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business
cost management strategic
Cost Management Strategies For Business Decisions 3rd Edition Michael W. Maher, Frank Selto Ronald W. Hilton - Solutions
11.20 Assume that you are performing multiple regression for an international company. What potential problems might you encounter when using data from multiple. countries?
11.19 In doing cost analysis, you realize that there could be errors in the accounting records. For example, mainte- nance costs were recorded as zero in December. However, you know that maintenance was performed in December. You find that maintenance costs were about double the normal monthly
11.18 After performing a regression analysis and giving the results to your boss, you discover an error in the data. Because of a formatting error, you understated costs by three digits. For example, S100 should have been $100,000. When you told your boss about the error, your boss said that the
11.17 A friend comes to you with the following problem. "I provided my boss a cost equation based on account analysis. He was unhappy with the results. He told me to do more work and not return until I had a lower cost esti- mate for one of the cost drivers-number of setups. My analysis covered the
11.16 Search the Internet for applications of simple or multiple regression analysis to business, economic, governmen-tal, or scientific purposes. Describe five of the most inter- esting applications in a brief report.
11.15 Your colleague says, "I understand that multiple regres- sion computes the best cost-driver rates for the produc- tion cost data we have. I also see how we can use those cost-driver rates to trace costs to products, similar to ABC analysis. However, aren't we still stuck with allo- cating the
11.14 (Appendix B) The fast-food restaurant McDonald's is known for high employee turnover, high quality, and low costs. Using your knowledge of the learning phenome- non, how does McDonald's get high quality and low costs when it has so much employee turnover?
11.13 Explain the objection to using past data to estimate future costs. Is the past always irrelevant to predicting the future? Explain. How might you reasonably adjust cost-estimation results based on past data to estimate future costs?
11.12 An associate of yours states, "I would never use the results of regression because the past is a poor predictor of the future." How would you respond?
11.11 Discuss the objectivity/subjectivity trade-off that appar- ently is a key difference between multiple regression analysis and account analysis. Is one always more objec- tive or subjective than the other? Explain.
11.10 The following costs are labeled fixed or variable accord- ing to a typical designation in accounting. Under which circumstances would any of these costs behave in a man- ner opposite to that listed?a. Direct labor-variable.b. Equipment depreciation--fixed.c. Utilities-variable.d. Supervisory
11.9 (Appendix A) True or false: Violations of assumptions that residuals are independent and are homoscedastic means that the cost drivers are correlated.
11.8 (Appendix A) What is the purpose of the 1-statistic?
11.7 Give an example of a step cost other than the examples mentioned in the text.
11.6 When using cost-estimation methods based on past data, what are the trade-offs between gathering more and fewer data?
11.5 What problems might you encounter if you simply enter data into a regression program to compute cost estimates?
11.4 Under what conditions is the engineering method pre- ferred to other estimation methods?
11.3 True or false: The relevant range is usually the range of obser- vations included in a data set for cost-estimation purposes.
11.2 Which method of cost estimation is least based on com- pany records?
11.1 For what reasons do companies estimate the relationship between costs and cost drivers?
10.50 The U.S. Department of Transportation completed an extensive study of costs and uses of the federal highway system, the Federal Highway Cost Allocation Study (HCAS). This study led to recommenda- tions for significant changes in user fees paid by private citizens (e.g., in fuel taxes) and
10.49 Universities seek to understand their costs of offering services, which include the broad categories of instruction, research, and public service. The largest resource cost is for faculty and staff salaries. which are college- or departmental-level expenditures and, in the short run, do not
10.48 Allied Insurance Company asked the regulatory board for permission to increase the premiums of its insurance operations. Insurance premium rates in the jurisdiction in which Allied operates are designed to cover the operating costs and insurance claims. As a part of Allied's expenses, its
10.47 Your company has a travel policy that reimburses employees for the "ordinary and necessary" costs of business travel. Employees often mix a business trip with pleasure either by extending the time at the destination or traveling from the business destination to a nearby resort or other
10.46 SkyBlue Airlines operates a centralized computer center for the data-processing needs of its reserva- tions, scheduling, maintenance, and accounting divisions. Costs associated with use of the computer are charged to the individual departments on the basis of time usage. Due to recent
10.45 Doxolby Manufacturing Company has three support-service departments (general factory administra- tion, factory maintenance, and factory cafeteria), and two production departments (fabrication and assembly). A summary of costs and other data for each department prior to allocation of
10.44 Biotech Company's promotion department is responsible for designing and developing all marketing campaign materials and related literature, pamphlets, and brochures. Management is reviewing the effectiveness of the promotion department to determine whether its services could be acquired more
10.43 Refer to problem 10.42 and the data for Minnesota Products Corporation. Requireda. Using the reciprocal method, compute the costs of electricity generation and the costs allocated to production.b. Explain the differences in costs for the two methods, step and reciprocal.
10.42 Minnesota Products Corporation is reviewing its operations to determine what additional energy-saving projects it might implement. The company's Utah plant has three service departments and two produc- tion departments. This plant has its own electric-generating facilities powered by natural
10.41 Domino's Foods has a commissary that supplies food and other products to its restaurants. Its two support- service departments, purchasing (S1) and general administration (S2), support two direct-service depart- ments, food products (P1) and supplies (P2). As an internal auditor, you are
10.40 Recycle Corporation refurbishes automobiles. It operates two production departments, mechanical repair and body work, and has three service departments for its plant: building occupancy, human resources, and equipment maintenance. Management is concerned that the costs of its service depart-
10.39 Micro Corporation's memory chip division manufactures two types of computer memory chips: The RAM-A chip is a commonly used chip for personal computer systems, and the RAM-B chip is used for specialized scientific applications. Unit-level materials costs for the RAM-A chip are 25 cents per
10.38 Chih-ling, Inc., has three service departments that support the production area. Outlined here is the bud- geted support-service spending by department for the coming year. Support-Service Departments Receiving Repair Tool. Production Departments Budgeted Spending $25,000 35,000 10,000 Number
10.37 Refer to the facts for problem 10.36. Required Compute the cost allocations and total costs in each production department using the step method. Which service costs should be allocated first? Second?
10.36 Selto & Company manufactures and sells T-shirts for advertising and promotional purposes. The com- pany has two manufacturing operations, shirtmaking and printing. When the company receives an order for T-shirts, the shirtmaking department obtains the materials and colors requested and has
10.35 Dual Division Corporation allocates service costs to its Alpha and Beta Divisions. During the past month, it incurred the following service costs: Computing services Human resources Custodial services. $254,000 615,000 104,000 The following information concerning various activity measures and
10.34 Form small groups and prepare a short visual presentation that Tukami could use to explain the advan- tages and disadvantages of using traditional cost-allocation bases and ABC cost-driver bases for allocat- ing support-service costs at Rock Creek (in the chapter example).
10.33 Refer to exercises 10.27, 10.29, and 10.32 (Ming, Inc.). Requireda. Which cost-allocation method do you think is best?b. How much would it be worth to the company to use the best method compared to the worst of the three methods? (Numbers are not required in this answer.)
10.32 Refer to the data for Ming, Inc., in exercise 10.27. Required Allocate the service-department costs using the reciprocal method.
10.31 During the past month, the following costs were incurred in the three production departments and two service departments in the East Bay Company: P1 P2. ..$120,000 P3 $1. S2 The use of services by other departments follows: Service Departments SI S1 - $2 10% Required 312,500 390,000 67,000
10.30 Refer to the data for All-Town Corporation (exercises 10.25 and 10.28, part a). Required Compare the results of the direct and step methods. Which method is better?
10.29 Refer to the data for Ming, Inc., in exercise 10.27. Required Allocate the service department costs using the step method, starting with the maintenance depart- ment. How does using this method affect the allocation of costs compared to using the direct method?
10.28 Refer to the data for All-Town Corporation (exercise 10.25). Required Use the step method to allocate the service costs, using:a. The order of allocation starting with S1.b. The allocations made in the reverse order (starting with S2).
10.27 Ming, Inc., has two service departments (maintenance and general factory administration) and two production departments (cutting and assembly). Management has decided to allocate maintenance costs on the basis of the size of the area in each department and general factory administration costs
10.26 Refer to the facts in exercise 10.25. Assume that both PI and P2 work on just two jobs. 10 and 11, during the month of May. Costs are allocated to jobs based on the number of labor hours in P1 and of machine hours in P2. The labor and machine hours worked in each department are as follows: PI
10.25 All-Town Corporation has two production departments, P1 and P2, and two support-service depart- ments, $1 and S2. Direct costs for each department and the percentage of service costs used by the vari- ous departments for the month of May are as follows: Department $1 S2 P1 P2 Percentage of
10.24 Refer to your calculations for exercise 10.23. Your supervisor wants to know the costs to prepare a stan- dard report and an executive report, including the cost of data, labor (which costs $40 per hour), and support services. Requireda. Prepare four different answers to the question. "How
10.23 Quality Credit Company produces two styles of credit reports, standard and executive. The difference between the two is in the amount of background checking and data collection. The executive report uses more skilled personnel because additional interviews and analyses are performed. The
10.22 Ray, Inc., operates a 120,000 square-foot supermarket. Each department in the store is charged a share of the cost of the building. The following information concerning two of the departments in the store is available. Department Sales revenues. Cost of goods sold Meat Dry Goods $250,000
10.21 Powell Company has a TV station and a radio station that share the common costs of the company's AP wire service, which is $200,000 a year. You have the following information about the AP wire and the two stations: Station TV Radio. Requireda. Wire Service Hours Used This Period Hours of News
10.20 The Klingons and the Romulans own two adjacent tracts of land. Each tract has a surface area of 4,000 acres. During a recent shoot-out between the families, crude oil came bubbling to the surface where a phaser blast entered the ground. A petroleum geologist determined that an underground
10.19 The manager of an operating department just received a cost report and has made the following comment with respect to the costs allocated from one of the service departments: "This charge to my division does not seem right. The service center installed equipment with more capacity than our
10.18 Prepare a short presentation to explain and comment on this argument: "Cost allocation can never provide an incen- tive to reduce service costs unless the amount allocated is tied to some controllable driver. Awareness of the service cost serves no purpose if the driver is not controllable."
10.17 Consider a company with two producing departments and one service department. The service department allo- cates its costs to the producing departments on the basis of the number of employees in each department. If the costs in the service department are fixed by policy for the coming period,
10.16 Under what conditions are the results from using the direct method of allocations the same as those from the step method? Why?
10.15 (Appendix) What argument(s) could be given in support of the reciprocal method as the preferred method for allocating the costs of service departments?
10.14 Explain how cost allocation in an organization could be both a technical and a political exercise.
10.13 One critic of cost allocation noted. "You can avoid the problem of arbitrary cost allocations by simply not allo- cating any higher-level resource service costs to lower- level uses of resources." Prepare a memo outlining the costs and benefits of this approach.
10.12 If support-service cost allocations are arbitrary and potentially misleading, should we assume that managers are foolish for using information about which services to provide based on allocated service costs?
10.11 Consider the following conversation between a self-styled cost-allocation expert and Joe, the manager of a diner. Expert: Joe, you said you put in these peanuts because some people ask for them, but do you realize what this rack of peanuts is costing you? It's not going to cost! It's going to
10.10 Respond to this comment: "Outsourcing is based on a market economy and, therefore, is the most efficient way to obtain a service."
10.9 Three students share a house. Having better things to do than clean house, they hire someone to come in and clean once each week. How should they share the costs of the housekeeper? One simple solution is to share the cost equally. Suppose, however, that one student's bedroom is twice as large
10.8 What criterion should be used to determine the order of allocation from support-service departments when using the step method? Explain why.
10.7 What are the similarities and differences of allocating service costs for the direct method and the step method (and the reciprocal method, if studied)?
10.6 What are four broad categories of common costs and a typical basis for the allocation of costs in each category?
10.5 What are some management uses of information based on allocated costs?
10.4 How should a manager decide whether to allocate costs?
10.3 What are some benefits of cost allocation?
10.2 What are some costs of the cost-allocation process itself?
10.1 What factors would you consider when deciding whether to outsource a particular support service?
9.27 Durango Mining Corporation operates an ore-processing plant. A typical batch of ore run through the plant yields three refined products: lead, copper, and manganese. At the split-off point, the intermediate products cannot be sold without further processing. The lead from a typical batch sells
9.26. Glaxxo Company processes Chemical DX-1 through a joint-production process. The costs to process one batch of DX-1 are $100,000 for materials and $200,000 for conversion costs. This processing results in two outputs, Laudinium and Tranquil, that sell for a total of $500,000. The sales revenue
9.25 Search the Internet for a company that has joint costs. Prepare a short presentation that describes the nature of the organization (industry, products, services) and which of its costs are joint costs.
9.24 Refer to Exhibit 9-4 as an example of the analysis of alternatives. Assume that changes in some figures cause the relative profitability of products to switch (e.g.. a change in the price of Grade A Specialty from $900 to $650 per MBF). What do you recommend for (1) creat- ing the framework
9.23 Explain how production decisions based on expected gross margin per unit can be erroneous. Under what conditions could making production decisions this way be an accept- able practice?
9.22 Respond to this comment: "Because joint-cost allocations are arbitrary, there is no rational argument for allocating joint costs except for complying with financial or tax reporting requirements."
9.20 Assume that your company operates a joint-production process that generates three main products and one by-product. If you allocate joint costs only for financial reporting, would you ever care whether you use the NRV or the physical-measures method? Explain. 9.21 Top management has decided
9.19 (continuation of 9.18) A year later. Bonzo Oil experienced a 25 percent decline in the sales of its products and no longer accepts its full shipments of the refinery outputs. Accord- ingly. Bonzo seeks to renegotiate the agreement based on the joint-costing system prepared previously. Form
9.18 Bonzo Oil Co. and Crusty Petroleum, Inc., are entering a joint venture to construct and operate an oil refinery in a foreign country. This refinery will process crude oil in a joint process that results in multiple products, such as gasoline, jet fuel, asphalt, and petrochemicals that require
9.17 Company A and Company B are negotiating the construc- tion and operation of a plant that will produce joint prod- ucts X and Y and by-product W, which has a positive net realizable value. Company A will use all of product X and operate the plant. Company B argues that it needs only 80 percent
9.16 How is joint-cost allocation like prorating underapplied overhead?
9.15 The chapter indicated that joint costing is used to value inventory and report earnings. Explain at least two other situations when the method of joint-cost allocation could have an impact on decision making.
9.14 How do joint products, by-products, and scrap differ?
9.13 Under what conditions could the method of joint-cost allo- cation be important to product or service decisions?
9.12 Why are joint costs irrelevant in the sell-or-process-further decision? What costs are important?
9.11 What is the condition under which an item should be treated as a by-product rather than as a joint product?
9.10 What is the basic difference between the allocation of joint costs to joint products and to by-products?
9.9 When might a physical-measures method for allocation he preferred?
9.8 Why might some accountants express a preference for the net realizable value method of joint-cost allocation over the physical-measures method?
9.7 What is the objective of joint-cost allocation?
9.6 What could cause a difference between sales revenue and net realizable value?
9.5 What are the steps to follow to make decisions about pro- ducing products from joint processes?
9.4 What are the similarities and differences between joint costs and indirect costs?
9.3 How do joint products, intermediate products, and final products differ?
9.2 What is the nature of a joint-production process?
9.1 What are the definitions of the key terms in this chapter?
8.22 Ben and Stiller Ice Cream Company shows the following information concerning the WIP at its plant: 1 1. Beginning inventory, partially complete. 2. Transferred out, 20,000 units. 3. Ending inventory, 10,000 units (materials, 20 percent complete; conversion costs, 10 percent complete). 4.
8.21 Refer to the data in Exercise 8.20. Assume that beginning inventory is 20 percent complete with respect to materials and 15 percent complete with respect to conversion costs. Requireda. Compute the number of equivalent units for materials using FIFO.b. Compute the number of equivalent units
8.20 Nets, Inc., shows the following information concerning its work in process: Beginning inventory. 2,000 partially complete units. 2. Transferred out. 9,000 units. 3. Ending inventory (materials, 10 percent complete: conversion costs, 20 percent complete). 4. Started this month. 12,000 units.
8.19 Explain how an individual could manipulate reported earnings by misstating degrees of completion of ending WIP Would it be easy to continue this manipulation for subsequent periods? Explain.
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