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

Golding Company produces leather strips for western belts using three processes: cutting, design and coloring, and punching. The weighted average method is used for all three departments. The following information pertains to the design and coloring department for the month of November.a. There was
Novel Toys, Inc., manufactures plastic water guns. Each gun’s left and right frames are produced in the molding department. The left and right frames are then transferred to the assembly department where the trigger mechanism is inserted and the halves are glued together. (The left and right
Consider the following conversation between Keri Swasey, manager of a division that produces riding lawn mowers, and her controller, Stoney Lawson, a CMA and CPA:Keri: Stoney, we have a real problem. Our operating cash is too low, and we are in desperate need of a loan. As you know, our financial
Discuss the difference between budgets and standard costs. Discuss.
What is the quantity decision? The pricing decision?
Why is historical experience often a poor basis for establishing standards? Discuss.
The budget variance for variable production costs is broken down into quantity and price variances. Explain why the quantity variance is more useful for control purposes than the price variance. Discuss.
Explain why the direct materials price variance is often computed at the point of purchase rather than at the point of issuance.
The direct materials usage variance is always the responsibility of the production supervisor. Do you agree or disagree? Why?
The direct labor rate variance is never controllable. Do you agree or disagree? Why?
What is the cause of an unfavorable volume variance? Does the volume variance convey any meaningful information to managers?
Explain how the two-, three-, and four-variance overhead analyses are related.
Explain what mix and yield variances are.
Quincy Farms is a producer of items made from farm products that are distributed to supermarkets. For many years, Quincy’s products have had strong regional sales on the basis of brand recognition. However, other companies have been marketing similar products in the area, and price competition
During the year, Minot Company produced 120,000 drills for industrial equipment. Minot’s direct materials and direct labor standards are as follows:Direct materials (2.5 lbs. @ $4) .....$10.00Direct labor (0.6 hrs. @ $13) ....... 7.80Required:1. Compute the standard pounds of direct materials
Dulce Company produces a popular candy bar called Rico. The candy is produced in Costa Rica and exported to the United States. Recently, the company adopted the following standards for one 5-ounce bar of the candy:Direct materials (5.5 oz. @ $0.04) .... $0.22Direct labor (0.05 hr. @ $2.60) ......
Pratt, Inc., uses a standard costing system and develops its overhead rates from the current annual budget. The budget is based on an expected annual output of 100,000 units requiring 500,000 direct labor hours. Annual budgeted overhead costs total $437,500, of which $187,500 is fixed overhead. A
Refer to the data in Exercise 9-4.Required:1. Compute overhead variances using a two-variance analysis.2. Compute overhead variances using a three-variance analysis.3. Illustrate how the two- and three-variance analyses are related to the four-variance analysis.
Lamson Sauces produces a hot sauce using tomatoes and chili peppers. Lamson developed the following standard cost sheet:On March 2, Lamson produced a batch of 32,000 ounces with the following actual results:Direct Material Actual MixTomatoes .......25,600 ouncesChili peppers ....... 6,400Total
Refer to Exercise 9-6. Lamson purchased the amount used of each direct material input on March 2 for the following actual prices: tomatoes, $0.020 per ounce and chili peppers, $0.028 per ounce.Required:1. Compute and journalize the direct materials price variances.2. Compute and journalize the
DeMarco Company uses two types of direct labor for the manufacturing of its integrated electronic components: soldering and testing. DeMarco has developed the following standard mix for direct labor, where output is measured in number of circuit boards.During the second week in August, DeMarco
Molano Company produces ponchos. The company has established the following direct materials and direct labor standards for one poncho:Wool (3 yds. @ $3) ....... $ 9.00Labor (3.5 hrs. @ $5) ..... 17.50Total prime cost ....... $26.50During the first quarter of the year, Molano produced 25,000
Franklin Company uses the following rule to determine whether direct labor efficiency variances ought to be investigated. A direct labor efficiency variance will be investigated any time the amount exceeds the lesser of $16,000 or 10 percent of the standard labor cost. Reports for the past five
Vaquero, Inc., uses a standard costing system. The predetermined overhead rates are calculated using practical capacity. Practical capacity for a year is defined as 1,000,000 units requiring 250,000 standard direct labor hours. Budgeted overhead for the year is $750,000, of which $300,000 is fixed
Pato Corporation produces leather sandals. The company uses a standard costing system and has set the following standards for direct materials and direct labor (for one pair of sandals):Leather (3 strips @ $5) ........$15Direct labor (2 hrs. @ $6) ....... 12Total prime cost ..........$27During the
Iverson Company produces microwave ovens. Iverson’s plant in Akron uses a standard costing system. The standard costing system relies on direct labor hours to assign overhead costs to production. The direct labor standard indicates that four direct labor hours should be used for every microwave
The Brownsville plant of Buckman Company produces an industrial chemical. At the beginning of the year, the Brownsville plant had the following standard cost sheet:Direct materials (10 lbs. @ $1.60) .......$16.00Direct labor (0.75 hr. @ $18.00) ....... 13.50Fixed overhead (0.75 hr. @ $4.00) .......
Levram Company uses a standard costing system. During the past quarter, the following variances were computed:Variable overhead efficiency variance ....... $ 30,000 UDirect labor efficiency variance ........ 40,000 UDirect labor rate variance ............ 25,000 ULevram applies variable
Nosemer Company produces engine parts for large motors. The company uses a standard cost system for production costing and control. The standard cost sheet for one of its higher volume products (a valve), is as follows:Direct materials (5 lbs. @ $4.00) ........$20.00Direct labor (1.4 hrs. @ $10.50)
Business Specialty, Inc., manufactures two staplers: small and regular. The standard quantities of direct labor and direct materials per unit for the year are as follows:The standard price paid per pound of direct materials is $1.60. The standard rate for labor is $8.00. Overhead is applied on the
Limpio, Inc., produces a key ingredient for liquid laundry detergents. Two chemical solutions, Chem A and Chem B, are mixed and heated to produce a cleansing chemical that is sold to companies that produce liquid detergents. The cleansing ingredient is produced in batches and has the following
Refer to the data in Problem 9-18. Limpio, Inc., also uses two different types of direct labor in producing the cleansing chemical: mixing and drum-filling labor (the completed product is placed into 50-gallon drums). For each batch of 20,000 gallons of direct materials input, the following
Energy Products Company produces a gasoline additive, Gas Gain. This product increases engine efficiency and improves gasoline mileage by creating a more complete burn in the combustion process. Careful controls are required during the production process to ensure that the proper mix of input
Jackman Company produces a single product. Jackman employs a standard costing system and uses a flexible budget to predict overhead costs at various levels of activity. For the most recent year, Jackman used a standard overhead rate equal to $6.25 per direct labor hour. The rate was computed using
Correr Company manufactures a line of running shoes. At the beginning of the period, the following plans for production and costs were revealed:Units to be produced and sold .......25,000Standard cost per unit:Direct materials ............... $10Direct labor ............... 8Variable overhead
A restaurant owner who had yet to earn a monthly profit said, “The busier we are, the more we lose.” What do you think is happening in terms of contribution margin?
If the contribution margin increases from 30 to 35 percent of sales, what will happen to the break-even point, and why will this occur?
Suppose a firm with a contribution margin ratio of 0.3 increased its advertising expenses by $10,000 and found that sales increased by $30,000. Was it a good decision to increase advertising expenses? Why is this simple problem an important one for business people to understand?
Why might a multiple-product firm choose to calculate just overall break-even revenue rather than the break-even quantity by product?
How do income taxes affect the break-even point and CVP analysis?
Define the term margin of safety. Explain what is meant by the term operating leverage. What impact does an increase in the margin of safety have on risk? What impact does an increase in leverage have on risk?
Why does the activity-based costing approach to CVP analysis offer more insight than the conventional approach does?
Jimson Company manufactures nylon purses. Variable costs are $37 per purse, the price is $55, and fixed costs are $41,400.Required:1. What is the contribution margin for one purse?2. How many purses must Jimson Company sell to break even?3. If Jimson Company sells 6,000 purses, what is the
Oberon Company manufactures dorm-room-sized refrigerators. Fixed costs amount to $270,000 per year. Variable costs per refrigerator are $23, and the average price per refrigerator is $50.Required:1. How many refrigerators must Oberon Company sell to break even?2. If Oberon Company sells 16,000
Anitra Anthony sells a variety of pottery items at regional craft fairs. Her fixed costs (depreciation on the kiln, utilities, tools, portable selling booth) are $4,325 per year. The average price for a piece of pottery is $6.50, and the average variable cost (e.g., clay, paints, glazes, and price
Tamara Ames owns and operates The Hassle-Free Hothouse (THH), which provides live plants and flower arrangements to professional offices. Tamara has fixed costs of $2,380 per month for office/greenhouse rent, advertising, and a delivery van. Variable costs for the plants, fertilizer, pots, and
Willard Motors, Inc., employs 20 sales personnel to market its line of luxury automobiles. The average car sells for $65,000, and a 6 percent commission is paid to the salesperson. Willard Motors is considering a change to the commission arrangement where the company would pay each salesperson a
StarSports, Inc., represents professional athletes and movie and television stars. The agency had revenue of $10,780,000 last year, with total variable costs of $5,066,600 and fixed costs of $2,194,200.Required:1. What is the contribution margin ratio for StarSports based on last year’s data?
Almo Company manufactures and sells adjustable canopies that attach to motor homes and trailers. The market covers both new unit purchases as well as replacement canopies. Almo developed its 2010 business plan based on the assumption that canopies would sell at a price of $400 each. The variable
Prostuff Company produces catchers’ mitts. Currently, Prostuff charges a price of $35 per mitt. Variable costs are $23.10 per mitt, and fixed costs are $23,800. The tax rate is 40 percent. Last year, 17,800 mitts were sold.Required:1. What is Prostuff’s net income for last year?2. What is
Milton Corporation manufactures skateboards and is in the process of preparing next year€™s budget. The pro forma income statement for the current year is as follows:Required:1. What is the break-even revenue (rounded to the nearest dollar) for Milton Corporation for the current year?2.
Choose the best answer for each of the following multiple-choice questions.1. Cost-volume-profit analysis includes some simplifying assumptions. Which of the following is not one of these assumptions?a. Cost and revenues are predictable.b. Cost and revenues are linear over the relevant range.c.
Chromatics, Inc., produces novelty nail polishes. Each bottle sells for $3.60. Variable unit costs are as follows:Acrylic base .......$0.75Pigments ........0.38Other ingredients ......0.35Bottle, packing material ..1.15Selling commission .....0.25Fixed overhead costs are $12,000 per year. Fixed
Income statements for two different companies in the same industry are as follows:Required:1. Compute the degree of operating leverage for each company.2. Compute the break-even point for each company. Explain why the break-even point for Quintex, Inc., is higher.3. Suppose that both companies
Thorpe Company produces wireless phones. One model is the miniphone'a basic model that is very small and slim. The miniphone fits into a shirt pocket. Another model, the netphone, has a larger display and is Internet-ready. For the coming year, Thorpe expects to sell 200,000 miniphones and 600,000
Siberian Ski Company recently expanded its manufacturing capacity, which will allow it to produce up to 15,000 pairs of cross-country skis of the mountaineering model or the touring model. The sales department assures management that it can sell between 9,000 and 13,000 pairs of either product this
Don Masters and two of his colleagues are considering opening a law office in a large metropolitan area that would make inexpensive legal services available to those who could not otherwise afford these services. The intent is to provide easy access for their clients by having the office open 360
The following projected income statement for More-Power Company is repeated for your convenience. Recall that the projection is based on sales of 75,000 regular sanders and 30,000 mini-sanders.Required:1. Set up the given income statement on a spreadsheet (e.g., Excel). Then, substitute the
Consider the following information on four independent companies.Required:Calculate the correct amount for each questionmark.
Gossimer, Inc., is a manufacturer of exercise equipment. The budgeted income statement for the coming year is as follows.Sales ............$900,000Less: Variable expenses .....342,000Contribution margin ......$558,000Less: Fixed expenses ......363,537Income before taxes .....$194,463Less: Income
Plata produces and sells plastic storage containers. Last year, Plata sold 125,000 units. The income statement for Plata, Inc., for last year is as follows:Sales ...........$625,000Less: Variable expenses ....343,750Contribution margin ........$281,250Less: Fixed expenses .....180,000Operating
Coastal Carolina Company produces a single product. The projected income statement for the coming year, based on sales of 100,000 units, is as follows:Sales .........$2,000,000Less: Variable costs .....1,100,000Contribution margin ....$ 900,000Less: Fixed costs ......765,000Operating income .....$
Devonly Company produces a variety of products. One division makes gas grills for outdoor cooking. The division’s projected income statement for the coming year is as follows:Sales (120,000 units) ...$7,500,000Less: Variable expenses ...3,450,000Contribution margin ....$4,050,000Less: Fixed
Renslen Consulting is a service organization that specializes in the design, installation, and servicing of mechanical, hydraulic, and pneumatic systems. For example, some manufacturing firms, with machinery that cannot be turned off for servicing, need some type of system to lubricate the
Drake Company produces a single product. Last year’s income statement is as follows:Sales (20,000 units) .....$1,218,000Less: Variable costs .......812,000Contribution margin ......$ 406,000Less: Fixed costs ........300,000Operating income .......$ 106,000Required:1. Compute the break-even point
Salem Electronics currently produces two products: a programmable calculator and a tape recorder. A recent marketing study indicated that consumers would react favorably to a radio with the Salem brand name. Owner Kenneth Booth was interested in the possibility. Before any commitment was made,
Good Scent, Inc., produces two colognes: Rose and Violet. Of the two, Rose is more popular. Data concerning the two products follow:The company uses a conventional costing system and assigns overhead costs to products using direct labor hours. Annual overhead costs follow. They are classified as
Ironjay, Inc., produces two types of weight-training equipment: the jay-flex (a weight machine that allows the user to perform a number of different exercises) and a set of free weights. Ironjay sells the jay-flex to sporting goods stores for $200. The free weights sell for $75 per set. The
Sorrentino Company, which has been in business for one year, manufactures specialty Italian pastas. The pasta products start in the mixing department, where durum flour, eggs, and water are mixed to form dough. The dough is kneaded, rolled flat, and cut into fettucine or lasagna noodles, then dried
What is tactical decision making?
“Tactical decisions are often small-scale decisions that serve a larger purpose.” Explain what this means.
What is tactical cost analysis? What steps in the tactical decision model correspond to tactical cost analysis?
What is a relevant cost? Explain why depreciation on an existing asset is always irrelevant.
Relevant costs always determine which alternative should be chosen. Do you agree or disagree? Explain.
Can direct materials ever be irrelevant in a make-or-buy decision? Explain. Give an example of a fixed cost that is relevant.
What role do past costs play in tactical cost analysis?
When will flexible resources be relevant to a decision?
When will the cost of committed resources be relevant to a decision?
What are the main differences between a functional-based and an activity-based make-or-buy analysis?
Explain why activity-based segmented reporting provides more insight concerning keep-or-drop decisions.
Renslen Products, Inc., manufactures potentiometers. (A potentiometer is a device that adjusts electrical resistance.) Currently, all parts necessary for the assembly of products are produced internally. Renslen has a single plant located in Wichita, Kansas. The facilities for the manufacture of
Leitner, Inc., has four salaried clerks to process purchase orders. Each clerk is paid a salary of $27,400 and is capable of processing as many as 8,000 purchase orders per year. Each clerk uses a PC and laser printer in processing orders. Time available on each PC system is sufficient to process
Six months ago, Kelly O’Connor purchased a fire-engine red, used LeBaron convertible for $10,000. Kelly was looking forward to the feel of the sun on her shoulders and the wind whipping through her hair as she zipped along the highways of life. Unfortunately, the wind turned her hair into straw,
Pagilla, Inc., manufactures croquet sets. A national sporting goods chain recently submitted a special order for 4,000 croquet sets. Pagilla was not operating at capacity and needed the extra business. Unfortunately, the order’s offering price of $21 per croquet set was below the cost to produce
Darim Company is currently manufacturing Part FEA-10, producing 15,000 units annually. The part is used in the production of several products made by Darim. The cost per unit for FEA-10 is as follows:Direct materials ....$70.00Direct labor ......20.00Variable overhead ....3.00Fixed overhead
Golf-2-Go, Inc., a manufacturer of motorized carts for golfers, has just received an offer from a supplier to provide 2,000 units of a component used in its main product. The component is a wheel assembly that Golf-2-Go currently produces internally. The supplier has offered to sell the wheel
Bruno, Inc., manufactures display cases for retail stores. Good-4-U Foods, Inc., is a grocery chain that decided to expand into video rental and needs display cases. Good-4-U Foods offered to purchase 14,000 display cases for $35 each. Normally, this type of case sells for $45, but Bruno is
Worrall, Inc., produces two types of peanut butter: Smooth and Crunchy. Of the two, Smooth is the more popular. Data concerning the two products follow:aPractical capacity less expected usage (all unused capacity is permanent).bIn some cases, activity capacity must be purchased in steps (whole
Shiroma, Inc., is a pork processor. Its plants, located in the Midwest, produce several products from a common process: sirloin roasts, chops, spare ribs, and the residual. The roasts, chops, and spare ribs are packaged, branded, and sold to supermarkets. The residual consists of organ meats and
Serene Assurance Company provides both automobile and life insurance. The projected income statements for the two products are as follows:The president of the company is considering dropping the automobile insurance. However, some policyholders prefer having their auto and life insurance with the
Lancaster Company manufactures two types of hair conditioners, Creemy and Shiney, out of a joint process. The joint (common) costs incurred are $840,000 for a standard production run that generates 360,000 gallons of Creemy and 240,000 gallons of Shiney. Additional processing costs beyond the
Brandy Dees recently bought Nievo Enterprises, a company that manufactures ice skates. Brandy decided to assume management responsibilities for the company and appointed herself president shortly after the purchase was completed. When she bought the company, Brandy's investigation revealed that
Gray Dentistry Services is part of an HMO that operates in a large metropolitan area. Currently, Gray has its own dental laboratory to produce porcelain and gold crowns. The unit costs to produce the crowns are as follows:Fixed overhead is detailed as follows:Salary (supervisor)
Chemco Corporation buys three chemicals that are processed to produce two popular ingredients for liquid cough syrups. The three chemicals are in liquid form. The purchased chemicals are blended for two to three hours and then heated for 15 minutes. The results of the process are two separate
GianAuto Corporation manufactures automobiles, vans, and trucks. Among the various GianAuto plants around the United States is the Denver cover plant, where vinyl covers and upholstery fabric are sewn. These are used to cover interior seating and other surfaces of GianAuto products.Pam Vosilo is
Morrill Company produces two different types of gauges: a density gauge and a thickness gauge. The segmented income statement for a typical quarter follows.The density gauge uses a subassembly that is purchased from an external supplier for $25 per unit. Each quarter, 2,000 subassemblies are
Perry Medical Center (PMC) has five medical technicians who are responsible for conducting sonogram testing. Each technician is paid a salary of $36,000 and is capable of processing 1,000 tests per year. The sonogram equipment is one year old and was purchased for $150,000. It is expected to last
Emery Company, a manufacturer of motors for washing machines, has installed a JIT purchasing and manufacturing system. After several years of operation, Emery has succeeded in reducing inventories to insignificant levels. During the coming year, Emery expects to produce 200,000 motors: 150,000 of
Central University, a Midwestern university with approximately 17,400 students, was in the middle of a budget crisis. For the third consecutive year, state appropriations for higher education remained essentially unchanged. (The university is currently in its 2009â€“2010 academic year.) Yet,
Rick Morgan sat at his desk mulling over an important decision. As plant manager for the Salina factory, he was under pressure to reduce costs and improve productivity. He had been approached several weeks before by Lauren Gosnell, the purchasing manager, who told him that a major supplier had

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