing most members of the top management group with 50 percent bonuses. In addition, both the chief financial officer and the chief executive officer have received 100 percent
Farris Manufacturing Company produces component parts for the farm equipment industry and has recently undergone a major computer system conversion. Jay Moulin, the controller, has established a trouble-shooting team to alleviate accounting problems that have occurred since the conversion. Jay has
The external auditors for Heart Health Procedures (HHP) are currently performing the annual audit of HHP’s financial statements. As part of the audit, the external auditors have prepared a representation letter to be signed by HHP’s chief executive officer (CEO) and chief financial officer
In the 1400s, Europeans valued the gold, gems, drugs, and spices that came from the Orient. However, these goods were very costly, since they could be transported to Europe only via long overland caravans. Portuguese sailors tried to reach the Orient by sea—around Africa. Christopher Columbus
What is an activity? Give some examples of activities within a manufacturing firm.
What is a direct cost? An indirect cost?
What does traceability mean?
Explain how driver tracing works.
What is a tangible product?
What is a service? Explain how services differ from tangible products.
Give three examples of product cost definitions. Why do we need different product cost definitions?
Identify the three cost elements that determine the cost of making a product (for external reporting).
How do the income statements of a manufacturing firm and a service firm differ?
Ries Company produces electric tools including drills, nail guns, circular saws, and routers. Recently, Ries switched from a traditional departmental assembly line system to a manufacturing cell in order to produce a specialized jigsaw. Suppose that the jigsaw manufacturing cell is the cost object.
Three possible product cost definitions were introduced: (1) Value-chain, (2) Operating, and (3) Manufacturing. Identify which of the three product cost definitions best fits the following situations (justify your choice):a. Setting the price for a new productb. Valuing finished goods inventories
Avery Corporation’s northwestern factory provided the following information for the last calendar year:Beginning inventory:Direct materials ...... $50,800Work in process ...... 58,500Ending inventories:Direct materials ...... $21,500Work in process ...... 23,500During the year, direct
For each of the following independent situations, calculate the missing values: 1. The Bartlesville plant purchased $352,000 of direct materials during April. Beginning direct materials inventory was $21,000, and direct materials used in production were $300,000. What is ending direct materials
Beckman Company manufactures staplers. At the beginning of November, the following information was supplied by its accountant:Direct materials inventory ........$48,500Work in process inventory ........ 10,000Finished goods inventory .......... 10,075During November, direct labor cost was $22,000,
Photo-Dive, Inc., manufactures disposable underwater cameras. During the last calendar year, a total of 270,000 cameras were made, and 274,000 were sold for $8 each. The actual unit cost per camera produced during the year is as follows:Direct materials ..........$2.25Direct labor ...........
Thomson Company, a manufacturing firm, has supplied the following information from its accounting records for the last calendar year:Direct labor cost .................$371,500Purchases of direct materials ............. 160,400Freight-in on materials ............. 1,000Factory supplies used
Dorothy Gotay owns and operates three Compufix shops in the Boston area. Compufix repairs and upgrades computers on site. In August, purchases of materials equaled $9,750, the beginning inventory of materials was $850, and the ending inventory of materials was $950. Payments for direct labor during
Municipal Pharmaceuticals, Inc. (MPI), designs and manufactures a variety of drugs. One new drug, glaxane, has been in development for seven years. FDA approval has just been received, and MPI is ready to begin production and sales.Required:Refer to Exhibit 2-2. Which costs in the value chain would
Bose Manufacturing produces two different models of cameras. One model has an automatic focus, whereas the other requires the user to determine the focus. The two products are produced in batches. Each time a batch is produced, the equipment must be configured (set up) for the specifications of the
Huebert Company provided the following information for last year: Beginning inventories:Direct materials ......... $ 52,700Work in process ......... 25,000Finished goods ........... 75,000Ending inventories:Direct materials ......... $ 42,700Work in process ......... 50,000Finished goods
Refer to Exercise 2-11. Last year, Huebert recognized revenue of $1,940,000 and had selling and administrative expense of $288,300.Required:1. What is the cost of goods sold for last year?2. Prepare an income statement for Huebert for last year.
Emery Plastic Products is a small company that specialized in the production of plastic dinner plates until several years ago. Although profits for the company had been good, they have been declining in recent years because of increased competition. Many competitors offer a full range of plastic
The actions listed next are associated with either an activity-based operational control system or a functional-based operational control system:a. Budgeted costs for the maintenance department are compared with the actual costs of the maintenance department.b. The maintenance department manager
Jordan Company produced 150,000 floor lamps during the past calendar year. Jordan had 2,500 floor lamps in finished goods inventory at the beginning of the year. At the end of the year, there were 11,500 floor lamps in finished goods inventory. The lamps sell for $50 each. Jordan’s accounting
CPA-Buster Company creates, produces, and sells CD-ROM-based CPA review courses for individual use. Lily Shultz, head of human resources, is convinced that question development employees must have strong analytical and problem-solving skills. She asked Jeremy Slater, controller for CPA-Buster, to
Young, Coopers, and Touche (YCT) is a tax services firm. The firm is located in San Diego and employs 10 professionals and eight staff. The firm does tax work for small businesses and well-to-do individuals. The following data are provided for the last fiscal year. (YCT’s fiscal year runs from
What is cost measurement? Cost accumulation? What is the difference between the two?

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