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cost accounting
Cost Accounting Foundations And Evolutions 6th Edition Michael R. Kinney, Jenice Prather-Kinsey, Cecily A. Raiborn - Solutions
(Cost classifications) Indicate whether each of the following items is a vari¬ able (V), fixed (F), or mixed (M) cost and whether it is a product or service (PT) cost or a period (PD) cost. If some items have alternative answers, in¬ dicate the alternatives and the reasons for them.a. Wages of
(Cost behavior) Self Company produces athletic logo caps. The company in¬ curred the following costs to produce 4,000 caps last month:a. What did each cap component cost on a per-unit basis?b. What is the probable type of behavior that each of the costs exhibits?c. The company expects to produce
(Cost behavior) Thomason Company manufactures high-pressure basketballs. Costs are incurred in the production process for a rubber material used to make the balls, a steel mesh material used in the balls, depreciation on the factory building, and utilities to run production machinery. Graph the
(Cost behavior) Your social fraternity/sorority has the opportunity to have Beyonce perform for free at the school’s basketball arena on January 28, 2006, because one of the members won an Internet contest. Your school is located in Illinois; its basketball arena holds 25,000 people. The
(Total cost determination with mixed cost) Magarity Accounting Services pays $800 per month for a tax software license. In addition, variable charges av¬ erage $6 for every tax return the firm prepares.a. Determine the total cost and the cost per unit if the firm expects to pre¬ pare the
(Predictors and cost drivers; team activity) The IZZO accounting firm often uses factors that change in a consistent pattern with costs to explain or pre¬ dict cost behavior.a. As a team of three or four, select factors to predict or explain the be¬ havior of the following costs:1. Staff
(Cost drivers) Assume that Ellis Hospital performs the following activities in providing outpatient service:1. Verifying patient’s insurance coverage 2. Scheduling patient’s arrival date and time 3. Scheduling staff to prepare patient's surgery room 4. Scheduling doctors and nurses to perform
(Financial statement classifications) Billy Donovan’s Airboats purchased a plastics extruding machine for $200,000 to make boat hulls. During its first operating year, the machine produced 10,000 units; its depreciation was cal¬ culated to be $25,000. The company sold 8,000 of the hulls.a. What
(Product and period costs) T. Smith Company incurred the following costs in May 2006:• Paid a six-month premium for insurance of company headquarters, $24,000.• Paid three months of property taxes on its factory building, $15,000.• Paid an $80,000 bonus to the company president.• Accrued
(Company type) Indicate whether each of the following terms is associated with a manufacturing (Mfg.), a retailing or merchandising (Mer.), or a service (Ser.) company. There can be more than one correct answer for each term.a. Prepaid rentb. Merchandise inventory C. Cost of goods soldd. Sales
(Degrees of conversion) Indicate whether each of the following types of or¬ ganizations is characterized by a high, low, or moderate degree of conversion.a. Bakery in a grocery storeb. Convenience store C. Christmas tree farmd. Textbook publishere. Sporting goods retailerf. Auto manufacturer g.
(Labor cost classification) Fisher Homes Inc. produces a variety of household products. The firm operates 24 hours per day with three daily work shifts. The first-shift workers receive “regular pay.” The second shift receives a 5 percent pay premium, and the third shift receives a 10 percent
(Essay on direct labor) A portion of the costs incurred by business organiza¬ tions is designated as direct labor cost. As used in practice, the term direct labor cost has a wide variety of meanings. Unless the meaning intended in a given context is clear, misunderstanding and confusion are likely
(Journal entries—service industry) Hopkins & Bruder CPAs incurred the fol¬ lowing costs in performing SEC audits during 2006. Prepare journal entries for each of the following transactions:a. Paper and pencil supplies cost, $5,000; $2,000 was incurred for selling and administrative expenses.b.
(CGM and CGS) Bea Knight Company had the following inventory balances at the beginning and end of August 2006:All raw material is direct to the production process. The following informa¬ tion is also available about August manufacturing costsa. Calculate the cost of goods manufactured for
(CGM and CGS) Boeheim Custom Clocks’ August 2006 cost of goods sold was $4,600,000. August 31 work in process was 40 percent of the August 1 work in process. Overhead was 225 percent of direct labor cost. During Au¬ gust, $1,537,000 of direct material was purchased. Other August information
(Cost of services rendered) The following information is related to the Cali- pari Veterinary Clinic for April 2006, the firm’s first month in operation:LO1. Veterinarian salaries for April $24,000 Assistants' salaries for April 8,400 Medical supplies purchased in April 3,600 Utilities for
(Cost behavior: advanced) L. Olson Ink makes stationery sets of 100 percent rag content edged in 24 karat gold. In an average month, the firm produces 40,000 boxes of stationery; each box contains 100 pages of stationery and 80 envelopes. Production costs are incurred for paper, ink, glue, and
(Cost behavior) Lute Olson Company’s cost structure can contain a number of different cost behavior patterns. Following are descriptions of several dif¬ ferent costs; match these to the appropriate graphs. On each graph, the ver¬ tical axis represents cost and the horizontal axis represents
(Cost classifications) Rick Majerus is a house painter who incurred the fol¬ lowing costs during April 2006 when he painted four houses. He spent $1,200 on paint, $80 on mineral spirits, and $300 on brushes. He also bought two pairs of coveralls for $100 each; he wears coveralls only while he
(Journal entries) Advanced T. Davis Rags makes evening dresses. The fol¬ lowing information has been gathered from the company records for 2006, the first year of company operations. Work in Process Inventory at the end of 2006 was $6l,000.The company’s gross profit rate for the year was 35
(.Journal entries) The following transactions were incurred by O’Brien Com¬ pany during April 2006:1. Direct material issued to production, $350,000.2. Direct labor cost paid, 70,000 hours at $16 per hour.3. Indirect labor cost accrued, 15,500 hours at $10 per hour.4. Depreciation on factory
(CGM and CGS) Billy Tubbs Inc. began business in July 2006. The firm makes an exercise machine for home and gym use. Following are data taken from the firm’s accounting records that pertain to its first year of operations.a. How many units did the company sell in its first year? How many units
(Product and period costs; CGM and CGS) At the beginning of August 2006, Bob Hubble Corporation had the following account balances:During August, the following transactions took place.1. Raw material was purchased on account, $190,000.2. Direct material ($40,400) and indirect material ($5,000) were
(CGM and CGS) Billy Tubbs’ Collectibles produces collectible pieces of art. The company’s Raw Material Inventory account includes the costs of both direct and indirect materials. Account balances for the company at the be¬ ginning and end of July 2006 follow.During the month, the company
(Missing data) Mike Montgomery Company suffered major losses in a fire on June 18, 2006. In addition to destroying several buildings, the blaze de¬ stroyed the company’s work in process for an entire product line. Fortu¬ nately, the company was insured; however, it needs to substantiate the
((lost management; ethics) An extremely important and expensive variable cost per employee is health care provided by the employer. This cost is ex¬ pected to rise each year as more and more expensive technology is used on patients and as the costs of that technology are passed along through the
(Production cost management) A large percentage of U.S. companies out¬ source some part of their business processes, which include accounting, cus¬ tomer service, engineering, human resources, information technology, marketing, procurement, and sales. Moreover, many firms are outsourcing
WHY AND HOW ARE OVERHEAD COSTS ALLOCATED TO PRODUCTS AND SERVICES? LO.1
WHAT CAUSES UNDERAPPLIED OR OVERAPPLIED OVERHEAD, AND HOW IS IT TREATED AT THE END OF A PERIOD?LO.1
WHAT IMPACT DO DIFFERENT CAPACITY MEASURES HAVE ON SETTING PREDETERMINED OVERHEAD RATES?LO.1
HOW ARE THE HIGH-LOW METHOD AND LEAST SQUARES REGRESSION ANALYSIS USED IN ANALYZING MIXED COSTS?LO.1
HOW DO MANAGERS USE FLEXIBLE BUDGETS TO SET PREDETERMINED OVERHEAD RATES?LO.1
HOW DO ABSORPTION AND VARIABLE COSTING DIFFER?LO.1
HOW DO CHANGES IN SALES OR PRODUCTION LEVELS AFFECT NET INCOME COMPUTED UNDER ABSORPTION AND VARIABLE COSTING?LO.1
Overhead costs are allocated to products to • eliminate the problems caused by delays in ob¬ taining actual cost data.• make the overhead allocation process more ef¬ fective.• allocate a uniform amount of overhead to goods or services based on related production efforts.• allow managers
Underapplied (actual is more than applied) or over¬ applied (actual is less than applied) overhead is• caused by a difference between budgeted and actual overhead costs and/or a difference be¬ tween budgeted and actual level of activity cho¬ sen to compute the predetermined overhead rate.•
Capacity measures affect the setting of predetermined overhead rates because the use of• expected capacity (the budgeted capacity for the upcoming year) will result in a predetermined overhead rate that would probably be most closely related to an actual overhead rate.• practical capacity (the
Mixed costs can be separated into their variable and fixed components by using• the high-low method, which considers the change in cost between the highest and lowest activity levels in the data set (excluding outliers) and de- termines a variable cost per unit based on that change; fixed cost is
Flexible budgets are used by managers to help set predetermined overhead rates by• allowing managers to understand what manu¬ facturing overhead costs are incurred and what the behaviors (variable, fixed, or mixed) of those costs are.• allowing managers to separate mixed costs into their
Absorption and variable costing differ in that• absorption costing»- includes all manufacturing costs, both vari¬ able and fixed, as product costs.>- presents nonmanufacturing costs according to functional areas on the income statement: standard gross margin, adjusted gross mar¬ gin, and
Differences between sales and production volume re¬ sult in differences in income between absorption and variable costing because• absorption costing requires fixed costs are writ¬ ten off as a function of the number of units sold;>- Thus, if production volume is higher than sales volume, some
What is the difference between a variable and a mixed cost, considering that each changes in total with changes in activity levels?LO1.
Discuss the reasons a company would use a predetermined overhead rate rather than apply actual overhead to products or services.LO1.
Why are departmental overhead rates more useful for managerial decision making than plantwide rates? What is the reason for using separate variable and fixed rates rather than total rates?LO1.
Why would regression analysis provide a more accurate cost formula for a mixed cost than the high-low method would?LO1.
How does absorption costing differ from variable costing in cost accumula¬ tion and income statement presentation?LO1.
What is meant by classifying costs (a) functionally and (b) behaviorally? Why would a company be concerned about functional and behavioral classifications?LO1.
Is variable or absorption costing generally required for external reporting? Why is this method required compared to the alternative?LO1.
Why does variable costing provide more useful information than absorption costing for making internal decisions?LO1.
What are the income relationships between absorption and variable costing when production differs from sales? What causes these relationships to occur?LO1.
(Predetermined OH rates) Warlaski Corp. prepared the following 2007 abbre¬ viated flexible budget for different levels of machine hours:c. All actual overhead costs are equal to expected overhead costs in 2007, but Warlaski Corp. produced 5,600 units of product. If the separate rates based on
Happlication) Use the information in Exercise 11 and assume that War¬ laski Corp. has decided to use units to apply overhead to production. In April 2007, the company produced 4,420 units and had $32,980 and $163,800, of variable and fixed overhead, respectively.a. What amount of variable factory
(Predetermined OH rate) Rachel Company has a monthly overhead cost for¬ mula of $42,900 + $6 per direct labor hour for 2007. The firm’s 2007 ex¬ pected annual capacity is 156,000 direct labor hours, to be incurred evenly each month. Making one unit of the company’s product requires 3 direct
(Predetermined Oil rates) Cairo Products applies overhead using a combined rate for fixed and variable overhead. The rate has been established at 175 percent of direct labor cost. During' the first three months of the current year, actual costs were incurred as follows:a. What amount of overhead
(U nder.ipplied or overapplied overhead) At the end of 2006, Westmeier Cor¬ poration's accounts showed a $66,000 credit balance in Manufacturing Over¬ head. In addition, the company had the following account balances:a. Prepare the necessary journal entry to close the overhead account if the
(Underapplied or overapplied overhead) At year-end 2006, Zwylia Co. has a $50,000 debit balance in its Manufacturing Overhead Control account. Rele¬ vant account balance information at year-end follows:a. What overhead rate was used during the year?b. Provide arguments to be used for deciding
(Predetermined OH rates; capacity measures) Stir’em makes blenders and uses a normal cost system that applies overhead based on machine hours. The following 2007 budgeted data are available:Practical capacity is 180,000 machine hours; expected capacity is two-thirds of practical.a. What is
(Product costing and pricing) Chaney Tool Company is bidding on a contract with the government of Manatuka. The cost-plus contract includes an add-on markup of 50 percent of production cost. Direct material and direct labor are expected to total $15 per unit. Variable overhead is estimated at $4
(High-low method) Information about Larson Inc.’s utility cost for the last six months of 2006 follows. The high-low method will be used to develop a cost formula to predict 2007 utility charges, and the number of machine hours has been found to be an appropriate cost driver. Data for the first
(High-low method) Historic Abodes Corp. builds replicas of residences of fa¬ mous and infamous people. The company is highly automated, and the new accountant owner has decided to use machine hours as the basis for pre¬ dicting maintenance costs. The following data are available from the com¬
(Least squares) Huppernan Supply has gathered the following data on the number of shipments received and the cost of receiving reports for the first seven weeks of 2007.a. Using the least squares method, develop the equation for predicting weekly receiving report costs based on the number of
(1,east squares) Wynona Products has complied the following data to analyze utility costs:Use the least squares method to develop a formula for budgeting utility cost.LO1. Month Machine Hours Utility Cost January February March 200 $150 325 220 400 240 April 410 245 May 525 310 June 680 395 July
(Flexible budget; variances; cost control) The Birmingham plant of Katz Corp. prepared the following flexible overhead budget for three levels of ac¬ tivity within the plant’s relevant range.After discussion with the home office, the plant expected to produce 16,000 units of its single product
(High-low method; flexible budget) Denver Company has gathered the fol¬ lowing information on its utility costs for the past six months.a. Using the high-low method, determine the cost formula for utility costs.b. Prepare a flexible budget with separate variable and fixed categories for utility
(Flexible budget) Cheryl’s Pet Salon provides dog grooming services. Analy¬ sis of monthly costs revealed the following cost formulas when direct labor hours are used as the basis of cost determination:Supplies: y = $0 + $4.00X Production labor: y = $500 + $7.00X Utilities: y = $350 + $5.40X
( Ending inventory valuation; absorption vs. variable costing) Pena Royals Company produces baseball caps. In May 2006, the company manufactured 18,000 caps and sold 16,560 caps. The cost per unit for the 18,000 caps pro¬ duced was as follows:There was no beginning inventory for May.a. What is the
(Absorption vs. variable costing) The MAZZILLI Juicer Company uses variable costing. The following data relate to the company’s first year of operation when it produced 50,000 units and sold 46,000 units.How much higher (or lower) would the company’s first-year net income have been if
(Production cost; absorption vs. variable costing) Torodova Ltd. began busi¬ ness in 2006, during which it produced 104,000 quarts of olive oil. In 2006 it sold 98,000 quarts. Costs incurred during the year were as follows:a. What was the actual production cost per quart under variable costing?
(Net income; absorption vs. variable costing) Francona Company produces softball bats. In 2007, fixed overhead was applied to products at the rate of $8 per unit. Variable cost per unit remained constant throughout the year. In July 2007, income before tax using variable costing was $94,000.
(Convert variable to absorption) The April 2006 income statement for Kick’in Sportswear has just been received by Bobby Cox, vice president of marketing. The firm uses a variable costing system for internal reporting purposes.The following notes were attached to the statements:• Unit sales
Variable and absorption costing) Defeet Remedy manufactures athletes’ foot powder. Data pertaining to the company’s 2007 operations follow:Fixed manufacturing overhead is assigned to units of production based on a predetermined rate using an expected production capacity of 100,000 units per
(Essay) Because your professor is scheduled to address a national profes¬ sional meeting at the time your class ordinarily meets, the class has been di¬ vided into teams to discuss selected issues. Your team’s assignment is to prepare a report arguing whether manufacturing fixed overhead should
Predetermined Oil rales: flexible luulg >a< Lightening Company bud¬ geted the following factory overhead costs for the upcoming year to help calculate variable and fixed predetermined overhead rates.Indirect material: $1.25 per unit produced Indirect labor: $1.00 per unit produced Factory
(Plant vs. department.i! OH rates! Sutton Industries has two departments, Fabrication and Finishing. Three workers oversee the 25 machines in Fabri¬ cation. Finishing uses 35 crafters to hand polish output, which is then run through buffing machines. Sutton’s Product CG9832-09 uses the following
diant vs. departmental OH rates) Thompson Manufacturing makes a wide variety of products, all of which must be processed in the Cutting and the Assembly Departments. For the year 2007, Thompson has budgeted total overhead of $969,020, of which $383,400 will be incurred in Cutting and the remainder
(Under/Overapplied OH; OH disposition) Keller Co. budgeted the following variable and fixed overhead costs for 2007:The company has decided to allocate overhead to production using machine hours. For 2007, machine hours have been budgeted at 100,000.a. Determine the variable and fixed overhead
Analyzing mixed costs Hendry Dairy determined that the total overhead rate for costing purposes is $13-40 per cow per day (referred to as an ani¬ mal day). Of this, $12.60 is the variable portion. Overhead cost information for two levels of monthly activity within the relevant range follow:a.
(Flexible budgets; predetermined OH rates) Cool Dip Enterprises makes large fiberglass swimming pools and uses machine hours and direct labor hours to apply overhead in the Production and Installation departments, respectively. The monthly overhead cost formula in Production is y = $7,950 + $4.05
(High-low; least squares regression) LaSalle Company manufactures insulated windows. The firm’s repair and maintenance (R&M) cost is mixed and varies most directly with machine hours worked. The following data have been gathered from recent operations:a. Use the high-low method to estimate a
(Least squares) Gulf Coast Breezes provides charter cruises into the Gulf of Mexico from a base in south Texas. Emily Lantz, the owner, wants to understand how her labor costs change per month. She recognizes that the cost is neither strictly fixed nor strictly variable. Thus, she has gathered the
(Convert variable to absorption) Salado Corp. produces small outdoor sheds. The company began operations in 2006, produced 1,750 sheds and sold 1,500. A variable costing income statement for 2006 follows. During the year, variable production costs per unit were $800 for direct material, $300 for
(Income statements for two years, both methods) D-Tect manufactures radar detectors. Each unit contains product cost of $20 for direct material, $60 for direct labor, and $20 for variable overhead. The company’s annual fixed cost is $750,000; it uses expected capacity of 25,000 units produced as
(Absorption costing versus variable costing) Riveting Manufacturing builds light aircraft engines and, since opening in 2005, has quickly gained a reputation for reliable and quality products. Factory overhead is applied to production using direct labor hours and any underapplied or overapplied
(Comprehensive) Royals Fashions Company produces and sells cotton jerseys. The firm uses variable costing for internal purposes and absorption costing for external purposes. At year-end, financial information must be converted from variable costing to absorption costing to satisfy external
Flexibility is said to be the hallmark of modern management accounting, whereas standardization and consistency describe financial accounting. Ex¬ plain why the focus on these two accounting systems differs.LO1.
Why would operating in a global (rather than a strictly domestic) market¬ place create a need for additional information for management? Discuss some of the additional information you think managers would need and why such information would be valuable.LO1.
Why is a mission statement important to an organization?LO1.
What is organizational strategy? Why would each organization have a unique strategy or set of strategies?LO1.
What is a core competency and how do core competencies impact the feasi¬ ble set of alternative organizational strategies?LO1.
What is the value chain of an organization, and how does it interface with strategy?LO1.
What is a balanced scorecard, and how is it more useful than ROI in imple¬ menting and monitoring strategy in a global economy?LO1.
Differentiate between authority and responsibility. Can you have one without the other? Explain.LO1.
What ethical issues might affect a U.S. or Canadian company considering opening a business in Russia?LO1.
(Accounting information You are a partner in a local accounting firm that does financial planning and prepares tax returns, payroll, and financial reports for medium-size companies. Business is good, and your monthly finan¬ cial statements show that your organization is consistently profitable.
(Organizational accountants) Use library and Internet resources to find how the jobs of management accountants have changed in the last 10 years.a. Prepare a “then-versus-now” comparison.b. What five skills do you believe are the most important for management accountants to possess? Discuss the
(Global operations) The 2000 annual report of Nestle (headquartered in Switzerland) was slightly nontraditional in that the annual financial state¬ ments and management report were in English and French. International Fi¬ nancial Reporting Standards were used to prepare the financial
(Strategic information) Go to the World Wide Web and select the financial reports of a multinational manufacturing company. Assume that you have just been offered a position as this company’s CEO. Use the information in the annual report (or 10-K) to develop answers to each of the following
(Strategy) You are the manager of the local Lowe’s home improvement store. What are the five factors that you believe to be most critical to the success of your organization? How would these factors influence your store s strategy?LO1.
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