Cost Management Strategies For Business Decisions 4th Edition Ronald Hilton, Michael Maher, Frank Selto - Solutions

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6. Indicate whether each of the following costs incurred in a manufacturing operation is fixed or variable (For V) and whether it is a period cost or product cost (P or R) under absorption costing.a. Utilities in cost-management analysts' office.b. Factory security personnel.c. Factory heating and
5. Indicate whether each of the following costs incurred in a manufacturing operation is included in prime costs (P), conversion costs (C), or both (B).a. Assembly-line worker's salary.b. Direct material used in production.c. Indirect material used in production.d. Factory heating and air
4. Indicate whether each of the following costs incurred in a manufacturing operation are fixed or variable (For V) and whether they are period costs or product costs (P or R) under absorption costing.a. Sales commissions.b. Office rent for sales personnel.c. Salaries for sales supervisors.d.
3. Read two articles by Mishelle Conlin in Business Week: "The Big Squeeze on Workers," May 13, 2002. pages 96 and 97, and "The Software Says You're Just Average." February 25, 2002, page 126. Required As a group, discuss whether direct labor is a fixed or a variable cost. What are the pros and
2. Read two articles by Mishelle Conlin in Business Week: "The Big Squeeze on Workers," May 13, 2002. pages 96 and 97, and "The Software Says You're Just Average." February 25, 2002, page 126. Required As a group, discuss whether direct labor is a fixed or a variable cost. What are the pros and
1. The following items appeared in the records of Herget Corporation, for the last year: Sales revenue $2.036,000 Supervisory and indirect labor 127,000 Supplies and indirect materials 14,000 Work-in-process inventory, January 1 135,000 Work-in-process inventory, December 31 142,000 Administrative
2.32 Prime costs are always direct costs, and overhead costs are always indirect. What is your opinion of this statement?
2.31 The term direct costing is a misnomer. Variable costing is a better term for this product-costing method. Do you agree or disagree? Why?
2.30 In general, how would you expect a company's balance sheet at any particular date to be different under absorption and variable costing?
2.29 Evaluate this criticism of the financial management of processes: All this emphasis on operating income, regardless of how you measure it, contributes to our continuing, short- term outlook. If we focus only on operating income, man- agers will do whatever they can to increase that
2.28 Respond to this comment: Your analysis of last month's financial performance demonstrates that it really doesn't matter whether we use throughput, variable. or absorption costing. All the costs are accounted for: you've just put them in different places. I can't see what real difference this
2.27 Explain how making more products than can be sold in a period can increase the organization's operating income. Is this a sustainable tactic to increase operating income? Would this happen in a service company, or is it an issue. only in manufacturing companies? Explain.
2.26 Individually or as a group, prepare written arguments for and against the following proposition. (Be prepared to present your arguments.) The company needs to use absorption costing for financial and tax reporting. We make so many products in so many places that it would be too expensive to
2.25 A colleague challenges you: What do you mean that there is no such thing as a fixed cost? Pick up any microeconom- ics or cost-accounting book, and you will see the term used. all the time. We have lots of fixed costs in our organiza- tion. don't we? What about your salary and the deprecia-
2.24 Respond to this observation: So, there really is no funda- mental difference between tracing costs and allocating costs. The only difference is the degree of accuracy with which you want to trace costs.
2.23 Respond to this comment from an economist friend: You cost-management analysts use an overabundance of cost terms to cover up the fact that you really do not understand opportunity costs. You create jobs for yourselves based on unintelligible jargon. Not that that's a bad thing.
2.22 Prepare a diagram that illustrates how the following resources-headquarters, facilities, division managers, information systems personnel-can be considered both direct and indirect in a company that has four operating divisions, each of which provides multiple services.
2.21 Evaluate this statement: Issues of product costing are unimportant for virtual organizations that outsource their production operations.
2.20 Evaluate this statement: Issues of product costing are irrel- evant for service organizations since they cannot build up inventories of services, and all costs for providing services are expensed in the period they are used. Service firms effectively use throughput costing.
2.19 Do throughput, variable, and absorption costing result in significantly different income measures in a JIT setting? Why?
2.18 When inventory increases, is absorption-costing or variable- costing income higher? Why?
2.17 Timing is the key in distinguishing between absorption. variable, and throughput costing. Explain this statement.
2.16 Explain how absorption costing can create an incentive to make more products than can be sold.
2.15 What are the differences among throughput, contribution margin, and gross margin on an income statement?
2.14 How does throughput costing differ from variable or absorption costing?
2.13 Is a committed cost the same as a fixed cost? Explain.
2.12 Define and give an example of each of the following costs:a. Opportunity costb. Outlay costc. Product costd. Period coste. Direct costf. Indirect cost
2.11 What is a unit-level cost? How does it differ from an aver- age cost? How does it differ from a variable cost?
2.10 Is a resource always either direct or indirect? Explain.
2.9 Explain the concept of traceability and the way it is used to classify resources as direct or indirect.
2.8 Distinguish between production and nonproduction resources. Give examples of each.
2.7 Distinguish among material resources, conversion resources, and operating resources.
2.6 What does the term fixed cost mean?
2.5 What does the term variable cost mean?
2.4 What are the three categories of product cost in a manufac turing operation? Describe each element briefly.
2.3 Is cost of goods sold an expense? Explain.
2.2 What is the difference between product costs and period costs?
2.1 What is the difference between the meanings of the terms cost and expense?
Fast Track Shoe Company has two divisions, production and marketing. Production manufactures Fast Track MELCl g shoes, which it sells to both the marketing division and to other retailers (the latter under a different brand name). Marketing operates several small shoe stores in shopping centers
19.1 Why do transfer prices exist even in highly centralized organizations?
Describe four methods by which transfer prices can be set.
What are the advantages and disadvantages of top management’s direct intervention in a transfer-pricing dispute?
19.6 Why do companies often use prices other than market prices for interdivisional transfers?
19.7 What is the basis for choosing between actual and standard costs for cost-based transfer pricing?
19.8 Some have suggested that managers should negotiate transfer prices. What are the disadvantages of a negotiated transfer-pricing system? ;
19.10 Explain the effect of import duties, or tariffs, on the transfer-pricing policies of multinational companies.
19.11 How does the choice of a transfer price affect the operating profits of both segments involved in an intracompany transfer?
19.12 What are some goals of a transfer-pricing system in a decentralized organization?
19.13 Division A has no external markets. It produces monofilament used by division B, which cannot purchase this particular type of monofilament from any other source. What transfer-pricing system would you recommend for the interdivisional sales of monofilament? Why?
19.14 Refer to Cost Management in Practice 19.1 on page 812.Why did the Internal Revenue Service dispute the US subsidiary’s reported profits and losses?
19.15 When setting a transfer price for goods sold across international boundaries, what factors should management consider?
19.16 Setting transfer prices by negotiation is detrimental to the company. Do you agree or disagree with this statement by the CEO of a midsize manufacturing company? Why?
19.17 Basing transfer prices on full absorption costs can really screw up decision making in a company! Explain this remark by a manufacturing vice president, and construct a simple numerical example to make the point.
16.18 Explain why the quantity purchased (PQ) is used in computing the direct-material price variance, but the actual quantity consumed (AQ) is used in computing the direct-material quantity variance.
The practical capacity of National Wood Products’ Georgia mill is based on running one shift per day five days a week because of limited access to timber in that region. Negotiations to gain access to timber on Native American reservation land to replace reduced timber from U.S. federal land have
How do cost-management analysts anticipate and resolve potential conflicts between jointproduct and process decision making and external reporting?
If joint-cost allocations are arbitrary, does that mean they are meaningless
How do joint products, intermediate products, and final products differ?
What are the similarities and differences between joint costs and indirect costs?
What are the steps to follow to make decisions about producing products from joint processes?
What could cause a difference between sales revenue and net realizable value?
Why might some accountants express a preference for the net realizable value method of joint-cost allocation over the physical-measures method?
When might a physical-measures method for allocation be preferred?
What is the condition under which an item should be treated as a by-product rather than as a joint product?
Why are joint costs irrelevant in the sell-or-process-further decision? What costs are important?
Under what conditions could the method of joint-cost allocation be important to product or service decisions?
How do joint products, by-products, and scrap differ
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.
How is joint-cost allocation like prorating underapplied overhead?
Company A and Company B are negotiating the construction and operation of a plant that will produce joint products 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 of
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
(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.Accordingly, Bonzo seeks to renegotiate the agreement based on the joint-costing system prepared previously.Form small
Assume that your company operates a joint-production process that generates three main products and one byproduct.If you allocate joint costs only for financial reporting, would you ever care whether you use the NRV or the physical-measures method? Explain.
Top management has decided that your division, which operates a joint-production process, no longer provides a competitive return and should be shut down and all assets liquidated. Prepare an outline of the costs and benefits(to all affected parties) of the decision to shut down and liquidate your
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.”
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 acceptable practice?
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)creating the framework (or model)
Amazon 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 from
Cheyney 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 for
Galway Products, Inc., manufactures Leprechauns and Shamrocks from a joint process using the raw material Green. In a recent month, Galway produced 4,000 Leprechauns having a sales value after the split-off point of $21,000. In the same month, it produced 2,000 Shamrocks having a sales value after
Each of these following situations should be considered independently of the others.Requireda. George Company manufactures products C and R from a joint process. The total joint costs are$120,000. The net realizable value at split off was $140,000 for 8,000 units of product C and$60,000 for 2,000
The following questions are based on Costner Company, which manufactures products X, Y, and Z from a joint process. Joint-process costs were $80,000. Additional information is provided:If Processed Further Units Sales Value at Sales Additional Product Produced Split Off Values Costs DORR eeerrantan
Friendly Fertilizer Corporation uses organic materials to produce fertilizers for home gardens. Through its production processes, the company manufactures Nitro, a high nitrogen fertilizer, and Phospho, a high phosphorus fertilizer. A by-product of the process is methane, which is used to generate
Leather Products, Inc., processes cowhide to produce three outputs (leather, suede, dog chews). Leather and suede are considered main products, and dog chews are a by-product. During a recent month, the following events occurred:' Produced and sold 200 units of leather and 100 units of suede.
The following questions are based on Seinfeld Corporation, which manufactures a product that gives rise to the by-product Castanza. The only cost associated with Castanza is the additional processing cost of $1 for each unit. Seinfeld accounts for Castanza sales first by deducting its separable
Georgia Products, Inc., operates a sawmill facility. The company accounts for the bark chips that result from the primary sawing operation as a by-product. It sells the chips to another company at a price of$24 per hundred cubic feet. Normally, sales revenue from this bark is $1,800,000 per month.
O’Malley Corp. uses a joint process that costs $160,000 for inputs and processing per batch. Processing one batch results in the following joint outputs:Sales Price Further Sales Price after Product Quantity at Split Off Processing Further Processing cn Ae a RE ee eek 1,000,000 liters $.09 per
IMAC Company produces three products by a joint-production process. Raw materials are put into production in process A, and three products appear at the end of this process. Product X is immediately sold at the split-off point, with no further processing. Products Y and Z require further processing
Air Extracts, Inc., manufactures nitrogen, oxygen, and hydrogen from a joint process. Data on the process are as follows:Product Nitrogen Oxygen Hydrogen Total WInitSMOROGIUICEC) tretameeee tcetesra :e res 8,000 4,000 2,000 14,000 JOMECOSTS Heecocers susee r.ee c ee $30,000* $ (a) $ (b) $ 60,000
Exotic Aroma Company buys bulk flowers and processes them into perfumes in a two-stage process.Its highest-grade perfume, Seduction, and a residue that is processed into a medium-grade perfume, Romance, come from a certain mix of petals. In July, the company used 25,000 pounds of petals. The first
Harrison Corporation produces two joint products from its manufacturing operation. Product J sells for$41.50 per unit, and product M sells for $12 per unit at the split-off point. In a typical month, 38,000 units are processed; 30,000 units become product M and 8,000 units become product J after an
AMPHIB Corporation processes input Leonardo into three outputs: Michaelangelo, Raphael, and Donatello. At the split-off point, Michaelangelo results in 60 percent of the net realizable value, Raphael results in 30 percent, and Donatello accounts for the balance. The joint costs total $365,500. If
Silicon Materials, Inc., processes silicon crystals into purified wafers and chips. Silicon crystals cost$60,000 per batch. The process involves slicing the crystals, which produces 45,000 wafers with a market value of $20,000 and 15,000 chips with a market value of $140,000. The cost of operating
Greenchem, Inc., produces chemicals used in the cleaning industry. During the previous month, it incurred $300,000 ofj oint costs in producing 60,000 units of AM-12 and 40,000 units of BM-36.Greenchem allocates joint costs based on the number of units produced. Currently, AM-12 is sold at split off
The weight of used tires in Europe was expected to reach 2.5 million tons by the end of 1999. Anne Forteza of IDE Environment argued that more intense retreading and recycling must replace the currently widespread practice of sending used tires to landfills. She estimated that approximately
Ag-Coop is a large farm cooperative with a number of agriculture-related manufacturing and service divisions. As a cooperative, it pays no federal income taxes. It operates a fertilizer plant, which processes and mixes petrochemical compounds into three brands of agricultural fertilizer: Greenup,
19.18 In setting transfer prices for multinationals, tax considerations can be the tail that wags the dog. Explain.
19.19 Some observers have suggested that fairness is a criterion that a transfer price should meet. What do you think it means for a transfer price to be “fair”?
Oneida Associates is a real estate company operating in the Finger Lakes region of central New York. Its leasing division rents and manages properties for others, and its maintenance division performs services such as carpentry, painting, plumbing, and electrical work. The maintenance division,
CompuTech’s Western Division has an opportunity to transfer component Z50 to the company’s Eastern Division. The Western Division, which offers its Z50 product to outside markets for $150, incurs variable costs of $55 per unit and fixed costs of $37,500 per month based on monthly production of

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Cost Management Strategies For Business Decisions 4th Edition Ronald Hilton, Michael Maher, Frank Selto - Solutions

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