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cost management strategic
Cost Management Strategies For Business Decisions 4th Edition Ronald Hilton, Michael Maher, Frank Selto - Solutions
Does it matter how the overhead variance is disposed?Explain.
Describe several ways in which job costing can be misused.Is job-order costing information sufficient to support management decisions? Why or why not?
What are the characteristics of companies likely to use a job-order costing system?
Why is the use of direct labor as a cost driver for manufacturing overhead declining?
Would a dentist, an architect, a landscaper, and a lawyer use job-order costing or process costing? Explain.
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 be. How
Interview the manager of a construction company (for example, a company that does house construction, remodeling, 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? Does it
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 jobs?
A co-worker states, "I don’t know why we spent so much money on that new job-costing system. I can do everything we need on a simple spreadsheet. If the CFO had listened 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?
How might job-order costing for a homebuilder be similar to and differ from that used by a consulting firm?
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 U.S. Air Force
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 upfront payments
A small building-supply company, Top Notch Lumber, experienced the following events during the year:© Incurred $250,000 in selling costs.Purchased $820,000 of building material.Paid $20,000 for vehicles and transportation resources.Incurred $400,000 of general and administrative costs.Took a
Assume that the following events occurred at a division of American Homes, Inc., a large homebuilder, for the current year. :Purchased $270 million in building material.Incurred construction labor costs of $165 million.Determined that general and administrative overhead was $246 million.Transferred
Fill in the missing items for the following inventories:(A) (B) (C)Beginning balance..........c:ccceeeee $136,000 $ 56,800 $312,000 EmaimoibalanC@ ga csccetecmthtese fte e fi 49,600 256,000 MraMStennedhiieess can cteeawteets c-ceedsnors 128,000 @ 560,000 Transferred OUt...... eee See 152,000
Fill in the missing items for the following inventories:(A) (B) (C)BEGINING) DAlaMCC nkg arnie remiss. censnss $ 5,000 Sane $ 12,000 EMCO ALANC O ercresereeteset-cuiacawanss. a 16,000 12,000 IMAMSTERCC cree erteceecen clet aaeane 75,000 45,000 56,000 MAMSTSME AOU twee rece crew n rset atten. 79,000
The following T-accounts represent data from a division of New England Fashion’s accounting records.Find the missing amounts represented by the letters. (Hint: Rearrange accounts to conform with flow of costs.)Cost of Goods Sold Finished-Goods Inventory 123,000 BB 69,600 Work-in-Process Inventory
Refer to the data in Exercise 3.33. The following balances appeared in the accounts of Tuscarora Hardwoods for January before closing temporary accounts. During January, $32,925 was transferred from Finished-Goods Inventory to Cost of Goods Sold.Beginning Ending Materialliinventonyiecsmest
Partially completed T-accounts and additional information for Triad Company for the month of May follow:Raw-Material Inventory BB 2,000 8,000 | 6,400 Work-in-Process Inventory BB 4,000 Labor 6,000 Finished-Goods Inventory L@CC ot are) MCLoLele Yo][ e}BB 6,000 12,000 | 8,000 Manufacturing Overhead
Maritza Corporation, located in Buenos Aires, Argentina, manufactures cutlery. Managemen manufacturing overhead to be 44,000p and direct-labor costs to be 80,000p for year 1. The actual manyfacturing labor costs were 20,000p for job 1, 30,000p for job 2, and 40,000p for job 3 during year 1; the
Jay Furniture Co. uses a predetermined cost-driver rate based on direct-labor hours. For October, its budgeted overhead was $900,000 based on budgeted activity of 100,000 direct-labor hours. Actual overhead amounted to $980,000 with actual direct-labor hours totaling 110,000.Requireda. How much was
Refer to the information in the preceding exercise. Prorate the overhead variance as follows:Workein-precessiinvemtor y taterre ane nee reeee eter..s ee e 10%FIMSINOC-OOCSsIMV CMLON\ ae ccmceess mensnme stint aera iene aeeen eer 25 GOsnomQoodS: Solar seen ss: occu eae teee ne ease Oa ee eer 65
At the beginning of the month, Kitchen Craft Corporation had two jobs in process that had the following costs assigned from previous months:Job No. Direct Labor Applied Overhead VaerlOroedtae tcotunea steoe oodadeoocseenmennser e $1,280 2 IE Heres ta atro nga Mee RD eee eee RE 840 iS Ee During the
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 actual overhead costs were $20,000. Overhead
Cleveland 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 it sold all units in production last year by the end of
Northern Lights 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 estimate of overhead costs at different volumes was prepared for the current year as
Spic ‘n Span Cleaners has five employees and a president, Marty Stuart. Stuart and one of the five employees manage all selling and administrative duties. The remaining four employees work directly on operations.The firm has four service departments: dry cleaning, coin washing and drying, special
During January, Broadway Consultants worked 1,000 hours for Nocando Manufacturing, 300 hours for Sails, Inc., and 500 hours for Original John’s Restaurants. The firm bills clients at $80 an hour; its labor costs are $30 an hour. A total of 2,000 hours were worked in January with 200 hours not
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.Issued $2,000 in supplies (indirect material) from raw-material inventory to the production department, Paid for the raw material purchased in
Refer to the information in Problem 3.50. 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 Problem 3.50,
Of the $104,000 manufacturing overhead, 30 percent was unit level and 70 percent was facility level.This year Leevies expects to operate at the same activity level as last year, and overhead costs and the wage rate are not expected to change. For the first quarter of this year, Leevies had just
Theater Staging, Inc., assembles light and sound equipment for installation in various entertainment / Fiouvor Goce iooos:facilities. An inventory of material and equipment is on hand at all times so that installation could start a Journal Entries quickly as possible. Special equipment has been
Lucatelli Pasta Company prepares, packages, and distributes six frozen pasta entrees in two different Gc Driver Rates container sizes. It prepares the different pastas and different sizes in large batches. It uses a normal job- (LO 2,3,5)order costing system. Manufacturing overhead is assigned to
Pittsburgh 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 $1,420,000, and management expects that 71,000 machine
A hysterical I. M. Dunce corners you in the hallway 30 minutes before accounting class. “Help me, help income Statement me!” I. M. pleads. “I woke up this morning and discovered that my pet German Shepherds Fifo and Lifo(LO 2,3,5) ate my homework, and these shredded pieces are all that I have
On June 1, two jobs were in process at Spiffy Painters, Inc. Details of the jobs follow:Direct Direct Job No. Material Labor LP Rae ae ine oa 8 oe cn Ree $174 $64 PeaNE cn Sate pO uence cuore cen corre nee nnere eRe 32 84 Material inventory (for example, paint and sandpaper) on June 1 totaled $920,
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
At the end of November, the following balances were available:Actual manufacturing overhead incurred through November 30.........::c:ccee $217,000 Cost of goods sold through November 30......... 396,600 Recall that each month there is only one requisition for indirect material. Among the fragments
Just Kids, Inc., manufactures furnishings for children. The company uses a job-order costing system.a Job-Order Costing System Phe company’s work-in-process inventory on November 30 consisted of the following jobs.(LO 2,3,5,6)Job No. Description Units Accumulated Cost SB SiO2 eeere terete
Hollywood accounting can be every bit as creative as a good movie script. At least, thatis what some —\yotion Picture Project lawyers and journalists seem to be telling us. According to news reports, the hit movie Forrest Gum which won “best picture” honors at the Academy Awards, claimed a
What Do Four-Way, Three-Way, and Two-Way Variance Analyses Tell the Cost Manager?
In December, Koala Camp Gear Company produced 3,600 Tree Line tents, used 5,700 machine hours, and Decision incurred the following manufacturing-overhead costs: MEM Clg Variable overhead .... ccc Fixed-overh@ad a sisi dsdiesccectaecants 29,000 Koala’s monthly flexible overhead budget for December
Howcan Koala Camp Gear’s management use a flexible budget to manage overhead costs?
How would you respond to the concerns raised by Koala Camp Gear's production manager in his memo to the controller?
How could Koala’s managers improve the management of overhead costs?
17.4 What is the interpretation of the variable-overhead efficiency variance?
17.5 Distinguish between the interpretations of the direct-labor and variable-overhead efficiency variances.
17.6 SIP/S7h What is the fixed-overhead budget variance?Why are fixed-overhead costs sometimes called capacityproducing costs?
17.8 Draw a graph showing budgeted and applied fixed overhead with a positive (or unfavorable) volume variance.
17.9 Distinguish between the control purpose and the productcosting purpose of standard costing and flexible budgeting
17.10 Show, using T-accounts, how manufacturing overhead is added to Work-in-Process Inventory when standard costing is used.
17.11 (Appendix A) Explain two ways to dispose of variances at the end of the year.
17.12 (Appendix B) Briefly describe the procedure known as backflush costing.
17.13 (Appendix C) Into what two variances is a revenue salesvolume variance decomposed? What is the purpose of computing these two variances?
17.14 (Appendix C) Why is there no efficiency variance for revenue?
17.15 (Appendix C) What information does the computation of a market-size variance provide?
17.16 (Appendix C) If the sales-volume variance is zero, is there any reason to compute a sales mix variance?
17.17 )I don’t understand why you accountants want to prepare a budget for a period that is already over. We know the _-~ actual results by then—all that flexible budgeting does is increase the controller’s staff and add to our overhead.Comment on this remark.y are flexible overhead budgets
7.19 How does the concept of flexible budgeting reinforce the notion that employees should be held responsible only for what they can control or heavily influence?0 How has computer-integrated-manufacturing (CIM)technology affected overhead application?ive one example of a plausible activity base
17.22 Budgets for government units are usually prepared one year in advance of the budget period. Expenditures are limited to the budgeted amount. At the end of the period, performance is evaluated by comparing budget authorizations with actual receipts and outlays. What management-control problems
17.23 Bodin Company’s only variable-overhead cost 1s electricity. Does an unfavorable variable-overhead spending variance imply that the company paid more than al the anticipated rate per kilowatt hour?
17.24} Describe a common but misleading interpretation of the fixed-overhead volume variance. Why is this interpretation misleading?
17.25 Does the fixed-overhead volume variance represent a difference in the cash outflows for the company when compared to budgeted cash outflows?
17.26 What is the conceptual problem of applying fixedmanufacturing overhead as a product cost?
17.27 (Appendix C) The marketing manager of a company noted, We had a favorable revenue budget variance of$391,000, yet company profit went up by only $98,000.Some part of the organization has dropped the ball;let’s find out where the problem is and straighten it out.Comment on this remark.
17.28 (Appendix C) A company sells three products that must be purchased in a single package. Does computing a sales-mix variance provide any benefit under these circumstances?
17.29 (Appendix C) How could a CPA firm use a sales-mix variance to analyze its revenue?
Rocky Mountain Community Hospital’s controller estimates that the hospital uses 30 kilowatt-hours of electricity per patient day, and that the electric rate will be $ .12 per kilowatt-hour. The hospital also pays a fixed monthly charge of $1,250 to the electric utility to rent emergency backup
Saturn Glassware Company has the following standards and flexible-budget data.Standard variable-overhead rate... $6.00 per direct-labor hour(LO 5) Standard quantity of direct labor.............. 2 hours per unit of output Budgeted fixed overhead.....ccccccccscrees $100,000 [ x eXcel Budgeted output
You recently received the following note from the production supervisor of the company where you aap) Somes serve as controller. “I don’t understand these crazy variable-overhead efficiency variances. My employ- Efficiency Variance ees are very careful in their use of electricity and
Philadelphia Financial originates mortgage loans for residential housing. The company charges a service eS f pete Nonmanufacturing Cost fee for processing loan applications that is set twice a year based cost of processing a loan app Waranioes cation. For the first half of this year, Philadelphia
Refer to Koala Camp Gear’s LAR flexible budget in Exhibit 17— Ae eeedsia t the Ccompa- Exeter eG 7 Activity-Based Flexible
Lycoming Ladder Company acquired 50,000 units of direct material for $70,000 last year. The standard price for the material was $1.30 per unit. During last year, 45,000 units of material were used in the production process. Materials are entered into production at the beginning of the process. The
During the current period, Pensacola Pipe Company paid $39,600 for 30,000 units of material, all of which was immediately put into process. During the period, 14,800 units of output were produced, and 14,500 units were sold. Three hundred units remain in finished-goods inventory. Each unit of
Bay State Beach Wear, Inc., manufactures and sells beach T-shirts on Cape Cod. The business is very competitive. The budget for last year called for sales of 200,000 units at $9 each. However, as the summer season approached, management realized that the company could not sell 200,000 units at the
Tiger Corporation sells two models of golf gloves. The budgeted per-unit price is $10.95 for Standard and $24.95 for Ultra. The budget called for sales of 400,000 Standards and 180,000 Ultras during the current year. Actual results showed sales of 300,000 Standards, with a price of $12.10 per unit,
Maritza Company manufactures valves in its plant outside Rio de Janeiro, Brazil. For the most recent year, the company budgeted sales of 20,000 units of its sole product, assuming that the company would have 20 percent of 100,000 units sold in a particular market. The actual results were 18,000
Compute the sales-quantity variance and break it down into the market-size and market-share variances.Maritza’s cost-management team takes a contribution-margin perspective when doing sales variance analysis. (Hint: Use the same formulas given in Appendix C but substitute the contribution margin
Lone Star Condiments, Inc., makes bulk artificial seasonings for use in processed foods. A seasoning was budgeted to sell in 21-liter drums at a price of $48 per drum. The company expected to sell 150,000 drums. Budgeted variable costs are $10 per drum. During the year, the company sold 125,000
Rainbow Greeting Cards, Inc., reported a $100 unfavorable spending variance for variable overhead and a $450 unfavorable budget variance for fixed overhead. The flexible budget had $32,100 variable overhead based on 10,700 direct-labor hours; only 10,600 hours were worked. Total actual overhead
Thatcher and Blair, Ltd., manufactures a special type of brass fitting in its plant in London, England. The company prepares its budgets on the basis of standard costs. A monthly responsibility report shows the differences between budgeted and actual costs. Variances are analyzed and reported
Toronto Apparel Company, located in Ontario, Canada, uses a standard-costing system. The firm estimates that it will operate its manufacturing facilities at 800,000 machine hours for the year. The estimate for total budgeted overhead is $2,000,000. The standard variable-overhead rate is estimated
Superior Metal Stamping, Inc., shows the following overhead information for the current period: Ouerneadiienanede Standard variable-overhead rate per direct-labor HOUr.....cccsccsceceees $3 (LO 5)Standard direct-labor hours allowed for actual production ............... “3,500 hours G x 3- loS0d
Four Corners Insurance Company insures clients in Colorado, New Mexico, Arizona, and Utah. The company uses a flexible overhead budget for its application-processing department. The firm offers five types of policies. The following number of standard hours are allowed for clerical
Countrytime Studios is a recording studio in Nashville. The studio budgets and applies overhead costs on the basis of production time. Its controller anticipates 10,000 hours of production time to be available during the year. The following overhead amounts have been budgeted for the year.
The following information is provided to assist you in evaluating the performance of the production Missing Data; Review of operations of Odysius, Inc.:Chapters 16 and 17 otal/costs:kG.) Direct material purchased ANd USE... cece $188,700 (102,000 pounds)Diet (ADO iNe Tae DRIER, «ctr aera nescdem
Bo Vonderweidt is the production manager of the Louisville Plant, a division of the large corporation,(LO 6) Plantimum, Inc. He has complained several times to the corporate office that the cost reports used to evaluate his plant are misleading. Vonderweidt states, “I know how to get good quality
Zodiac, Inc., manufactures a special fabric used in space suits. Zodiac’s actual activity for the past month Comotenenene variance follows: Problem; Review of Matemaliolinc Mase i... cc scr. omscwrahe ear corcasen.s 18,000 meters at $ .95 per meter Chapters 16 and 17 MateiiallSeG imac acc tatesna
Sequoia Company developed its overhead application rate from the annual budget, which is based on an expected total output of 720,000 units requiring 3,600,000 machine hours. The company is able to schedule production uniformly throughout the year.A total of 66,000 units requiring 315,000 machine
Scrooge & Zilch is a law firm with partners and staff members. Each billable hour of partner time has ©a $275 budgeted price and $130 budgeted variable cost. Each billable hour of staff time has a budgeted price of $65 and budgeted variable cost of $35. This month, the partnership budget called
The following information has been prepared by Devon Bilmar, a member of the cost-management staff Mix, and Sales-Quantity of Conundrum Corporation, a manufacturer of puzzles. Variances (Appendix C)CONUNDRUM CORPORATION (LO 11)Income Statement For the Year Ended December 31, 20x7(dollar amounts in
Big Sky Airlines plans its budget and subsequently evaluates sales performance based on passenger —gaieg_\Variance Analysis miles. A passenger mile is one paying passenger flying one mile. For this month, the company estimated — (Appendix C)that its contribution margin would amount to 20 cents
Carolina Carpet Company makes three grades of indoor-outdoor carpets. Sales volume for the annual Ra enue sale eNanenes budget is determined by estimating the total market volume for indoor-outdoor carpet and then applying —_A nalysis Using Industry the company’s prior year market share,
Minnesota Machine Tool Company has an automated production process, and production activity is quantified in terms of machine hours. It uses a standard-costing system. The annual static budget for 20x6 called for 6,000 units to be produced, requiring 30,000 machine hours. The standard-overhead rate
The Memphis plant of AccuTime, Inc. manufactures three styles of clock radio. The basic model (B)targets the teenage market. The standard model (S) is popular with college students. AccuTime’s newest product, the deluxe model (D), is designed for home and office use.For the most recent year,
Suppose you are in charge of Collegiate Apparel's budgeting process. The sales manager has just informed Decision you that the sales forecast has been increased by 20 percent during each quarter of 20x1 and the first quarter MEV Clg of 20x2.a. Revise Collegiate’s production budget for 20x1.
Suppose it is September 15, 20x1, and the production plan has been revised for the fourth quarter so that Decision 24,000 units will be manufactured. The fourth quarter production runs will be 600 units each. Moreover, three MEL Clg new design styles will be commissioned instead of two.a. Revise
Refer again to Collegiate’s cash receipts budget in schedule 7. Apply the financial planning concept to perform Decision sensitivity analysis on the implications of different estimates of the rate of uncollectible accounts expense. MEN Clga. Prepare a table with a row for each of the following
Why does Collegiate Apparel need an annual budget?Specifically, what purposes would the budgeting process serve
How could Collegiate Apparel’s budget facilitate communication and coordination among the company’s president, sales manager, and production supervisor?
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