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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

4.49 An ABC team at Drugs R Us, a pharmaceutical company, identified these data for a typical month:Activity Cost in a Activity Volume in a Activity/Resource 1. Unit Level 1.1 Acquire and use material for Product A 1.2 Acquire and use direct labor for Product A 1.3 Acquire and use material for
4.48 The ABC team at Social Services is attempting to complete a table similar to the one in Exhibit 4-6 except that it is for just one product, Consultation Sessions. The team has pieced together the follow- ing data: Unit-level activity is 10,000 hours; predetermined cost-driver rate is $50 per
4.47 The ABC team at Spear, Inc., a concert-planning company, is attempting to complete a table similar to the one in Exhibit 4-6 except that it is for just one product, Brit Ni. The team has pieced together the following data: Unit-level actual activity (number of concerts times number of band
4.46 The ABC team at Sky Enterprises, a surveillance company, is attempting to complete a table similar to the one in Exhibit 4-6 except that it is for just one product, Sky Spi. The team has pieced together the following data: Unit-level actual activity (hours of surveillance) is unknown;
4.45 Security, Inc., has just completed a major change in its method to inspect its product. Previously, 10 inspec- tors examined the product after each major process. The salaries of these inspectors were charged as direct labor to the operation or job. To improve efficiency. Security's production
4.44 Many companies recognize that their cost systems are inadequate for today's global market. Managers in companies selling multiple products are making important product decisions based on distorted cost information, because many cost systems are designed to focus on inventory valuation.
4.43 Cannonball Corporation manufactures three bicycle models: racing, mountain, and children's. The rac- ing model, the Aerolight, is made of a titanium-aluminum alloy. The mountain bike, the Summit, is made of aluminum. The steel-framed children's bike is the Spinner. Because of the different
4.42 Sparkle Company makes three types of sunglasses: Stars, Surfs, and Fashions. Sparkle presently applies overhead using a predetermined rate based on direct-labor hours. A group of company employees rec- ommended that Sparkle switch to activity-based costing and identified the following
4.41 Import Glass & Crystal Company manufactures three types of glassware: unleaded glass, low-lead crys- tal, and high-lead crystal. Glass quality increases with higher lead content, which allows for more detailed cutting and etching. Unleaded glass production is highly automated, but cutting and
4.40 Assume that you manage a business that provides services to both state government agencies and pri- vate organizations. Contracts for both groups are awarded on the basis of competitive bids. Your con- tracts with government agencies provide for reimbursement of costs plus a set percentage
4.39 Eisner & Associates provides consulting and tax preparation services to its clients. It charges a $100 fee per hour for each service. The firm's revenues and costs for the year are shown in the following income statement: Revenue Expenses: Secretarial support Supplies. Computer costs, etc..
4.38 Reclite. Inc., produces headlamps for campers, hikers, and other people who want the convenience of a light at night without carrying a flashlight. It currently allocates overhead costs using direct-labor hours. but the controller has recommended an activity-based costing system using the
4.37 Green Garden Care, Inc., is a lawn and garden care service. It originally specialized in serving small res- idential clients but recently started contracting for work on office building grounds. Since Glenn Greenthumb (owner) believes that commercial lawn care is more profitable, he is
4.36 Syno Corporation produces two types of flat-screen televisions. The standard televisions are designed for durability. The company recently began producing the higher-quality, high-grade model to appeal to dedicated watchers. Since the introduction of the high-grade product, profits have
4.35 Match each of the following activities to the most likely activity level for a bank. Suggest a feasi- ble cost-driver base for each, and explain why you think that your chosen cost-driver bases are feasible. Activity 1. Sales calls-existing commercial customers 2. Sales calls-new commercial
4.34 Match each of the following activities and resources with the most likely activity level for a social ser- vices agency. Resources and Activities 1. Case workers-personnel who interview and service clients by type of service (child, homeless, and elderly citizen) 2. Supplies-materials for
4.33 Match each of the following resources and activities with the most likely activity level. Resource and Description 1. Production management-salaries and support for managers 2. Marketing research-salaries and support for marketing research to identify new product opportunities 3. Labor-hourly
4.32 Volkswagen Canada developed ABC costs of the wheel-building process at one of its plants. The process involves melting aluminum, pouring the melted aluminum into molds (casting), testing, finishing/ polishing, painting, and packaging wheels. Required Match each activity with its most likely
4.31 Place the following activities involved in a university's admission process in chronological order and match each to its most likely cost driver. (Cost-driver bases may be used more than once.) Activities 1. Processing applications 2. Enrolling students 3. Receiving applications 4. Receiving
4.30 One implication of ABC systems could be that using fewer cost-driver bases reduces consumption of resources, which reduces costs. Therefore, this logic continues, managers should seek to reduce the number of cost-driver bases used. A prominent critic of ABC has stated that activity-based
4.29 Evaluate this comment: "Historical costs are only the starting point for predicting future costs.... Many types of costs, such as inventory, book value of equipment, and allocation of fixed [higher-level resource] costs are not. relevant for decision making."
4.28 Some believe that universities are among the organiza- tions most resistant to change. However, some universities are beginning to analyze the profitability of their major departments and colleges by applying ABC concepts. Develop an exhibit similar to Exhibit 4-4 that shows major university
4.27 It has been suggested that ABC should be used to measure the costs of "people-intensive" processes but not "machine-intensive" processes. People-intensive processes have adapt- able resources, employee-paced work flows, and salary- oriented costs. Examples include engineering and customer
4.26 Professor John Shank has said that the use of contribu- tion margins to select products is "a snare, a trap, and a delusion" because a firm will never drop a product that has a positive contribution margin for fear of losing even a small amount of profit. Explain the meaning of this argument.
4.25 Why would each of the following be important to the suc- cess of activity-based costing:a. Top management's support.b. Other companies' successes and failures with it.c. Sufficient time to gather and analyze the data.
4.24 What criteria should management use to decide whether to assign general and administrative costs to products?
4.23 In developing an activity list, why might employees not want to reveal realistic information about time spent on their activities?
4.22 Why might a company adopt activity-based costing, then stop using it, but consider that its adoption had been a success?
4.21 Explain why overcosting and undercosting products occur with traditional costing systems.
4.20 What conditions are necessary for using activity-based costs of existing services for estimating costs of new ser- vices to be valid?
4.19 Is there any fundamental difference in applying ABC to goods versus services? Explain.
4.18 What "red flags" indicate that companies have problems with their costing systems?
4.17 "I work for an airline. ABC is irrelevant to my company because we do not manufacture things." Discuss the valid- ity of this statement.
4.16 Why would organizations compute cost-driver rates for a "typical" month instead of for each month of the year?
4.15 Describe how to calculate the activity-based cost of a product.
4.14 Why is employee participation in identifying activities important?
4.13 Describe how to calculate the cost of an activity.
4.12 Fill in the blanks. An activity list (or dictionary) is a performed by an organization to produce of its product.
4.11 Briefly describe the five levels of resources and activities.
4.10 Briefly describe the four steps in measuring the costs of goods and services.
4.9 Organizations that use or have used activity-based costing. include the following: United States Postal Service.b. American Airlines.c. Hewlett-Packard.d. (a), (b), and (c).e. (b) and (c).
4.8 Fill in the missing words: An activity is any discrete. an organization to make or deliver a or service. that
4.7 Is it true that activity-based costing first assigns costs to products and then to activities?
4.6 Why do few companies allocate the general and adminis- trative costs of the business to products?
4.5 What is the ideal relation between allocation bases (cost drivers) and costs?a. Simpleb. Cause and effectc. Complexd. What top management wants
4.4 What are the three key points with respect to refining a tradi- tional costing system?
4.3 How are indirect costs allocated to products using tradi- tional costing systems?
4.2 What factors should managers assess in choosing among alternative costing systems?
4.1 Review and define each of the chapter's key terms.
3.61 Marcella Garcia, an accountant for a consulting firm, had just received the monthly cost reports for the two jobs she supervises: one for Arrow Space, Inc., and one for the US government. She immediately called her boss after reading the figures for the Arrow Space job. "We're going to be way
3.60 Prepare a Gantt chart for the following construction project for which you have plans and financing. Use one week as the incremental time interval.a. Find a suitable location, duration five weeks.b. Hire a construction team, duration two weeks; can begin after the site is found.c. Obtain
3.59 Prepare a Gantt chart for the following business plan. Use one week as the incremental time interval.a. Select a cross-functional planning team, duration two weeks.b. Hold twice-weekly meetings until the plan is implemented.c. Identify products or services to meet market needs, consistent with
3.58 Portsmouth Printing, Inc., is a rapidly growing company that has not been profitable despite increases in sales. It has hired you as a consultant to find ways to improve the situation. You believe that the problem results from poor cost control and inaccurate cost estimation on jobs. To gather
3.57 A disastrous fire struck the only manufacturing plant of Badomen Equipment, Inc., on December 1. All work-in-process inventory was destroyed, but a few records were salvaged from the wreckage and the company's headquarters. The insurance company has stated that it will pay the cost of the lost
3.56 On June 1, two jobs were in process at Top Notch Painters, Inc. Details of the jobs follow: Job No. P-20 P-43 Direct Material $174 32 Direct Labor $64 84 Material inventory (for example, paint and sandpaper) on June 1 totaled $920, and $116 in material was purchased during the month. Indirect
3.55 A hysterical I. M. Dunce corners you in the hallway 30 minutes before accounting class. "Help me. help me!" 1. M. pleads. "I woke up this morning and discovered that my pet German Shepherds Fifo and Lifo ate my homework, and these shredded pieces are all that I have left!" Being a kind and
3.55 Plattsburg Pump, Inc. manufactures bilge pumps for small boats. It uses a job-order costing system. Normal costing is used, and manufacturing overhead is applied on the basis of machine hours. Estimated manufacturing overhead for the year is $1,464,000, and management expects that 73,200
3.54 Rosado Pasta Company prepares, packages, and distributes six frozen pasta entrees in two different con- tainer sizes. It prepares the different pastas and different sizes in large batches. It uses a normal job-order costing system. Manufacturing overhead is assigned to batches by a
3.53 Superior Staging, Inc. assembles light and sound equipment for installation in various entertainment facilities. An inventory of material and equipment is on hand at all times so that installation could start as quickly as possible. Special equipment has been ordered as required. On September
3.52 You are employed by the management consulting group Business Solutions, Inc., which Leevies Pants, Inc., has asked to help in improving its job-costing system. Leevies employed 20 full-time workers at $8 per hour. Since beginning operations last year, it had priced the various jobs by marking
3.51 Refer to the information in the preceding problem. Arrow Space, Inc., has determined that 65 percent of its manufacturing overhead spending is related to jobs' use of material, and 35 percent is related to jobs" use of production labor. Requireda. Based on information in this problem and the
3.50 The following transactions occurred at Arrow Space, Inc., a small defense contractor that uses job costing:a. Purchased $71,600 in raw material on account.b. Issued $2,000 in supplies (indirect material) from raw-material inventory to the production department.c. Paid for the raw material
3.49 During January. Manhattan Consultants worked 1,000 hours for Nocando Manufacturing, 300 hours for Sails, Inc., and 500 hours for Original John's Restaurants. Manhattan Consultants bills clients at S80 an hour; its labor costs are $30 an hour. A total of 2,000 hours were worked in January with
3.48 Corner Cleaners has five employees and a president, Marty Stuart. Stuart and one of the five employees manage all the marketing and administrative duties. The remaining four employees work directly on operations. Corner Cleaners has four service departments: dry cleaning, coin washing and
3.47 Borealis Corporation uses a job-order costing system for its production costs. A predetermined cost- driver rate based on machine hours is used to apply facility-level overhead to individual jobs. An esti- mate of overhead costs at different volumes was prepared for the current year as
3.46 Kalamazoo Quality Instruments produces sensitive heat-measurement devices in three manufacturing stages: (1) meter assembly, (2) case assembly, and (3) testing. The company has a large backlog of orders and had no beginning inventories because all units in production last year were sold by the
3.45 Visit the website of a film producer, such as Warner Brothers (www.warnerbros.com), MGM (www.mgm.com), or Walt Disney Studios (www.disney.com). Required Read about one of the company's recent (or upcoming) film releases. Then discuss why job-order cost- ing is or is not an appropriate costing
3.44 Read "General Mills Boosts Target for Savings Project to $1 Billion." The Wall Street Journal, February 14, 2003, page B4, by Patricia Callahan. Required How is General Mills using supply-chain management to achieve its goal of $1 billion in savings over 10 years? In particular, how is the
3.43 For September, Twiddle & Company worked 600 hours for client A and 1,400 hours for client B. Twiddle bills clients at the rate of $140 per hour; labor cost for its audit staff is $70 per hour. The total number of hours worked in September was 2.000, and overhead costs were $20,000. Overhead is
3.42 At the beginning of the month, Melody Corporation had two jobs in process that had the following costs assigned from previous months: Job No. X-10. Y-12. Direct Labor Applied Overhead $1,280 840 During the month. jobs X-10 and Y-12 were completed but not billed to customers. The completion
3.41 Kitchen Craft Company manufactures one product and accounts for costs using a job-order costing sys- tem. You have obtained the following information from the corporation's books and records for the year ended December 31, year 1: Total manufacturing cost during last year was $500,000 based on
3.40 Refer to the information in exercise 3.38. Prepare an entry to close the overhead variance into cost of goods sold.
3.39 Refer to the information in the preceding exercise. Prorate the overhead variance as follows: Work-in-process inventory Finished-goods inventory. Cost of goods sold 10% 25 65
3.38 Reimel Furniture Co. uses a predetermined cost-driver rate based on direct-labor hours. For October, Reimel's budgeted overhead was $900,000 based on budgeted activity of 100,000 direct-labor hours. Actual overhead amounted to $975,000 with actual direct-labor hours totaling 110,000. Required
3.37 Paige Printing uses a job-order costing system. The following debits (credits) appeared in the Work-in- Process account for May: May 1 Entire month Entire month Entire month Entire month. Description Balance Debits $ 5,000 Credits Direct material 30,000 Direct labor 20,000 Factory overhead
3.36 Maritza Corporation, located in Buenos Aires. Argentina, manufactures cutlery. Management estimates man- ufacturing overhead to be 44,000p and direct-labor costs to be 80,000p for year 1. The actual manufacturing labor costs were 20,000p for job 1, 30,000p for job 2, and 40,000p for job 3
3.35 Partially completed T-accounts and additional information for Circle-T Company for the month of May follow:Additional Information Labor wage rate was $24 per hour. Overhead is applied at 80 percent of direct-material cost. During the month, sales revenue was $18,000, and selling and
3.34 Refer to the data in the preceding exercise. The following balances appeared in the accounts of Danby Hardwoods for January before closing temporary accounts: Material inventory Work-in-process inventory. Finished-goods inventory Cost of goods sold.. Ending Beginning $18,525 4,125 20,750
3.33 Danby Hardwoods, a custom manufacturer of furniture, uses job-order costing. The following trans- actions to support job 402 for a custom meeting room set-a large table plus 16 chairs-occurred in January: Purchased $10,000 of materials. Issued $500 of supplies from raw-material inventory.
3.32 The following T-accounts represent data from a division of Northeast Metals Company's accounting records. Find the missing amounts represented by the letters. (Hint: Rearrange accounts to conform with the flow of costs.) Finished-Goods Inventory Raw-Material Inventory BB 23,000 BB (a) (c) (d)
3.31 Fill in the missing items for the following inventories: Beginning balance.... Ending balance. (A) $ 5,000 2 (B) $ ? (C) $ 12,000 16.000 12,000 Transferred in. 75,000 45,000 56,000 Transferred out... 79,000 52,000 ? (D) (E) (F) Beginning balance. $170,000 $ 71,000 $390,000 Ending balance ?
3.30 Fill in the missing items for the following inventories: Beginning balance... Ending balance (A) $136,000 ? (B) (C) $ 56,800 $312.000 49,600 256,000 Transferred in: Transferred out... 128,000 ? 560,000 152.000 176,000 ? (D) Beginning balance. _ $ 34,000 (E) $14,200 (F) $ 78,000 Ending balance
3.29 Fill in the missing items for the following inventories: (A) (B) (C) Beginning balance.. Ending balance $136,000 $56,800 $312,000 ? 49,600 256,000 Transferred in. 128.000 ? 560,000 Transferred out... 152,000 176,000 ? (D) Beginning balance. $ 34,000 (E) $14.200 (F) $ 78,000 Ending balance ?
3.28 Assume that the following events occurred at a division of American Homes, Inc.. a large homebuilder, for the current year. 1. Purchased $270 million in building material. 2. Incurred construction labor costs of $156 million. 3. Determined that general and administrative overhead was $246
3.27 A small building-supply company. Quality Lumber, experienced the following events during the year: Incurred $250,000 in selling costs. Purchased $800,000 of building material. Paid $20,000 for vehicles and transportation resources. Incurred $400,000 of general and administrative costs. Took a
3.26 Motion picture contracts often offer some participants residual profits, which are shares of profits computed after all costs of production have been covered. Sometimes blockbuster movies never pay residual profits because they do not fully recover their costs, which could include up-front
3.25 A government contractor had a contract with NASA. to build a space shuttle. Under this contract, all costs of development and construction are to be reimbursed and the contractor is to be guaranteed a specific profit. At the same time, the contractor had a fixed-fee contract with the LS Air
3.24 How might job-order costing for a homebuilder be similar to and differ from that used by a consulting firm?
3.23 Your manager tries to persuade you that all of the over- head variance should be charged to Cost of Goods Sold. This is appealing to you since you have hundreds of jobs and many overhead accounts to reconcile, and this is the least fun part of your job. Why should you consider this argument
3.22 A co-worker states. I don't know why we spent so much money on that new job-costing system. I can do every- thing we need on a simple spreadsheet. If the CFO had lis- tened to me, we could have saved a lot of money. Would it have been desirable to follow your co-worker's advice? Why or why not?
3.21 Interview the manager of a campus print shop or a print shop in the local area about how the company bids on prospective jobs. Does it use cost information from former jobs similar to prospective ones, for example? Does it have a specialist in cost estimation to project costs of prospective
3.20 Interview the manager of a construction company (for example, a company that does house construction, remod- eling, landscaping, or street or highway construction) about how it bids on prospective jobs. Does it use cost information from former jobs similar to prospective ones, for example?
3.19 An employee of Doughties Foods overstated inventories to make periodic profits higher. Using the basic cost- flow model, explain how overstating inventories could increase profits. If the employee did this a second and a third time, use the basic cost-flow model to show what the effect would
3.18 Would a dentist, an architect, a landscaper, and a lawyer use job-order costing or process costing? Explain.
3.17 Describe one advantage and one disadvantage of prorating overapplied or underapplied overhead.
3.16 Explain the benefits of using a predetermined overhead rate instead of an actual overhead rate.
3.15 What are the purposes of the following documents: (a) material requisition form, (b) labor time record, and (c) job-cost record.
3.14 Why is the use of direct-labor as a cost driver for manufac turing overhead declining?
3.13 What are the characteristics of companies likely to use a job-order costing system?
3.12 Is job-order costing information sufficient to support management decisions? Why or why not?

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