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

What are the features of a perfectly competitive market? Give two examples of competitive markets. How could a firm in such a market move to a less competitive market?
How do you calculate the markup on cost of goods sold? Is the markup pure profit?Explain.
How does target costing differ from traditional costing? How does a target cost relate to price?
What is the difference between penetration pricing and price skimming?
Why do gas stations in the middle of town typically charge a little less for gasoline than do gas stations located on interstate highway turnoffs?
What is price discrimination? Is it legal?
Why do firms measure profit? Why do regulated firms care about the level of profit?
What is a segment, and why would a company want to measure profits of segments?
Suppose that Alpha Company has four product lines, three of which are profitable and one (let’s call it “Loser”) which generally incurs a loss. Give several reasons why Alpha Company may choose not to drop the Loser product line.
How does absorption costing differ from variable costing? When will absorption costing operating income exceed variable-costing operating income?
What are some advantages and disadvantages of using net income as a measure of profitability?
Why do some firms measure customer profitability? In what situation(s) would a firm not want to measure customer profitability?
What variances do managers use in trying to understand the difference between actual and planned revenue?
Elaine Gordon wants to start a business supplying florists with field-grown flowers. She has located an appropriate acreage and believes she can grow daisies, asters, chrysanthemums, carnations, and other assorted types during a nine-month growing period.By growing the flowers in a field as opposed
Amin Bailey is an accountant just ready to open an accounting firm in his hometown. He has heard that established accountants in town charge $65 per hour. That sounds good to Amin. In fact, he believes that he should be able to charge $75 an hour given his high GPA and the fact that he is up to
Baker Construction acts as the general contractor on building projects ranging from $500,000 to $5 million. Each job requires a bid that includes Baker€™s direct costs and subcontractor costs as well as an amount referred to as €œoverhead and profit.€
Many different businesses employ markup on cost to arrive at a price.Required:For each of the following situations, explain what the markup covers and why it is the amount that it is.1. Department stores have a markup of 100 percent of purchase cost.2. Jewelry stores charge anywhere from 100
Vaquero, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows:Manufacturing costs (per unit):Direct materials (2 lbs. @ $3.50) ....$ 7.00Direct labor (0.5 hr. @ $16) ......8.00Variable overhead (0.5 hr. @ $6) ....3.00Fixed overhead (0.5 hr.
During its first year of operations, Snobegon, Inc. (located in Lake Snobegon, Minnesota), produced 30,000 plastic snow scoops. Snow scoops are oversized shoveltype scoops that are used to push snow away. Unit sales were 29,000 scoops. Fixed overhead was applied at $0.75 per unit produced. Fixed
Carina Franks operates a catering company in Austin, Texas. Carina provides food and servers for parties. She also rents tables, chairs, dinnerware, glassware, and linens. Estefan and Maria Montero have contacted Carina about plans for their soon-to-be 15-year-old daughter’s quinceanera (a
Stewart Fibers, Inc., specializes in the manufacture of synthetic fibers that the company uses in many products such as blankets, coats, and uniforms for police and firefighters. Stewart has been in business since 1985 and has been profitable every year since 1993. The company uses a standard cost
Data for Lorraine Company are as follows:Budgeted price ...$14.30Actual price .....$13.00Budgeted quantity ..1,450Actual quantity sold ..1,400Required:1. Calculate the sales price variance.2. Calculate the price volume variance.3. Suppose that the product is at the end of the maturity stage of the
Byers, Inc., manufactures and sells three products: K, M, and P. In January, Byers, Inc., budgeted sales of the following:At the end of the year, actual sales for Product K and Product M were $5,600,000 and $3,270,000, respectively. The actual price charged for each was equal to the budgeted price.
Price Discrimination and the Robinson-Patman ActRequired:For each of the following situations, determine whether or not price discrimination has occurred and whether the Robinson-Patman Act has been violated.1. Albion Shoes manufactures and sells shoes to retail outlets. A popular women’s flat
Larsen, Inc., manufactures and distributes a variety of health products, including Velcro fastened wrist stabilizers for people with carpal tunnel syndrome. Annual production of wrist stabilizers averages 200,000 units. A large chain store purchases about 40 percent of Larsen’s production.
Shultz Company produced 80,000 units during its first year of operations and sold 76,000 at $9 per unit. The company chose practical activity—at 80,000 units—to compute its predetermined overhead rate. Manufacturing costs are as follows: Direct materials ............$240,000Direct labor
The following information pertains to Jazon, Inc., for last year:Beginning inventory, units ............—Units produced ................60,000Units sold ...................57,400Variable costs per unit:Direct materials .................$9.00Direct labor ...................6.50Variable overhead
Skilz Company had the following operating data for its first two years of operations:Variable costs per unit:Direct materials .........$ 5.00Direct labor ............3.00Variable overhead .......1.50Fixed costs per year:Overhead ...........90,000Selling and administrative ...17,200Skilz produced
Portland Optics, Inc., specializes in manufacturing lenses for large telescopes and cameras used in space exploration. As the specifications for the lenses are determined by the customer and vary considerably, the company uses a job-order costing system. Manufacturing overhead is applied to jobs on
Kingston Company provides management services for apartments and rental units. In general, Kingston packages its services into two groups: basic and complete. The basic package includes advertising vacant units, showing potential renters through them, and collecting monthly rent and remitting it to
Kimball, Inc., produces and sells gel-filled ice packs. Kimball€™s performance report for August follows:Required:1. Calculate the contribution margin variance and the contribution margin volume variance.2. Calculate the market share variance and the market sizevariance.
Shannon, Inc., has two divisions. One produces and sells paper party supplies (napkins, paper plates, invitations); the other produces and sells cookware. A segmented income statement for the most recent quarter is as follows:On seeing the quarterly statement, Madge Shannon, president of Shannon,
Bill Fremont, division controller and CMA, was upset by a recent memo he received from the divisional manager, Steve Preston. Bill was scheduled to present the division’s financial performance at headquarters in one week. In the memo, Steve had given Bill some instructions for this upcoming
Louise Bordner has just been appointed manager of Palmroy's Glass Products Division. She has two years to make the division profitable. If the division is still showing a loss after two years, it will be eliminated, and Louise will be reassigned as an assistant divisional manager in another
Jerrell, Inc., manufactures and sells automotive tools through three divisions: Southwest, Midwest, and Northeast. Each division is evaluated as a profit center. Data for each division for last year are as follows (in thousands of dollars):Jerrell, Inc., had corporate administrative expenses equal
Olin Company manufactures and distributes carpentry tools. Production of the tools is in the mature portion of the product life cycle. Olin has a sales force of 20. Salespeople are paid a commission of 7 percent of sales, plus expenses of $35 per day for days spent on the road away from home, plus
Pittsburgh-Walsh Company (PWC) is a manufacturing company whose product line consists of lighting fixtures and electronic timing devices. The Lighting Fixtures Division assembles units for the upscale and mid-range markets. The Electronic Timing Devices Division manufactures instrument panels that
Porter Insurance Company has three lines of insurance: automobile, property, and life. The life insurance segment has been losing money for the past five quarters, and Leah Harper, Porter’s controller, has done an analysis of that segment. She has discovered that the commission paid to the agent
Refer to the original data in Problem 19-25. Fred Morton has just purchased a life insurance policy from Porter with premiums equal to $1,500 per year.Required:1. Assume Fred holds the policy for one year and then drops it. What is his contribution to Porter’s operating income?2. Assuming Fred
Shangri-La Videos is marketing a new line of wellness-oriented videotapes. These videotapes emphasize proper nutrition, low-impact exercise, and stress reduction techniques. Shangri-La’s marketing director (and president), Sherry Benson, believes that a comprehensive marketing campaign to
What are ordering costs? What are setup costs? What are carrying costs? Provide examples of each type of cost.
Discuss the traditional reasons for carrying inventory.
One reason for inventory is to prevent shutdowns. How does the JIT approach to inventory management deal with this potential problem?
Explain how the kanban system helps reduce inventories.
Explain how long-term contractual relationships with suppliers can reduce the acquisition cost of materials.
What is a constraint? An internal constraint? An external constraint?
Explain the procedures for graphically solving a linear programming problem. What solution method is used when the problem includes more than two or three products?
Define and discuss the three measures of organizational performance used by the theory of constraints.
Explain how lowering inventory produces better products, lower prices, and better responsiveness to customer needs.
What are the five steps that TOC uses to improve organizational performance?
Sullivan, Inc., uses 40,000 plastic housing units each year in its production of paper shredders. The cost of placing an order is $40. The cost of holding one unit of inventory for one year is $5. Currently, Sullivan places eight orders of 5,000 plastic housing units per year.Required:1. Compute
Economic Order Quantity Refer to the data in Exercise 21-1.Required:1. Compute the economic order quantity.2. Compute the ordering and carrying costs for the EOQ.3. How much money does using the EOQ policy save the company over the policy of purchasing 5,000 plastic housing units per order?
Inglis Company uses 312,500 pounds of sucrose each year. The cost of placing an order is $30, and the carrying cost for one pound of sucrose is $0.75.Required:1. Compute the economic order quantity for sucrose.2. Compute the carrying and ordering costs for the EOQ.
Alma Company manufactures sleeping bags. A heavy-duty zipper is one part the company orders from an outside supplier. Information pertaining to the zipper is as follows:Economic order quantity ...4,200 unitsAverage daily usage .......200 unitsMaximum daily usage .......240 unitsLead time
Wadley Manufacturing produces casings for stereo sets: large and small. In order to produce the different casings, equipment must be set up. Each setup configuration corresponds to a particular type of casing. The setup cost per production run—for either casing—is $6,000. The cost of carrying
EOQ with Setup Costs Refer to Exercise 21-5.Required:1. Compute the number of large casings that should be produced per setup to minimize total setup and carrying costs for this product.2. Compute the total setup and carrying costs associated with the economic order quantity for the large casings.
Refer to Exercise 21-5. Assume the economic lot size for small casings is 30,000 and that of the large casings is 10,000. Wadley Manufacturing sells an average of 590 small casings per workday and an average of 200 large casings per workday. It takes Wadley three days to set up the equipment for
Bristol Manufacturing produces a component used in its production of clothes dryers. The time to set up and produce a batch of the components is two days. The average daily usage is 320 components, and the maximum daily usage is 375 components.Required:Compute the reorder point assuming that safety
Hales Company produces a product that requires two processes. In the first process, a subassembly is produced (subassembly A). In the second process, this subassembly and a subassembly purchased from outside the company (subassembly B) are assembled to produce the final product. For simplicity,
Many companies have viewed JIT as a panacea—a knight in shining armor that promises rescue from sluggish profits, poor quality, and productive inefficiency. It is often lauded for its beneficial effects on employee morale and self-esteem. Yet JIT may also cause a company to struggle and may
Bedford Company makes three types of stainless steel frying pans. Each of the three types of pans requires the use of a special machine that has total operating capacity of 182,000 hours per year. Information on each of the three products is as follows:The marketing manager has determined that the
Waverly, Inc., manufactures two types of aspirin: plain and buffered. It sells all it produces. Recently, Waverly implemented a TOC approach for its Fort Smith plant. One binding constraint was identified, and the optimal product mix was determined. The diagram on the next page reflects the TOC
Bateman Company produces helmets for motorcycle riders. Helmets are produced in batches according to model and size. Although the setup and production time vary for each model, the smallest lead time is six days. The most popular model, Model HA2, takes two days for setup, and the production rate
Vassar Company produces two types of gears: Model #12 and Model #15. Market conditions limit the number of each gear that can be sold. For Model #12, no more than 15,000 units can be sold, and for Model #15, no more than 40,000 units. Each gear must be notched by a special machine. Vassar owns
Hurley Company produces two industrial cleansers, Pocolimpio and Maslimpio, that use the same liquid chemical input. Pocolimpio uses two quarts of the chemical for every unit produced, and Maslimpio uses five quarts. Currently, Hurley has 6,000 quarts of the material in inventory. All of the
Caribou Products, Inc., produces cornflakes and branflakes. The manufacturing process is highly mechanized; both products are produced by the same machinery by using different settings. For the coming period, 200,000 machine hours are available. Management is trying to decide on the quantities of
Berry Company produces two different metal components used in medical equipment (Component X and Component Y). The company has three processes: molding, grinding, and finishing. In molding, molds are created, and molten metal is poured into the shell. Grinding removes the gates that allowed the
Pratt Company produces two replacement parts, Part A and Part B, for a popular line of DVD players. Part A is made up of two components, one manufactured internally and one purchased from external suppliers. Part B is made up of three components, one manufactured internally and two purchased from
Calen Company manufactures and sells three products in a factory of three departments. Both labor and machine time are applied to the products as they pass through each department. The nature of the machine processing and of the labor skills required in each department is such that neither machines
Bountiful Manufacturing produces two types of bike frames (Frame X and Frame Y). Frame X passes through four processes: cutting, welding, polishing, and painting. Frame Y uses three of the same processes: cutting, welding, and painting. Each of the four processes employs 10 workers who work eight
The following reasons have been offered for holding inventories:a. To balance ordering or setup costs and carrying costsb. To satisfy customer demand (e.g., meet delivery dates)c. To avoid shutting down manufacturing facilities because of:(1) Machine failure(2) Defective parts(3) Unavailable
What does it mean to obtain a competitive advantage? What role does the cost management system play in helping to achieve this goal?
What is customer value? How is customer value related to a cost leadership strategy? To a differentiation strategy? To strategic positioning?
Explain what internal and external linkages are.
What are organizational and operational activities? Organizational cost drivers? Operational cost drivers?
What is the difference between a structural cost driver and an executional cost driver? Provide examples of each.
What is value-chain analysis? What role does it play in strategic cost analysis?
What is an industrial value chain? Explain why a firm’s strategies are tied to what happens in the rest of the value chain. Using total quality control as an example, explain how the success of this quality management approach is dependent on supplier linkages.
What are the three viewpoints of product life cycle? How do they differ?
What are the four stages of the marketing life cycle?
What are life-cycle costs? How do these costs relate to the production life cycle?
What are the four stages of the consumption life cycle? What are post-purchase costs? Explain why a producer may want to know post-purchase costs.
“Life-cycle cost reduction is best achieved during the development stage of the production life cycle.” Do you agree or disagree? Explain.
What is target costing? What role does it have in life-cycle cost management?
Explain why JIT with dedicated cellular manufacturing increases product costing accuracy.
Explain how backflush costing works.
Classify the following cost drivers as structural, executional, or operational.a. Number of plantsb. Number of movesc. Degree of employee involvementd. Capacity utilizatione. Number of product linesf. Number of distribution channelsg. Engineering hoursh. Direct labor hoursi. Scopej. Product
Molson Company has decided to pursue a cost leadership strategy. This decision is prompted, in part, by increased competition from foreign firms. Molson’s management is confident that costs can be reduced by more efficient management of the firm’s operational activities. Improving operational
Zavner Company manufactures dental equipment. Zavner produces all the components necessary for the production of its product except for one. This component is purchased from two local suppliers: Grayson Machining and Lambert, Inc. Grayson sells the component for $144 per unit, while Lambert sells
Garvey Company sells machine parts to industrial equipment manufacturers for an average price of $0.75 per part. There are two types of customers: those who place small, frequent orders and those who place larger, less frequent orders. Each time an order is placed and processed, a setup is
Assume that a company has recently switched to JIT manufacturing. Each manufacturing cell produces a single product or major subassembly. Cell workers have been trained to perform a variety of tasks. Additionally, many services have been decentralized. Costs are assigned to products using direct
Prior to installing a JIT system, Pohlson Company, a producer of bicycle parts, used maintenance hours to assign maintenance costs to its three products (wheels, seats, and handle bars). The maintenance costs totaled $1,960,000 per year. The maintenance hours used by each product and the quantity
Jackson Company has installed a JIT purchasing and manufacturing system and is using backflush accounting for its cost flows. It currently uses the purchase of materials as the first trigger point and the completion of goods as the second trigger point. During the month of August, Jackson had the
Refer to Exercise 11-7.Prepare the journal entries for the month of August using backflush costing, assuming that Jackson uses the sale of goods as the second trigger point instead of the completion of goods.
Refer to Exercise 11-7.Required:1. Prepare the journal entries for the month of August using backflush costing, assuming that Jackson uses the completion of goods as the only trigger point.2. Prepare the journal entries for the month of August using backflush costing, assuming that Jackson uses the
Menotti Company produces two types of space heaters (regular and super). Both pass through two producing departments: fabrication and assembly. It also has a materials handling department that is responsible for moving materials and goods to and between departments. Budgeted data for the three
Golder, Inc., has a functional-based costing system. Golder’s Miami plant produces 10 different electronic products. The demand for each product is about the same. Although they differ in complexity, each product uses about the same labor time and materials. The plant has used direct labor hours
Plata, Inc., manufactures riding lawn mowers. Plata uses JIT manufacturing and carries insignificant levels of inventory. Plata manufactures everything needed for the riding lawn mowers except for the engines. Several sizes of mowers are produced. The most popular line is the small mower line. The
Jazon Manufacturing produces several types of bolts. The products are produced in batches according to customer order. Although there are a variety of bolts, they can be grouped into three product families. The number of units sold is the same for each family. The selling prices for the three
Nico Parts, Inc., produces electronic products with short life cycles (of less than two years). Development has to be rapid, and the profitability of the products is tied strongly to the ability to find designs that will keep production and logistics costs low. Recently, management has also decided

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