Questions and Answers of Cost Management Strategic

Glavine & Co. produces a single product, each unit of which requires three direct labor hours (DLHs). Practical capacity (for setting the factory overhead application rate) is 30,000 DLHs, on an
New Millennium Technologies uses a standard cost system. It budgeted 50,000 machine hours to manufacture 100,000 units in 2019. The budgeted total fixed factory overhead was $9,000,000. The company
At its Sutter City plant, Yuba Machine Company manufactures nut shellers, which it sells to nut processors throughout the world. Since its inception, the family-owned business has used actual factory
As noted in the text, identifying and reporting standard cost variances (such as those covered in Chapters 14 and 15) is the first step in one strategy for controlling costs and improving short-term
The XYZ Manufacturing Company produces two products, S-101 and C-110. You have obtained the following information regarding the annual manufacturing support (i.e., factory overhead) costs associated
Alden Company uses a three-variance analysis for factory overhead variances. Practical capacity is defined as 32 setups and 32,000 machine hours to manufacture 6,400 units for the year. Selected data
Refer to the information in Brief Exercise 15-16. Calculate and label the following factory overhead variances for the year: (a) Total overhead cost variance, (b) Total flexible-budget
Obtain a copy of the following article: Andrew Bargerstock and Ye Shi, “Leaning Away from Standard Costing,” Strategic Finance, June 2016, pp. 39–45 (available at:
As part of its comprehensive planning and control system, Mopar Company uses a master budget and subsequent variance analysis. You are given the following information that pertains to the
Zodiac Sound Co. manufactures audio systems, both made-to-order and mass-produced systems, that are typically sold to large-scale manufacturers of electronics equipment. For competitive reasons, the
Crane Corporation€™s master (static) budget for the year is shown below:Required1. During the year, the company manufactured and sold 55,000 units of product. Prepare an Excel spreadsheet
Information regarding Maxwell’s direct labor cost for the month of January follows:Direct labor hourly rate
Assume that in October 2019 the Schmidt Machinery Company (Exhibit 14.1) manufactured and sold 950 units for $835 each. During this month, the company incurred $475,000 total variable costs and
The following information is available for Brownstone Products Company for the month of July:Required1. What was the total operating income variance for July, rounded to the nearest whole dollar? Was
Refer to the data in Brief Exercise 14-21. (a) What was the direct labor rate variance for the month, rounded to 2 decimal places? (b) Was this variance favorable (F) or unfavorable (U)? SCHMIDT
Refer to Exhibit 14.8 and the accompanying discussion in the text. Demonstrate that the flexiblebudget variance for PVC during October 2019 was $1,680F. SCHMIDT MACHINERY COMPANY Income Statement For
Refer to Exhibit 14.8 and the accompanying discussion in the text. Demonstrate that the purchaseprice variance for PVC during October 2019 was $720U. SCHMIDT MACHINERY COMPANY Income Statement For
Refer to Exhibit 14.8 and the accompanying discussion in the text. Demonstrate that the materials usage variance for PVC during October 2019 was $2,400F. SCHMIDT MACHINERY COMPANY Income Statement
Kraft Bakeries introduced in 2019 a new line of frozen apple pie. For 2019, sales by quarter were as follows: 11,000 units, 16,000 units, 15,000 units, and 20,000 units. Because of aggressive
As part of the process of preparing the master budget for the coming year, you’ve been asked to perform What-If analyses, in the form of scenarios, on the original planning assumptions regarding
OFC Company (Exercise 10-41) has decided to implement a kaizen (continuous-improvement) program to enhance operational efficiency. After a careful study, management and employees agree that the firm
Triple-F Health Club (Family, Fitness, and Fun) is a not-for-profit, family-oriented health club. The club€™s board of directors is developing plans to acquire more equipment and expand
What is the relevant cost when determining whether to sell a product before or after additional processing?
Lance’s Diner has a hot-lunch special each weekday and Sunday afternoon. The cost of food and other variable costs for each meal served is $3.50; weekly fixed costs (e.g., building depreciation and
Vista Company manufactures electronic equipment. In 2018, it purchased from an outside supplier the special switches used in each of its products. The supplier charged Vista $2 per switch. As an
Barbour Corporation, located in Buffalo, New York, is a retailer of high-tech products and is known for its excellent quality and innovation. Recently, the firm conducted a relevant cost analysis of
Merchants’ Bank (MB) is a large regional bank operating in 634 locations in the southeastern United States. Until 2014, the bank operated a call center for customer inquiries out of a single
What is the present value of $1,000 to be received 2 years from now, if the discount rate is (a) 10%, (b) 14%, and (c) 20%? Do the calculations first using the present value factors given in
Assume that it is January 1, 2019, and that the Mendoza Company is considering the replacement of a machine that has been used for the past 3 years in a special project for the company. This project
VacuTech is a high-technology company that manufactures sophisticated instruments for testing microcircuits. Each instrument sells for $3,500; variable manufacturing cost per unit (all cash) equals
Use the same information for this problem as you did for Problem 12-47, except that the discount rate is 10% (not 12%), the investment is subject to taxes, and the projected pretax operating cash
Use the data in Problem 12-48 for Bob Jensen Inc. and MACRS. The asset qualifies as a 5-year property.RequiredCompute the following for the proposed investment:1. Its payback period (in years) under
A proposed investment has the following projected after-tax cash flows over its 3-year life:Initial outlay (time 0) = ($1,000)End of year 1 = $2,000End of year 2 = $2,000End of year 3 =
Estimated cashflow data for each of two projects, A and B, and the discount rate, r, to be used for the analysis of capital investment projects are given below:Discount rate, r = 10.0%.Required1. In
What does the term constraints mean in the theory of constraints analysis?
Using the information in Problem 9-46, complete the following:Data from Problem 9-46Computer Graphics (CG) is a small manufacturer of electronic products for computers with graphics capabilities. The
Computer Graphics (CG) is a small manufacturer of electronic products for computers with graphics capabilities. The company has succeeded by being very innovative in product design. As a spin-off of
Garner Strategy Institute (GSI) presents executive-level training seminars nationally. Eastern University (EU) has approached GSI to present 40 one-week seminars during 2019. This activity level
Lionel Corporation manufactures pharmaceutical products sold through a network of sales agents in the United States and Canada. The agents are currently paid an 18% commission on sales; that
Most businesses sell several products at varying prices. The products often have different unit variable costs. Thus, the total profit and the breakeven point depend on the proportions in which the
Bubba’s Western Wear is a western hat retailer in Lubbock, Texas. Although Bubba’s carries numerous styles of western hats, each hat has approximately the same price and purchase cost, as shown
Smith Company can produce two types of carpet cleaners, Brighter and Cleaner. Data on these two products are as follows:The number of machine hours to produce one unit of Brighter is 1, while the
1. Using the data from 2019 in Exhibit 9.1, create an Excel spreadsheet to provide a sensitivity analysis of the effect on operating profit of potential changes in demand for HFI Inc., raging from a
Lawn Master Company, a manufacturer of riding lawn mowers, has a projected income for the coming year as follows:Required1. Determine the breakeven point in sales dollars.2. Determine the required
TastyKreme and Krispy Kake are are both producers of baked goods, but each has followed a different production strategy. The differences in their strategies resulted in differences in their cost
Using the data provided, compute the margin of safety and margin of safety ratio.Units
The following sales and cost data (in thousands) are for two companies in the transportation industry:Required1. Calculate the degree of operating leverage (DOL) for each company. If sales increase
May Clothing is a retail men’s clothing store. May’s variable cost is $20 per shirt and the sales price is $40 per shirt. May plans to sell 400,000 shirts for the year and, at this level, would
Scott Power produces batteries. The company has determined its contribution margin to be $8 per battery and its contribution margin ratio to be 0.4. What is the effect on profits of the sale of one
Williams & Williams Co. produces plastic spray bottles and wants to earn a before-tax profit of $200,000 next quarter. Variable cost is $0.50 per bottle, fixed costs are $400,000, and the selling
Ford Tops manufactures hats for baseball teams. Ford has fixed costs of $175,000 per quarter and sells each hat for $20. If the variable cost per hat is $10, how many hats must Ford sell each quarter
Define degree of operating leverage (DOL). How is DOL measured?
What is the margin of safety (MOS), and for what is it used?
Regression analysis is commonly used to estimate costs. However, the usefulness of the results depends upon the quality of the data.Fletcher Inc. is a local delivery company. The employees handle
WasteTec is a large construction company that specializes in the construction of large wastewater treatment plants and recycling plants. A major cost driver in either type of facility is the capacity
Business schools have commonly observed that when job opportunities are down, those interested in business seek to enter MBA programs. To test this hypothesis, we decided to look at the number of
Lexon Inc. is a large manufacturer of affordable DVD players. Management recently became aware of rising expenses resulting from returns of malfunctioning products. As a starting point for further
Albedo Inc. manufactures high-end replacement telescope lenses for amateur and professional astronomers who are seeking to upgrade the performance of their telescopes. You have just become employed
Recent research into the cost of various medical procedures has shown the impact of certain complications encountered in surgery on the total cost of a patient€™s stay in the hospital. The
For several years, many utilities have employed regression analysis to forecast monthly utility usage by residential customers using weather forecasts, the number of holidays, the number of days in
Ethan Manufacturing Inc. produces floor mats for automobiles. The owner, Joseph Ethan, has asked you to assist in estimating maintenance costs. Together, you and Joseph determine that the single best
Horton Manufacturing Inc. produces blinds and other window treatments for residential homes and offices. The owner is concerned about the maintenance costs for the production machinery because
Lawson Advertising Agency is trying to persuade Kansas City Sailboards Company to spend more on advertising. The agency’s argument is that a constant and strong positive relationship exists between
The following costs are for Optical View Inc., a contact lens manufacturer:Required1. Calculate and graph total costs, total variable cost, and total fixed cost.2. For each level of output calculate
Recently, Walmart offered a wireless data contract based on bandwidth used, with a minimum monthly charge of $45 for up to 5 gigabytes (GB) of use. Additional GB can be purchased at the following
Sanders Bears produces stuffed animals. Sanders is in the process of implementing a cost forecasting system using the high-low method. The variable cost per animal is $2 and the high and low costs
Jamison Construction has implemented a cost estimation system using regression analysis. The variable cost per hour of labor is $35 and the fixed cost was determined to be $125,000. If Jamison
Power Drink Inc. produces sports drinks. The accounting manager has decided to implement a high-low costing system to predict future materials handling costs. She has provided you with the following
Peppers Lockdown produces keys for homes and cars. As Peppers planned for next year’s production, the company decided to implement a high-low system to forecast future costs. With total production
Smith Glass Co. produces industrial glass. Smith forecasts inspection costs using the high-low method and has compiled the following data from prior results:Looking solely at the data in the table,
How can cost estimation be used in activity-based costing?
Yonica Petroleum is a global manufacturer of specialty chemicals that are made from the waste products of the petroleum industry. Yonica in effect recycles a good portion of the waste from the
Cost allocation is often the centerpiece of conflict that is resolved in court cases. The litigation usually involves the dispute over how costs are allocated to a product or product line that is of
Great Ape Glassworks manufactures glass used for the screens on smartphones. It has two producing departments, P1 and P2, and only one service department, S1. The company is able to track overhead to
How does your answer to 7-11 change if the cost in P1 is changed from $100,000 to $120,000?Involve departmental cost allocation with two service departments and two production departments. Percentage
What are the limitations of joint product and departmental cost allocation?
Beaumont Specialty Chemicals (BSC) is a manufacturer of specialty chemicals sold to manufacturers, hospitals, and other users. BSC produces about 1 million gallons of its main product, BSC-22, each
Carson Paint Company, which manufactures quality paint to sell at premium prices, uses a single production department. Production begins by blending the various chemicals that are added at the
Refer to the information in Problem 6-43.RequiredRepeat Problem 6-43 using the FIFO method.In ProblemAlvis Construction Supply Company has a department that manufactures wood trusses (wood frames
Alvis Construction Supply Company has a department that manufactures wood trusses (wood frames used in the construction industry). The following information is for the production of these trusses for
Refer to the information in Problem 6-37.RequiredComplete Problem 6-37 using the FIFO method.In ProblemWeatherly Lumber Company processes wood pulp for manufacturing various paper products. The
Pablo Company calculates the cost for an equivalent unit of production using process costing.Work-in-Process Inventory, June 1: 30,000 unitsDirect materials: 100%
Holly Company has the following information for December 1 to December 31. All direct materials are 100% complete.Required1. Calculate equivalent units using the weighted-average and FIFO methods.2.
Explain activity-based process costing.
How do the cost flows in backflush costing systems differ from those in traditional costing systems?
Suppose that manufacturing is performed in sequential production departments. Prepare a journal entry to show a transfer of partially completed units from the first department to the second
What are transferred-in costs?
Environmental sustainability is not only a potential competitive advantage to an organization, but might also be a regulatory requirement. The creation of business processes to support environmental
Ellie Mosk, CEO of X-Space Industries, decided to expand the company€™s product offering beyond the core model rocket business. After investigation, she decided to set up a separate
Supermart Food Stores (SFS) has experienced net operating losses in its frozen food products line in the last few periods. Management believes that the store can improve its profitability if SFS
North Company designs and manufactures machines that facilitate DNA sequencing. Depending on the intended purpose of each machine and its functions, each machine is likely to be unique. The job
What is activity-based management?
What type of company can benefit from an activity-based costing system?
Briefly describe the first- and second-stage procedures in assigning costs to products when using an activity-based costing system?
The following information applies to the O€™Donnell Company for March production. There are only two jobs (X and Y) in production in March.a. Purchased direct materials and indirect
For the current year BSJ Industries estimated overhead would be $1,400,000 and there would be 70,000 machine hours. Using machines hours as the allocation base, how much overhead would be assigned to
Use the following information from BSJ Industries to determine the predetermined overhead rate based on direct labor costs.Direct labor hours............................50,000Average hourly pay
What is the difference between normal and abnormal spoilage?
Why would a manufacturing firm switch from direct labor hours to machine hours as the cost driver for factory overhead application?
Describe the flow of costs through a job costing system from materials through finished product.

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