Questions and Answers of Cornerstones Cost Management

Each of the following parts is independent. Assume all cash flows are after-tax cash flows.1. Troy Adams has purchased a trencher for $250,000. He expects to receive an after-tax income of $62,500
Evans Company is considering an investment in equipment that is capable of producing metal bolts in half the time of prior technology. The outlay required is $1,300,000. The equip¬ment is expected
A dental clinic is considering the possibility of replacing its X-ray equipment and buying equipment that allows the on-site, immediate preparation of crowns and bridges. Each pro¬ject would require
Claro Vision Clinic is considering an investment that requires an outlay of $185,000 and promises an after-tax cash inflow one year from now of $225,000. Claro's cost of capital is 12%.Required:1.
Solve each of the following independent cases. (Assume all cash flows are after-tax cash flows.)1. Hal's Stunt Company is investing $120,000 in a project that will yield a uniform series of cash
Lewis Company produces jewelry that requires electroplating with gold, silver, and other valuable metals. Electroplating uses large amounts of water and chemicals, producing wastewater with a number
Gina Ripley, president of Dearing Company, is considering the purchase of a computeraided manufacturing system. The annual after-tax cash benefits/savings associated with the system are described
Walton Insurance Company has decided to automate its claims process. Two PC computer systems are being considered. The systems have an expected life of 2 years. The after-tax cash flows associated
The Dingle Company is considering two independent projects. One project involves a new product line and the other involves the acquisition of forklifts for the Material-Handling De¬ partment. The
Lilly Company is planning to buy a set of special tools for its grinding operation. The cost of the tools is $18,000. The tools have a 3-year life and qualify for the use of the 3-year MACRS. The tax
Excalibur Company is planning on introducing a new product that will have a 2-year life.Producing the product requires an initial outlay of $20,000; it will generate after-tax cash in¬flows of
Solve each of the following independent cases:1. A printing company has decided to purchase a new printing press. Its old press will be sold for $10,000. (It has a book value of $25,000.) The new
Sweeney Manufacturing has a plant where the equipment is essentially worn out. The equip¬ment must be replaced, and Sweeney is considering two competing investment alternatives.The first alternative
David Chasteen, the CEO for SOA Manufacturing, was wondering which of two pollution control systems he should choose. Their current production process produced a gaseous and a liquid residue. A
Claude Jones, manager of an Electronic Components Division, was pleased with his divi¬sion's performance over the past 3 years. Each year, divisional profits had increased, and he had earned a
Timmins Company was approached by a local air-conditioning company with the propo¬sition of replacing its old cooling system with a modern, more efficient unit. The cost of the new system was quoted
Morgan Manufacturing Company is considering replacing the computer that operates its CAM system with a new model manufactured by a different company. The old CAM computer was acquired 3 years ago,
Leo Thayn, manager of an Electronics Manufacturing Division, has been pushing head¬quarters to grant approval for the installation of a new computer-aided design system. Fi¬nally, in the last
Mallette Manufacturing, Inc., produces washing machines, dryers, and dishwashers. Because of increasing competition, Mallette is considering investing in an automated manufacturing system. Since
Jonfran Company manufactures three different models of paper shredders including the waste container, which serves as the base. While the shredder heads are different for all 3 models, the waste
Peter Hennings, manager of a Cosmetics Division, had asked Laura Gibson, divisional controller and CMA, to meet with him regarding a recent analysis of a capital budgeting proposal. Peter was
Charles Bradshaw, president and owner of Wellington Metal Works, has just returned from a trip to Europe.^ While there, he toured several plants using robotic manufacturing. See¬ing the efficiency
Describe the traditional inventory management model.
Describe JIT inventory management.
Explain the basic concepts of constrained optimization.
Describe the theory of constraints, and explain how it can be used to manage inventory.
What are ordering costs? Provide examples.
What are setup costs? Illustrate with examples.
What are carrying costs? Illustrate with examples.
Suppose that a raw material has a lead time of 3 days and that the average usage of the material is 12 units per day. What is the reorder point? If the maximum usage is 15 units per day, what is the
Explain how long-term contractual relationships with suppliers can reduce the acquisition cost of raw mate¬rials.
What is EDI and what relationship does it have to con¬tinuous replenishment?
What are loose constraints? Binding constraints?
What is the purpose of linear programming?
What is an objective function?
What is a feasible solution? A feasible set of solutions?
What is a drum-buffer-rope system?
Assuming there are two or more binding constraints, how can a manager identify which one should be ele¬vated first?
Draper Implements, Inc., uses 30,000 drive shafts each year in its production of tractors. The cost of placing an order is $75. The cost of holding 1 unit of inventory for 1 year is $4.50.Currently,
Refer to the data in 22-1.Required:1. Compute the economic order quantity.2. Compute the ordering cost and the carrying cost for the EOQ.3. How much money does using the EOQ policy save the company
Payne Company uses 56,250 pounds of silver each year. The cost of placing an order is $30, and the carrying cost for 1 pound of silver is $1.50.Required:1. Compute the economic order quantity for
Tidwell Company manufactures snowblowers. A specialty starter unit is one part the company orders from an outside supplier. Information pertaining to the starter unit is as follows:Required:1. What
Hummer Manufacturing produces casings for stereo sets: large and small. In order to pro¬duce the different casings, equipment must be set up. Each setup configuration corresponds to a particular
Barnes Manufacturing produces a component used in its production of small airplanes. The time to set up and produce a batch of the components is 4 days. The average daily usage is 500 components, and
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
Long Company makes 3 types of plastic garbage containers. Each of the 3 types of cans re¬quires the use of a special machine that has total operating capacity of 204,000 hours per year. Information
Taylor Company produces 2 industrial cleansers that use the same liquid chemical input:Pocolimpio and Maslimpio. Pocolimpio uses 2 quarts of the chemical for every unit pro¬duced, and Maslimpio uses
Calen Company manufactures and sells 3 products in a factory of 3 departments. Both la¬bor and machine time are applied to the products as they pass through each department.The nature of the machine
Duckstein, Inc., manufactures 2 types of aspirin: plain and buffered. It sells all it produces.Recently Duckstein implemented a TOC approach for its Fort Smith plant. One binding con¬straint was
Berry Company produces two different metal components used in medical equipment(Component X and Component Y). The company has 3 processes: molding, grinding, and finishing. In molding, molds are
Pratt Company produces two replacement parts for a popular line of VCRs: Part A and Part B. Part A is made up of two components, one manufactured internally and one purchased from external suppliers.
Mac Ericson and Tammy Ferguson met at an IMA conference 2 months ago and began dat¬ing. Mac is the controller for Longley Enterprises, and Tammy is a marketing manager for Sharp Products. Longley is
How did Lacey, Shauna, and Dave use the tactical decision making model of Chapter 19?
Categorize each of the expenses for the Basic Care and Lifestyle Care options as flexi¬ble or committed. Further categorize the committed expenses as committed fixed or committed step costs.
Calculate the break-even number of patients (in total and for each type of reimburse¬ment) for each of the following scenarios.a. Basic Care option, 20 percent private insurance and 80 percent
What is the markup percent of Cost of Services charged on the assisted-living expenses?What would the price per month for a Basic Care patient be if the same markup were used? For a Lifestyle Care
What is the payback period for the new addition?
Research Assignment: Recently, laws were passed restricting the ability of nursing homes to evict Medicaid patients. What led to the passing of these laws? Why would nursing homes accept Medicaid
Renzen Company manufactures pocket-sized digital dictionaries. Variable costs are $30 per dictionary, the price is $45, and fixed costs are $90,000.Required:1. What is the contribution margin for one
Jasson Company manufactures gargoyle figurines. Fixed costs amount to $150,000 per year. Variable expenses per gargoyle are $2.50, and the average price per gargoyle is$10.Required:1. How many
Selina McDowell sells various pottery items at regional craft fairs. Her fixed expenses (de¬preciation on the kiln, utilities, tools, portable selling booth) are $5,000 per year. The aver¬age price
Carl and Janice Bowman have started their own business. Handy Maids, which offers cleaning services for households. The Bowmans have fixed expenses of $4,000 per month for office rent, advertising,
Derry Company has fixed costs of $360,000. At the break-even point, 120,000 units are sold.If variable costs are $9 per unit, what is the price?
Alpine Motors, Inc., employs 25 sales personnel to market its line of luxury automobiles.The average car sells for $56,000, and a 6% commission is paid to the salesperson. Alpine Motors is
Wilsey Air Charter Services had revenue of $1,654,000 last year, with total variable costs of$1,042,020 and fixed costs of $503,200.Required:1. What is the contribution margin ratio for Wilsey based
Hautvet Company's break-even point is 7,000 units. Variable cost per unit is $135, and total fixed costs are $315,000 per year. What price does Hautvet charge?
Ochorios Company produces jars of jerk seasoning. (Jerk is a very spicy combination of scal¬lions, allspice, nutmeg, thyme, and habanero chilis used as a marinade for chicken and pork.)Currently,
Barnes Corporation manufactures skateboards and is in the process of preparing next year's budget. The pro forma income statement for the current year is presented below.Required:1. What is the
In order to determine the feasibility of the project. Masters hired a marketing consul¬tant to assist with market projections. The results of this study show that if the firm spends$500,000 on
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 tour¬ing model. The Sales
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
Minty-Fresh, Inc., manufactures and sells rolls of soft mint candies. Currently, Minty-Fresh produces only one type of mint candy. The mints are packaged in 10-ounce rolls and sold to retailers for
Sweet Sue, Inc., produces a particularly rich praline fudge. Each 10-ounce box sells for $5.50.Variable unit costs are as follows:Fixed overhead cost is $24,000 per year. Fixed selling and
Lambert produces and sells an economy line of ski parkas. The budgeted income statement for the coming year is as follows.Required:1. What is Lambert's variable cost ratio? Its contribution margin
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
Thompson Company produces scientific and business calculators. Eor the coming year, Thompson expects to sell 200,000 scientific calculators and 100,000 business calculators. A segmented income
The income statement for Sanders, Inc., is as follows:Required:1. Compute the unit contribution margin and the units that must be sold to break even.Suppose that 30,000 units are sold above the
Topper Company produces a variety of glass products. One division makes windshields for compact automobiles. The division's projected income statement for the coming year is as follows:Required:1.
Azucar Company produces a chocolate almond bar. Each bar sells for $0.40. The variable costs for each bar (sugar, chocolate, almonds, wrapper, labor, and so on) total $0.25. The to¬tal fixed costs
Kiltop Company produces a toy dart gun. The projected income statement for the coming year follows:Required:1. Compute the contribution margin ratio for the toy gun.2. How much revenue must Kiltop
Kline Consulting is a service organization that specializes in the design, installation, and ser¬vicing of mechanical, hydraulic, and pneumatic systems. For example, some manufacturing firms, with
Polonchek, Inc., manufactures two products, bells and whistles. Fixed costs equal $175,350.Each bell sells for $1.20 and has variable cost of $0.60; each whistle sells for $0.80 and has variable
Ellis Company produces a single product. Last year's income statement is as follows:-Required:1. Compute the break-even point in units and sales dollars.2. What was the margin of safety for Ellis
The PTO Division of the Galva Manufacturing Company produces power take-off units for the farm equipment business. The PTO Division, headquartered in Peoria, has a newly ren¬ovated plant in Peoria
Marston Corporation manufactures pharmaceutical products that are sold through a net¬work of sales agents located in the United States and Canada. The agents are currently paid an 18% commission on
Utah Metropolitan Ballet is located in Salt Lake City. The company is housed in the Capi¬tol Theater, one of three buildings that make up the Bicentennial Arts Center in downtown Salt Lake City. The
Choose the best answer for each of the following multiple choice questions.1. Cost-volume-earnings analysis includes some inherent, simplifying assumptions. Which of the following is not one of these
Good Scent, Inc., produces two colognes. Rose and Violet. Of the two. Rose is the more popular. Data concerning the two products follow:The company uses a conventional cost system and assigns
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
Sorrentino Company has decided to expand into the production of sauces to top its pastas. Sauces are also started in the Mixing Department, using the same equipment. The sauces are mixed, cooked, and
Describe and explain the tactical decision-making model.
Define and explain the concept of relevant costs and revenues.
Explain how the activity resource usage model is used in assessing relevancy.
Apply the tactical decision¬making concepts in a variety of business situations.
What is tactical cost analysis?
What steps in the tactical decision model correspond to tactical cost analysis?
What is a relevant cost? A relevant revenue?
Relevant costs always determine which alternative should be chosen. Do you agree? Explain.
Give an example of a fixed cost that is relevant.
When, if ever, is depreciation a relevant cost?

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