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business
cost accounting

Cost Accounting Foundations And Evolutions 6th Edition Michael R. Kinney, Jenice Prather-Kinsey, Cecily A. Raiborn - Solutions

(Statement of cash flows) Ramagos System’s controller prepared the follow¬ ing cash flow statements (in thousands of dollars) for the past two years, the current year, and the upcoming year (2007):After preparation of the budgeted cash flow statement for 2007, Arnie Maine, the company president,
(Cash flow) Shannon O’Leary, the controller of Rosepetal Co., is disillusioned with the company’s system of evaluating the performance of divisional profit centers and their managers. The present system focuses on a comparison of budgeted to actual income from operations. Ms. O’Leary’s
(id >i Tywanda Enterprises operates a chain of lumber stores. In 2006, cor¬ porate management examined industry-level data and determined the follow¬ ing performance targets for lumber retail stores:Asset turnover 2.7 Profit margin 7.0%The actual 2006 results for the company’s lumber retail
ROl, Ri Elysian Togs sells clothing to specialty retail and department stores. For 2006, the company’s Bradley Division had the following performance targets:a. For 2006, did die Bradley Division achieve its target objectives for ROI, asset turnover, and profit margin?b. Where, as indicated by
(Adjusting income for ROI purposes; advanced) Imelda Sanchez, manager of the Arias Division of Ponce Chemical, is evaluated based on the division’s return on investment and residual income. Near the end of November 2006, she was reviewing the division’s financial information as well as some
advanced) Anderson Industries produces stamping machinery for manufacturers. The company expanded vertically in 2001 by acquiring a supplier, DuCharm Company. To manage the two separate businesses, DuCharm is now operated as a divisional investment center.Anderson monitors its divisions on the
Decisions based on ROl. RI) Destin Marine uses ROI to evaluate the perfor¬ mance of its two division managers. The following estimates of relevant measures have been made for the upcoming year:Both division managers have the autonomy to make decisions regarding new investments. The Powerboats
(EVA) As a division manager of Camden Projects Corp., your performance is evaluated primarily on one measure: after-tax divisional segment income less the cost of capital invested in divisional assets. The fair value of invested capi¬ tal in your division is $37,500,000, the required return on
(Long-run performance) The company president has asked you, as the new controller, to comment on any deficiencies of the firm. After saying you be¬ lieve that the firm needs long-run performance measurements, the president says that the long run is really just a series of short runs. He says that
(Throughput) Miguel Prieto manages the Springfield Division of Wilson Cor¬ poration. Prieto is concerned about the amount of the division’s production. The following production data are available for April 2006:Determine each of the following for this division for April.a. What is the
(Balanced scorecard) You have been elected president of your university’s newly chartered accounting honor society. The society is a chapter of a na¬ tional organization that has the following mission: “To promote the profes¬ sion of accountancy as a career and to imbue members with high
(Balanced scorecard) One of the fundamental performance measurements in an organization’s balanced scorecard learning and growth perspective is number of patents obtained. The following information from the U.S. Patent & Trademark Office [and cited in Cecily Fluke and Lesley Rump, “Innova¬
(Performance evaluation; ethics) In September 2006, Helpful Corporation de¬ cided to launch an expansion plan for some new product lines. To finance this expansion, the firm has decided to issue $200,000,000 of new common stock in November 2006.Historically, the firm’s personal digital assistant
(Performance measurement) Research suggests that as people work over a certain number of hours, productivity goes down, stress goes up, and work is not as good. You have taken this observation to heart and want to estab¬ lish some performance measures in your accounting firm to help indicate that
(Performance measurement) Recall the various ways in which your academic performance has been measured and rewarded. Have the ways that your class grades have been determined always provided the best indications of performance? Provide at least two positive and two negative examples. What would you
(Performance measurement; BSC) For each of the following items, indicate two performance measurements that could be obtained from a strategic cost management system. Classify each item into one of the four balanced score- card perspectives.a. Qualityb. Costc. Production line flexibilityd. People
(Providing feedback on performance) Terry Travers is the manufacturing su¬ pervisor of the Aurora Manufacturing Company, which produces a variety of plastic products. Some of these products are standard items that are listed in the company’s catalog, whereas others are made to customer
(Balanced scorecard) Lone Star Enterprises manufactures a variety of glass products having both commercial and household applications. One of its newest divisions, BellClear, manufactures fiber optic cable and other high- tech products. Recent annual operating results (in millions) for BellClear
(Balanced scorecard) As the cost of health care continues to increase, hospi¬ tal and clinic managers need to be able to evaluate the performance of their organizations. Numerous articles have been written on performance mea¬ surements for health care organizations. Obtain some of these articles
(Compensation) Relative to worker compensation, no topic is more hotly de¬ bated than the minimum wage law. Using concepts from this chapter, pre¬ pare a report in which you explain why increases in the minimum wage are not desirable and how alternative mechanisms could be used to increase the
Pay plans and goal congruence) In 2006, the lead story in your college newspaper reports the details of the hiring of the current football coach.The previous football coach was fired for failing to win games and attract fans. In his last season, his record was 1 win and 11 losses. The news story
(Compensation: ethics') Chalmette Manufacturing has just initiated a formula bonus plan that rewards plant managers for various achievements. One of the current criteria for bonuses is the improvement of asset turnover. The plant manager of the Violet Plant asked Sam Jensen, his assistant, to meet
WHAT ARE THE MOST IMPORTANT RELATIONSHIPS IN THE VALUE CHAIN? LO.1
WHY IS MANAGEMENT OF INVENTORY COSTS IMPORTANT TO MOST FIRMS?LO.1
HOW DO PUSH AND PULL SYSTEMS OF PRODUCTION CONTROL WORK?LO.1
WHY DO PRODUCT LIFE CYCLES AFFECT PROFITABILITY?LO.1
WHAT IS TARGET COSTING, AND HOW DOES IT INFLUENCE PRODUCTION COST MANAGEMENT?LO.1
WHAT IS THE JUST-IN-TIME PHILOSOPHY? WHAT MODIFICATIONS DOES JIT REQUIRE IN ACCOUNTING SYSTEMS?LO.1
WHAT ARE FLEXIBLE MANUFACTURING SYSTEMS?LO.1
HOW CAN THE THEORY OF CONSTRAINTS HELP IN DETERMINING PRODUCTION FLOW?LO.1
(APPENDIX) HOW ARE ECONOMIC ORDER QUANTITY, REORDER POINT, AND SAFETY STOCK DETERMINED AND USED?LO.1
The most important value chain relationships for a firm are those• with suppliers in order to get the highest quality inputs, on time, at a competitive price.® with customers in order to deliver the features, quality, and value that lead to customer satisfaction.• within the firm in order to
Managing inventory costs is important to the firm be¬ cause inventory• produces no value for the firm until it is sold.• can hide inefficiencies in production activities.• is a significant investment.LO.1
Two systems for managing inventory and controlling production are the “push” and “pull” systems:• push systems produce goods to satisfy a pro¬ duction schedule based on economic production run concepts.• pull systems produce goods only in response to current customer demand.LO.1
Product life cycles affect profitability because• costs vary across the product life cycles, although most costs are determined in the development stage of the life cycle.• sales volume and prices vary across the life- cycle stages.LO.1
Target costing• is calculated as estimated selling price minus ac¬ ceptable profit margin.• is a tool to manage production costs^ in the development stage of the product life cycle.^ by developing an estimate of an “allowable” production cost (target cost) based on the estimated sales
Just-in-time (JIT) is a philosophy that states produc¬ tion should not occur until a customer demands the product.• Successful implementation of JIT requires 5^ elimination of non-value-adding activities.>- a focus on continuous improvement.>- persistent efforts to reduce inventory.>■ a focus
Flexible manufacturing systems• integrate computer systems with automated pro¬ duction equipment.• are often used in plants organized for cellular manufacturing.• minimize the time required to set up for pro¬ duction.• are ideal for low-volume, high-quality products.LO.1
The theory of constraints is a tool to reduce cycle time by• maximizing the flow of products through pro¬ duction bottlenecks.• overcoming constraints in the flow of goods through a production system.LO.1
What are the three costs associated with inventoiy? Explain each and give examples.LO.1
Differentiate between the push and pull systems of production. Is JIT a push or a pull system?LO.1
How does a product’s life-cycle stage have a bearing on production cost management?LO.1
What is target costing, and how is it useful in assessing a product’s total life- cycle costs?LO.1
Why does the development stage have such a significant influence on the profitability of a product over its life cycle?LO.1
What is kaizen costing, and how does it differ from target costing?LO.1
What are the primary goals of the JIT philosophy, and how does JIT attempt to achieve these goals?LO.1
What kinds of changes need to occur in a production environment to effec¬ tively implement JIT? Why are these changes necessary?LO.1
How would switching from a traditional manufacturing system to a flexible manufacturing system affect a firm’s inventory and production control systems?LO.1
What is meant by the theory of constraints? How is this concept appropriate for manufacturing and service companies?LO.1
CAppendix) How are ordering costs and carrying costs related?LO.1
CAppendix) What is Pareto inventory analysis? Why do A items and C items warrant different inventory control methods? What are some methods that can be employed to control C items?LO.1
(Clost classification) Indicate whether each of the following costs would be considered an ordering cost (O), a carrying cost (C), or a cost of not carry- ing (N) inventoiy. For any costs that do not fit these categories, indicate N/A for “not applicable.”a. Telephone call to supplierb.
(Carrying costs) Determine the carrying costs for an item costing $6.80, given the following per-unit cost information:LO.1 Storage cost $0.12 Handling cost 0.14 Production labor cost 0.85 Insurance cost 0.22 Opportunity cost 8% of investment
(Target costing) Capricorn Tools has developed a new kitchen utensil. The firm has conducted significant market research and estimated the following pattern for sales of the new product:If the firm desires to net $4.50 per unit in profit, what is the target cost to produce the new utensil?LO.1 Year
(Target costing) The marketing department at Cellton Production Company has an idea for a new product that is expected to have a life cycle of six years. After conducting market research, the company has determined that the product could sell for $350 per unit in the first four years of life and
Target costing) Buggin Corporation is developing a propane-powered mos¬ quito zapper for campers. Market research has indicated that potential pur¬ chasers would be willing to pay $225 per unit for this product. Company engineers have estimated that first-year production costs would amount to
(JIT benefits) Choose a fast-food restaurant and prepare a report showing how it could use JIT to improve operations.LO.1
(JIT benefits) Everyone in your company seems excited about the suggestion that the firm implement a JIT system. Being a cautious person, however, your company president has asked you to write a report describing situa¬ tions in which JIT will not work. Prepare such a report.LO.1
: Manufacturing cells) Research the topic of manufacturing cells on the Inter¬ net, and write a brief report on company experiences using them.LO.1
(Value engineering) Research the topic of value engineering on the Internet, and write a brief report on a company or an organization’s experiences us¬ ing this technique.LO.1
(JIT variances) Lazlow Company uses a JIT system. The following standards are related to Materials A and B, which are used to make one unit of the company’s final product:Current material standards differ from the original because of an engineering change made near the end of June. During July,
(JIT variances) Laura Dawn uses a JIT system in her manufacturing firm, which makes pots for plants. She provides you the following standards for a typical 1 gallon pot:In-house experiments indicated that this material change would make the pots stronger, so the company issued an engineering change
(Backflush costing) Consider the following data pertaining to March 2006 for a firm that has adopted JIT.Assume that there were no cost or usage variances for March, and the amount of materials used equaled the quantity purchased. All materials are purchased on account, and all units started were
(Backflush costing) Refined Products uses backflush costing to account for production costs of its clothing line. During August 2006, the firm produced 160,000 garments and sold 159,000. The standard cost for each garment isThe finn had no inventory on August 1. The following events took place in
litciion constraints) Xcaliber manufactures high-end flatware. One of the crucial processes in flatware production is polishing. The company normally operates three polishing machines to maintain pace with the upstream and downstream production operations. However, one of the polishing machines
(Production constraints) Office Provisions produces commercial calendars in a two-department operation: Department 1 is labor intensive and Depart¬ ment 2 is automated. The average output of Department 1 is 45 units per hour. Units from Department 1 are transferred to Department 2 to be com¬
Appendix; carrying cost) Gidget Gourmet manufactures a variety of animal food products from alfalfa “pellets.” The firm has determined that its EOQ is 40,000 pounds of pellets. Based on the EOQ, the firm’s annual ordering costs for pellets is $6,700. Given this information, what is the
(Appendix: multiprodnet ; A retail cosmetics chain carries three types of skin products: face cream, lotion, and powder. Determine the economic order quantity for each, given the following information:LO.1 Product Order Cost Carrying Cost Demand Face cream $2.25 $2.00 2,000 units Lotion Powder 3.25
Appendix: product demand) Compute annual estimated demand for a prod¬ uct if the economic order quantity is 800 units, carrying cost is $0.35 per unit, and ordering cost is $140.00 per order.LO.1
Appendix: EPR UpTown Mfg. custom makes machine parts used by other companies. The following data relate to production of Part 23:Annual quantity produced in units 1,600 Cost of setting up a production run $400 Cost of carrying one unit in stock for a year $2 Calculate the economic production run
(Appendix: EPR) Danielle Steele has taken a job as production superinten¬ dent in a plant that makes, among other products, jewelry cases. She is try¬ ing to determine how many cases to produce on each production run. Discussions reveal that last year the plant made 7,500 such cases, and this
(Identification of carrying, ordering costs) Bama Steel management has been evaluating company policies with respect to control of costs of metal tubing, one of the firm’s major component materials. The firm’s controller has gath¬ ered the following financial data, which may be pertinent to
( Target costing) The Products Development Division of Fast Foods has just completed its work on a new microwave entree. After consumer research was conducted, the marketing group has estimated the following quantities of the product can be sold at the following prices over its life cycle:Initial
Target costing) Donna Dierks has just been presented the following market and production estimates on Product Ninja-2 that has been under develop¬ ment in her company.Use the concept of target costing to integrate the marketing and engineering information and interpret the results for Dierks.
(Just-in-time features) Indicate by letter which of the three categories apply to the following features of just-in-time systems. Use as many letters as ap¬ propriate.D = desired intermediate result of using JIT U = ultimate goal of JIT T = technique associated with JITa. Reducing setup timeb.
GIT journal entries. Tanawak Industries recorded the following transactions for its first month of operations.Because Tanawak Industries employs JIT, the company’s CEO has asked how the accounting system could be simplified.a. Prepare the journal entries, assuming that no transactions are
(JIT journal entries; advanced) Hanson Products has implemented a just-in- time inventory system for the production of its insulated wire. Inventories of raw material and work in process are so small that Hanson uses a Raw and In-Process account. In addition, almost all labor operations are
(Inventory control) Larson Company manufactures various electronic assem¬ blies that it sells primarily to computer manufacturers. Larson’s reputation has been built on quality, timely delivery, and products that are consistently on the cutting edge of technology. Larson’s business is fast
(Essay) The director of supply management at Karlie Tool & Die has con¬ tracted for $1 million of spare parts that are currently unneeded. His ratio¬ nale for the contract was that the parts were available for purchase at a significantly reduced price. The company just hired a new president who,
(Essay) A plant manager and her controller were discussing the plant’s in¬ ventory control policies one day. The controller suggested to the plant man¬ ager that the ordering policies needed to be reviewed because of new technology that had been put in place in the purchasing department. Among
Essay) William Manufacturing Company began implementing a just-in-time inventory system several months ago. The production and purchasing managers, however, have not seen any dramatic improvements in throughput. They have decided that the problems are related to their sup¬ pliers. The company’s
(Appendix: EOQ) Frank Chone operates a health food bakery that uses a special type of ground flour in its products. The bakery operates 365 days a year. Chone finds that he seems to order either too much or too little flour and asks for your help. After some discussion, you find that he has no idea
(Appendix: EPR) Funky Flower grows and sells a variety of indoor and out¬ door plants and garden vegetables. One of the more popular vegetables grown by the firm is a red onion. The company sells approximately 30,000 pounds of red onions per year. Two of the major inputs in the growing of onions
HOW DOES BUSINESS PROCESS REENGINEERING CAUSE RADICAL CHANGES IN THE WAY FIRMS EXECUTE PROCESSES? LO.1
WHY ARE COMPETITIVE FORCES DRIVING DECISIONS TO DOWNSIZE AND RESTRUCTURE OPERATIONS? LO.1
IN WHAT WAYS AND WHY ARE OPERATIONS OF MANY FIRMS BECOMING MORE DIVERSE? HOW DOES THE INCREASING DIVERSITY AFFECT THE ROLES OF THE FIRMS' ACCOUNTING SYSTEMS? LO.1
WHY ARE FIRMS ADOPTING ENTERPRISE RESOURCE PLANNING SYSTEMS, AND WHAT ARE THEIR PURPOSES? LO.1
WHAT ARE STRATEGIC ALLIANCES, WHAT FORMS DO THEY TAKE, AND WHY DO FIRMS ENGAGE IN THEM? LO.1
WHAT ARE THE CHARACTERISTICS OF OPEN-BOOK MANAGEMENT, AND WHY DOES ITS ADOPTION REQUIRE CHANGES IN ACCOUNTING METHODS AND PRACTICES? LO.1
WHAT ARE THE THREE GENERIC APPROACHES THAT FIRMS CAN TAKE IN CONTROLLING ENVIRONMENTAL COSTS? LO.1
Business process reengineering causes radical changes in ways firms execute processes by• using fewer employees.• making better use of technology. LO.1
Global competition is forcing films to downsize and restructure operations to• defend core competencies.• remain cost competitive. LO.1
Many organizations are becoming more diverse• as measured by the religion, race, values, work habits, cultures, political ideologies, and educa¬ tion level of employees.• because of globalization and proactive diversifi¬ cation programs.• and are placing more pressure on the account¬ ing
Many firms are adopting enterprise resource planning(ERP) systems• which consist of a number of modules (such as payroll, fixed assets, accounts receivable, and cash management), each of which accounts for specific activities.• which facilitate data mining and the integration of financial and
Strategic alliances• are agreements involving two or more firms to jointly contribute to the supply chain.• often blur traditional boundaries between supplier/customer.• take many different forms such as joint ventures, equity investments, licensing arrangements, joint R&D arrangements.>-
Open-book management• increases the transparency of information within an organization, which often requires accountants to change from a mind-set of guarding to shar¬ ing information.• creates challenges and opportunities for accoun¬ tants to make information understandable to fi¬ nancially
The three generic approaches to controlling envi¬ ronmental costs include• cleaning up pollutants are dealt with after they are produced (end-of-pipe strategy).• improving processes to reduce the amount of waste produced.• preventing pollution by never producing pollut¬ ing materials. LO.1
What is business process reengineering? Does it lead to radical or modest changes in business practices? Discuss. LO.1
Business process reengineering and downsizing often occur together. Why? LO.1
Describe “downsizing,” its causes, and its primary risks. LO.1

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