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business
cost management strategic

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

Docosts of a prior department behave similarly to costs of direct materials? Under what conditions are the costs similar? Why are they accounted for separately?
How does process costing treat spoiled units?
(Appendix A) What are the relative costs and benefits of weighted-average versus FIFO process costing?How are spoilage costs similar to underapplied overhead?
(Appendix B) How is operation costing similar to, and different from, both job costing and process costing?
Management of a company that manufactures cereal is trying to decide whether to install a job or a process-costing system. The manufacturing vice president has stated that job costing gives the company the best control because it makes possible the assignment of costs to specific lots of goods. The
(Appendix A) A new member of the controller’s staff in your company, a large producer of paper products, has just completed a report that urges the company to adopt the last-in, first-out (LIFO) method of process costing.The controller is concerned about the recommendation because the cost
(Appendix A) Under which of the following conditions will the first-in, first-out (FIFO) method of process costing produce the same cost of goods manufactured as the weighted-average method?. When goods produced are homogeneous.. When there is no beginning inventory.. When beginning and ending
In computing the cost per equivalent unit, the weightedaverage method considersa. Current costs only.b. Current costs plus costs in beginning WIP inventory.c. Current costs plus costs in ending WIP inventory.d. Current costs less costs in beginning WIP inventory.[CPA adapted]
(Appendix A) When using the FIFO method of process costing, total equivalent units produced for a given period equal the number of unitsa. Started and completed during the period plus the number of units in beginning WIP plus the number of units in ending WIP.. In beginning WIP plus the number of
One of your process supervisors said to you, “Well, you have to break eggs to make an omelet” as a reason for considering the period’s spoilage as a normal cost of production.Is spoilage a normal cost of production? If so, why eport it separately?xplain how the concept of “normal
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.
Ron and Hillary Ice Cream Company shows the following information rane :: th e WIP at its planty 1. Beginning inventory, partially complete.59920 \/a Sterz "4 Transferred out, 22,000 units.3. Ending inventory, 10,000 units (materials, 20 percent complete; conversion costs, 10 percent complete).4.
Jones Sodas adds materials at the beginning of the process in Department A. The following information pertains to Department A’s work in process during April:Units Work in process, April 1 (60% complete as to conversion costs)............0608 6,000 SAMOA OMI eercemepetaeter oe alee tet cat
Mikee’s Cereals has a process-costing system using the FIFO cost-flow method. All materials are introduced at the beginning of the process in Department 1. The following information is available for the month of January:Units Work in process, January 1 (40% complete as to conversion Costs)
The following information pertains to the Dominquez Paint plant for the month of May:Number of Units Cost of Materials Beginning Workin WTOCESSis at. cases atte esta tene ee 60,000 $13,200 Started in May... tate) Anat Seno SDKRE OG, Fay 160,000 oO 35,200 48 YoQ WmitsicaMmpleted cece rarachsencec
Department A is the first stage of Martinez Company’s production cycle. The following information is available for conversion costs for the month of April:Units Beginning work in process (60% COMPIete)..........ccccccccceeesseceteeeeteeeetseeeseeeens 40,000 Ee RCL0 OW 9 net aac ene Me RR Meee omc
Frank’s Chips uses the weighted-average method to account for its WIP inventories. The accounting records show the following information for a particular day:Beginning WIP inventory:Direetinnate nial Sic umarccccoen eerna haee e ee $ 488 GORVETSIONICOSIS Ae are tar cceecn eaten comet 136 Current
Gore’s Green Chemicals had beginning WIP inventory of $98,260 on October 1. Of this amount, $31,400 was the cost of direct materials, and $66,860 was for conversion costs. The 8,000 units in the beginning inventory were 30 percent complete with respect to both direct materials and conversion
The Charley-Davidson Company makes three products—dirt bikes, touring motorcycles, and motorized wheelchairs. The company had the following work orders for the month of September:Customer Order Quantity Order Revenue South 40 wheelchairs, 40 dirt bikes $90,000 Central 100 dirt bikes; 80 touring
he following data are available for Gates Company for the month of March:Percentage WIP Inventory), Weighted- Units Complete Costs ne rhe Beginning WIP inventory, March ..........::ccccee 22,000 DIKE CHINAlenials o.n5rn4o t,e0 8L ees 75% $ 22,360(CONVENSIOI) COSTSeaaae na Ree cata enter ne: 70
The following data are available for Benchmark Production Company for the month of December:Percentage Units Complete Costs Beginning WIP inventory, December..........0.c005 20,000 DINeCiIMateyial Saree AA wes cwkereooreaen. 80% $20,000 GONVENSIOMOOSTS Ae mic cst eos teas Concer REE, 90 45,000
For each of the following independent cases, determine the units or equivalent units requested (assuming weighted-average costing).a. Inthe beginning inventory, 4,100 units were 40 percent complete with respect to conversion costs.During the period, 3,500 units were started. In the ending
Levitt Corporation manufactures a child’s car seat produced in three separate departments: Molding, Assembling, and Finishing. It uses the weighted-average process-costing method to account for costs of production. The following information was obtained for the Assembling Department for the month
Nader Paints makes an environmentally sound paint. The following data are available for the month of April:Percentage Units Complete Costs (LO 3,4, 6)Beginning WIP inventory, April....cccccccccececeecee, 11,000| Oitectimatetialge... * oan ae 75% $ 3,200 Conversiomcoste an 70 1,450 MDNE Statte ela
Recreational Production, Inc., produces a sealant for wood decks. The following data are available for the month of April:Percentage :Units Complete Costs (LO 3,4, 6)Begining Wl LANEINUOMNVE ZANNIY l cccdhop. castesuecteeaces 13,000 eXcel Directimatertals Rak tennccrtl Stoceccrgaxtteiahsee 10% $
Many companies use process costing for some products and job costing for others. The authors of a study of costing methods described a particular medium-size manufacturing company as using process costing for its products sold to commercial customers and job costing for products sold to the
The Lincoln plant manufactures insulated warm-up jackets in a continuous, one-department process.The process first involves the partial assembly of jackets using materials packet 1 (liner, shell, hood, pocket linings, zippers), which consumes 70 percent of the conversion costs. At this point,
Two ways for PMI to reduce costs are (1) to seek.a higher price from MegaBurger and (b) accept a lower MELCLE return on sales (ROS). What total revenue (sales-dollar) amount would justify the business without reducing costs or reducing the 20 percent return on sales? Alternatively, what (lower)
Many cost-driver rates of the target-costing analysis in Exhibit 5-2 are taken directly from the original ABC analysis of existing products. Several cost-driver rates are notably different, however, to reflect the team’s expectations of differences in the products. Do you think it is advisable to
Assume that you are PMI’s customer-service manager and a member of its cross-functional team analyzing the MegaBurger toy cost information. If costs must be reduced to make PMI’s profit goal feasible, does it make sense to recommend that all areas of the company find ways to reduce costs by
How do you know that activity-based costmanagement methods are worthwhile?
What do ABC and ABM have in common, and how do they differ?
How can ABC and target costing be used together to motivate ABM?
What are alternatives to reducing process costs to meet target costs?
What are the advantages and disadvantages of using knowledge about current processes to evaluate future processes?
What are examples of value-added and non-value-added activities?
What is the relationship between non-value-added activities and waste?
Does eliminating non-value-added activities necessarily eliminate waste?
What are the questions to ask to determine whether an activity adds customer value?
How do organizations reduce spending by eliminating non-value-added activities? Is spending reduction the only result of eliminating non-value-added activities?
What is the difference between a pilot project and a systemwide project?Why might individuals resist ABM?Must ABM information be 100 percent accurate to be useful? Explain.
Is it fair to assume that all individuals in an organization welcome the opportunity to improve processes by eliminating non-value-added activities? Explain.
The cost of repairing all these defective products is killing us. We should hire more highly qualified employees who won’t make so many mistakes and who can figure out how to improve our processes so that mistakes are less likely.Write a memo explaining the trade-offs involved with this
You have been hired as a consultant to improve a hospital’s patient admission process. Assume that you could describe this process using 100 small activities or 10 broader activities. How would you decide how many activities to use?ome on, be serious. Some of these activities that ou have
Aécording to several writers, corporate America whacked away at labor costs throughout the last decade.Corporations tamed unions and laid off millions of hourly workers, yet multitudes of US companies still cannot compete with their international rivals. Large companies such as Ford, AT&T, General
Eastman Kodak Co. expected to save thousands of dollars a year when it laid off Maryellen Ford in a companywide downsizing. Within weeks, however, it was paying more for the same work. A local contractor that gets much of its work from Kodak snapped up Ms. Ford, a computer-aided designer and
Your boss sent the following e-mail this morning:Today I am announcing a 10 percent reduction in spending in every department, effective immediately.We must improve profitability, and this is the quickest way to improve the bottom line. I assure you that every department will share the pain
Label the following steps as appropriate for ABC and for ABM. List them in the proper order starting with the ABC activities.a. Calculate a cost-driver rate.b.c. Assign activity costs to goods and services.Exercise 5.23 Steps in Activity-Based Costing and Activity-Based Management(LO 1)Score each
Michigan Insurance, Inc. (MII), an insurer of small businesses, has a claims-processing department that(LO 1) receives, processes, and refers casualty and property loss claims to insurance adjusters for resolution.Approximately half of the claims arrive by standard mail; the other half are phoned
Review the information in Exhibit 5-4 for PMI. Assume that the sales price of $17 per unit vero Boi osting Se a‘same but that the total units to be sold each month increases to 22,000 (from the original proposal of (LO 2) }20,000 units). (Assume that the only costs that will change are the costs
Review the information in Exhibit 5—2 for PMI. Assume that the total number of units to be sold each Target Costing month remains the same but that the sales price increases to $19 per unit (from the original sales price of (LO 2)$17 per unit).Required How much will this impact the monthly
Review the information in Exhibit 5-2 for PMI. After further discussion, PMI’s management is willing Jarget Costing to lower the required return on sales (ROS) to 16 percent (from the original 20 percent). (LO 2)Required How much will this impact the monthly cost-reduction targeta. Indollars?b.
Information about two activities for Atlantic Company follows:Resources Used(LO 5)Resources Supplied Cost-Driver Rate Cost-Driver Volume Energy $7,300 $11 per machine hour 600 machine hours used Marketing 5,500 25 per sales call 200 sales calls made Required Compute the unused capacity for each
Selected information about several activities for Systems Integrators, Inc., follows:Resources Used Resources Supplied Cost-Driver Rate Cost-Driver Volume Material $50,000 SHS 10,000 Energy 8,000 we) 420 Setups 3,500 50 60 Purchasing 3,000 40 65 Customer service 3,200 50 60 Long-term labor 12,000 ;
Robert Lutz, when president and chief operating officer at the former Chrysler (now DaimlerChrysler), was determined to replace the company’s old cost-management system with one that could report costs by process and could separate value-added from non-value-added activities. After reading an
Refer to the information in and format of Exhibit S—2. PMI is considering producing one product similar to the MegaBurger novelty toys but for another customer. It will ship the product to the customer immediately upon completion. The estimates for this new product follow. Assume that PMI can add
Refer to the information in and format of Exhibit 5—2. PMI is considering producing one product similar to the MegaBurger novelty toys but for another customer. It will ship the product to the customer immediately upon completion. The estimates for this new product follow. Assume that PMI’s
Refer to the information in and format of Exhibit 5—2. PMI is considering producing one product that is similar to the MegaBurger novelty toys but for another customer. This product will be larger and more complex than the MegaBurger products, and it will be sold in retail toy stores throughout
You have been hired as a consultant for Kyle Hoffman, whose company designs Web sites. Hoffman has asked for your advice in assessing customers’ perceptions of the value of its products. You collect the following information about Hoffman’s design of a Web site for a small co-op grocery
Team focus. Consider two types of restaurants: (1) a favorite place for students to go in the evening and(2) a place to have a meeting.Requireda. Identify the activities to prepare a meal, serve a customer, and clean up after the meal has been served.b. For each activity you list in requirement
Now that local phone service in the United States is open to competition, some telephone service providers have begun purchasing individual phone services at a discount from the traditional phone companies and reselling them to customers who have been denied service because of poor credit. (College
Recruiting a medical technologist for a hospital laboratory is a multistep process that includes the fol- — jpny and Process lowing activities. Improvements Hourly Hours Recruitment (LO I, 4)Recruitment Activity Personnel Rate Spent Cost Review need to retain position HR director* $40 4 $ 160
Megan Company produces motorcycle parts. Information regarding its resources for the month of July follows: }Resources Resources Used Supplied Parts management $ 3,000 $ 3,500 Energy » 5,000 5,000 Quality Inspections 4,500 5,000 Long-term labor ZOO 3,500 Short-term labor 2,000 2,400 Setups 9,000
Grande Enterprises manufactures speedboats and canoes. Information regarding its resources for the month of May follows:Resources Resources Used Supplied Marketing $28,000 $30,000 Depreciation 24,000 40,000 Outside contracts 12,000 12,000 Materials 60,000 60,000 Setups 17,000 20,000 Energy 20,000
Cummins Engine’s top management was fully committed to the project. It provided resources to the project team that enabled it to educate Cummins’ finance and operating persaorounnd nthee wlor ld about the project’s methods and objectives. Management also committed to no forced layoffs of
ASP is charged “with improving the University’s human resourc ial management business practices by simplifying work, increasing information access, minimizing future administrative costs, and implementing enabling technologies.” ASP is expected to be “the first step in a continuous
Ogden Bank has been in the consumer-lending business for more than 100 years. Competitors recently Banking Processes have taken a considerable portion of its market share. In addition, its remaining customers have com- (LO 4)plained that the bank’s loan-approval process is too slow and that
Refer to Exhibit 4-2 and the preceding discussion. Put yourself in the role of a member of the ABC team pre-MEN g paring PMI’s list of activities.a. If you were developing PMI’s activity list, would you regard the list in Exhibit 4-2 as complete (not considering the subactivities omitted)? Do
Review Exhibit 4-5 and the preceding discussion.a. Does the cost-driver rate for activity 1.1 have the same meaning as the one for activity 2.1? Explain.b. Suppose that you are PMI’s CEO and decide to stop providing warehousing services for customers. Would PMI really save the $2,000 per month
Consider the information in Exhibit 4-6. Assume the role of an analyst who will recommend whether to produce Maker a new product line. Assume that PMI obtains sufficient additional capacity to offer a third poe line that has the following characteristics per month:M@ Uses the same amount of
The theme of this book is that managers’ decisions drive an organization’s costs. To manage costs, managers and employees must understand how those decisions affect the efficiency of work being accomplished.Activity-based costing traces the costs of resources to activities, which are the basic
How did activity-based cost information help PMI, Inc.?
What data and knowledge are necessary to support the development of activity-based information
Is activity-based information always better than traditional costing information
Review and define each of the chapter’s key terms.
What factors should managers assess in choosing among alternative costing systems?
How are indirect costs allocated to products using traditional costing systems?
What are the three key points with respect to refining a traditional costing system
What is the ideal relation between allocation bases (cost drivers) and costs?a. Simpleb. Cause and effectc. Complexd. What top management wants
Why don’t most companies allocate the general and administrative costs of the business to products?
Is it true that activity-based costing first assigns costs to products and then to activities?
Fillin the missing words: An activity is any discrete___ that an organization to make or delivera___or service.
Organizations that use or have used activity-based costing include the following:a. United States Postal Service.b. American Airlines.ce. Hewlett-Packard.d. (a), (b), and (c).e. (b) and (c).
Briefly describe the four steps in measuring the costs of goods and services.
Briefly describe the five levels of resources and activities.Fill in the blanks. An activity list (or dictionary) is a of ____ performed by an organization to produce its product.
Describe how to calculate the cost of an activity.
Why is employee participation in identifying activities important?
Describe how to calculate the activity-based cost of a product.
Why would organizations compute cost-driver rates for a“typical” month instead of for each month of the year?
I work for an airline. ABC is irrelevant to my company because we do not manufacture things. Discuss the validity of this statement.
What “red flags” indicate that companies have problems with their costing systems?
Is there any fundamental difference in applying ABC to goods versus services? Explain.
What conditions are necessary for using activity-based costs of existing services for estimating costs of new services to be valid?
?xplain why overcosting and undercosting products occur with traditional costing systems.
Why might a company adopt activity-based costing, then stop using it, but consider that its adoption had been a success?n developing an activity list, why might employees not want to reveal realistic information about time spent on their activities?
What criteria should management use to decide whether to assign general and administrative costs to products?
Why would each of the following be important to the success 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.
Professor John Shank has said that the use of contribution 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.How
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 adaptable resources, employee-paced work flows, and salary-oriented costs. Examples include engineering and customer
Some believe that universities are among the organizations 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 that shows major university activities and

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