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cost management strategic

Cost Management Accounting And Control 5th Edition Don R. Hansen, Maryanne M. Mowen - Solutions

Joseph Fox, controller of Thorpe Company, has been in charge of a project to install an activity-based cost management system. This new system is designed to support the company’s efforts to become more competitive. For the past six weeks, he and the project committee members have been
Innovator, Inc., wants to develop an activity flexible budget for the activity of moving materials. Innovator uses eight forklifts to move materials from receiving to stores.The forklifts are also used to move materials from stores to the production area. The forklifts are obtained through an
Jerry Goff, president of Harmony Electronics, was concerned about the end-of-the-year marketing report that she had just received. According to Emily Hagood, marketing manager, a price decrease for the coming year was again needed to maintain the company’s annual sales volume of integrated
Tom Young, vice president of Dunn Company (a producer of plastic products), has been supervising the implementation of an activity-based cost management system. One of Tom’s objectives is to improve process efficiency by improving the activities that define the processes. To illustrate the
Kelly Gray, production manager, was upset with the latest performance report, which indicated that she was \($100,000\) over budget. Given the efforts that she and her workers had made, she was confident that they had met or beat the budget. Now, she was not only upset but also genuinely puzzled
Douglas Davis, controller for Marston, Inc., prepared the following budget for manufacturing costs at two different levels of activity for 2007:During 2007, Marston worked a total of 80,000 direct labor hours, used 250,000 machine hours, made 32,000 moves, and performed 120 batch inspections. The
The objective of benchmarking is to improve performance by identifying, understanding, and adopting outstanding best practices from others. If this process is carried out inside the organization, then it is called internal benchmarking. It is not uncommon for one facility within an organization to
Explain what is meant by the long-wave and the short-wave of value creation.
Quincy Farms is a producer of items made from farm products that are distributed to supermarkets. For many years, Quincy’s products have had strong regional sales on the basis of brand recognition. However, other companies have been marketing similar products in the area, and price competition
During the year, Vandy Company produced 300,000 drilling components for oil and gas rigs. Vandy’s direct materials and direct labor standards are as follows:Required:1. Compute the standard pounds of direct materials allowed for the production of 300,000 units.2. Compute the standard direct labor
Choco Company produces a popular candy bar called Megusta. The candy is produced in Cost Rica and exported to the United States. Recently, the company adopted the following standards for one 5-ounce bar of the candy:During the first week of operation, the company experienced the following actual
Young, Inc., uses a standard costing system and develops its overhead rates from the current annual budget. The budget is based on an expected annual output of 220,000 units requiring 1,100,000 direct labor hours. (Practical capacity is 1,210,000 hours.)Annual budgeted overhead costs total
Refer to the data in Exercise 9-4.Required:1. Compute overhead variances using a 2-variance analysis.2. Compute overhead variances using a 3-variance analysis.3. Illustrate how the 2- and 3-variance analyses are related to the 4-variance analysis.
Verde Sabor produces a green enchilada sauce using tomatoes and green chili peppers.Verde developed the following standard cost sheet:On March 2, Verde produced a batch of 112,000 ounces with the following actual results:Required:1. Calculate the yield ratio.2. Calculate the standard cost per unit
Refer to Exercise 9-6. Verde Sabor purchased the amount used of each direct material input on March 2 for the following actual prices, tomatoes, $0.025 per ounce and chili peppers, $0.024 per ounce.Required:1. Compute and journalize the direct materials price variances.2. Compute and journalize the
Sanderson Company uses two types of direct labor for the manufacturing of its integrated electronic components: soldering and testing. Sanderson has developed the following standard mix for direct labor, where output is measured in number of circuit boards.Required:1. Calculate the yield ratio.2.
Molano Company produces ponchos. The company has established the following direct materials and direct labor standards for one poncho:During the first quarter of the year, Molano produced 25,000 ponchos. The company purchased and used 78,200 yards of wool at \($2.90\) per yard. Actual direct labor
Jackman, Inc., uses a standard costing system. The predetermined overhead rates are calculated using practical capacity. Practical capacity for a year is defined as 1,000,000 units requiring 250,000 standard direct labor hours. Budgeted overhead for the year is \($750,000\), of which \($300,000\)
Vaquero Corporation produces cowboy boots. The company uses a standard costing system and has set the following standards for direct materials and direct labor (for one pair of boots):During the year, Vaquero produced 8,000 pairs of boots. The actual leather purchased was 49,600 strips at \($9.98\)
Iverson Company produces microwave ovens. Iverson’s plant in Buffalo uses a standard costing system. The standard costing system relies on direct labor hours to assign overhead costs to production. The direct labor standard indicates that four direct labor hours should be used for every microwave
The Bartlesville plant of Harmon Company produces an industrial chemical. At the beginning of the year, the Bartlesville plant had the following standard cost sheet:The Bartlesville plant computes its overhead rates using practical volume, which is 72,000 units. The actual results for the year are
Misterio Company uses a standard costing system. During the past quarter, the following variances were computed:Misterio applies variable overhead using a standard rate of $2 per direct labor hour allowed. Two direct labor hours are allowed per unit produced. (Only one type of product is
Nosemer Company produces engine parts for large motors. The company uses a standard cost system for production costing and control. The standard cost sheet for one of its higher volume products (a valve), is as follows:During the year, Nosemer experienced the following activity relative to the
Business Specialty, Inc., manufactures two staplers: small and regular. The standard quantities of direct labor and direct materials per unit for the year are as follows:The standard price paid per pound of direct materials is \($1.60\). The standard rate for labor is \($8.00\). Overhead is applied
Limpio, Inc., produces a key ingredient for liquid laundry detergents. Two chemical solutions, Chem A and Chem B, are mixed and heated to produce a cleansing chemical that is sold to companies that produce liquid detergents. The cleansing ingredient is produced in batches and has the following
Refer to the data in Problem 9-18. Limpio, Inc., also uses two different types of direct labor in producing the cleansing chemical: mixing and drum-filling labor (the completed product is placed into 50-gallon drums). For each batch of 20,000 gallons of direct materials input, the following
Energy Products Company produces a gasoline additive, Gas Gain. This product increases engine efficiency and improves gasoline mileage by creating a more complete burn in the combustion process.Careful controls are required during the production process to ensure that the proper mix of input
Correr Company manufactures a line of running shoes. At the beginning of the period, the following plans for production and costs were revealed:There were no beginning or ending inventories of direct materials. The direct materials price variance was $5,000 unfavorable. In producing the 30,000
As part of its cost control program, Tracer Company uses a standard costing system for all manufactured items. The standard cost for each item is established at the beginning of the fiscal year, and the standards are not revised until the beginning of the next fiscal year. Changes in costs, caused
Aspen Medical Laboratory performs comprehensive blood tests for physicians and clinics throughout the Southwest. Aspen uses a standard process-costing system for its comprehensive blood work. Skilled technicians perform the blood tests. Because Aspen uses a standard costing system, equivalent units
Leather Works is a family-owned maker of leather travel bags and briefcases located in the northeastern part of the United States. Foreign competition has forced its owner, Heather Gray, to explore new ways to meet the competition. One of her cousins, Walace Hayes, who recently graduated from
Tasty Apple, an apple chip manufacturer, was established in 1972 by Katherine English. In 2002, Katherine English died, and her son, Mark, took control of the business. By 2007, the company was facing stiff competition from national snack-food companies. Mark was advised that the company’s plants
Gilliam Corporation presented two years of data for its Sporting Goods Division and its Camping Division.Required:1. Compute the ROI and the margin and turnover ratios for each year for the Sporting Goods Division.2. Compute the ROI and the margin and turnover ratios for each year for the Camping
Refer to Exercise 10-1 for data. At the end of Year 2, the manager of the Camping Division is concerned about the division’s performance. As a result, he is considering the opportunity to invest in two independent projects. The first is called the “Ever-Tent”; it is a small 2-person tent
Brewster Company manufactures elderberry wine. Last year, Brewster earned operating income of \($210,000\) after income taxes. Capital employed equaled \($2\) million.Brewster is 50 percent equity and 50 percent 10-year bonds paying 6 percent interest.Brewster’s marginal tax rate is 35 percent.
Whirlmore, Inc., manufactures and sells washers and dryers through three divisions:Home-Supreme, Apartment, and International. Each division is evaluated as a profit center. Data for each division for last year are as follows (numbers in thousands).The income tax rate for Whirlmore, Inc., is 30
VSOP, Inc., has a number of divisions that produce liquors, malt beverages, and glassware.The Glassware Division manufactures a variety of bottles which can be sold externally(to soft-drink and juice bottlers) or internally to VSOP’s Malt Beverage Division.Sales and cost data on a case of 24
Auto-Lite Manufacturing, Inc., has a division in the United States that produces a variety of headlamps and interior light packages for automobiles. One type of headlamp for compact cars is transferred to a Manufacturing Division in Italy. The headlamps can be (and are) sold externally in the
Perrex, Inc., has a division in Honduras that makes a powder used to coat wire, and another division in the United States that manufactures wire. The Powder Division incurs manufacturing costs of \($0.83\) for one pound of powder.The Wire Division currently buys its powder coating from an outside
Zetter, Inc., has a division in Canada that makes paint. Zetter has another U.S. division, the Retail Division, that operates a chain of home improvement stores. The Retail Division would like to buy the unique, long-lasting paint from the Canadian division, since this type of paint is not
The following selected data pertain to the Silverthorne Division for last year:Required:1. How much is the residual income?2. How much is the return on investment? Sales Variable costs Traceable fixed costs $1,000,000 $600,000 $100,000 Average invested capital $1,500,000 Imputed interest rate 15%
Roselle, Inc., has acquired two new companies, one in consumer products and the other in financial services. Roselle’s top management believes that the executives of the two newly acquired companies can be most quickly assimilated into the parent company if they own shares of Roselle stock.
Macalester, Inc., manufactures heating and air conditioning units in its six divisions. One division, the Components Division, produces electronic components that can be used by the other five. All the components produced by this division can be sold to outside customers; however, from the
Chapin, Inc., owns a number of food service companies. Two divisions are the Coffee Division and the Donut Shop Division. The Coffee Division purchases and roasts coffee beans for sale to supermarkets and specialty shops. The Donut Shop Division operates a chain of donut shops where the donuts are
Carnover, Inc., manufactures a broad line of industrial and consumer products. One of its plants is located in Madrid, Spain, and another in Singapore. The Madrid plant is operating at 85 percent capacity. Its main product, electric motors, has experienced softness in the market, which has led to
Lynsar Corporation started as a single plant that produced the major components assembled into electric motors—the company’s main product. Lynsar later expanded by developing outside markets for some of the components used in its motors. Eventually, Lynsar reorganized into four manufacturing
Suggest some possible causes of an unfavorable direct labor efficiency variance.
Explain how the 2-, 3-, and 4-variance overhead analyses are related.
Tony Jefferson, of Rainking Company, designs and installs custom lawn and garden irrigation systems for homes and businesses throughout the state. Each job is different, requiring different materials and labor for installing the systems. Rainking estimated the following for the year:Required:1.
Tony Jefferson, owner of Rainking of Exercise 5-2, noticed that the watering systems for many houses in a local subdivision had the same layout and required virtually identical amounts of prime cost. Tony met with the subdivision builders and offered to install a basic watering system in each
Landon Poteet has just started a new business—building and installing custom garage organization systems. Landon builds the cabinets and work benches in his workshop and then installs them in clients’ garages. Landon figures his overhead for the coming year will be $9,000. Since his business is
Refer to Exercise 5-4.Required:1. What source documents will Landon need to account for costs in his new business?2. Suppose Landon’s business grows, and he expands his workshop and hires three additional carpenters to help him. What source documents will he need now?
During March, Molson Company worked on three jobs. Data relating to these three jobs follow:Overhead is assigned on the basis of direct labor hours at a rate of $7 per direct labor hour. During March, Jobs 62 and 63 were completed and transferred to finished goods inventory. Job 63 was sold by the
On April 1, Kurena Company had the following balances in its inventory accounts:Work-in-process inventory is made up of three jobs with the following costs:During April, Kurena experienced the following transactions:a. Purchases materials on account for $21,000.b. Requisitioned materials: Job 30,
Refer to Exercise 5-7.Required:1. Prepare journal entries for the April transactions.2. Calculate the ending balances of each of the inventory accounts as of April 30.
On June 1, Dabo Company’s work-in-process inventory consisted of three jobs with the following costs:During June, four more jobs were started. Information on costs added to the seven jobs during June is as follows:Before the end of June, Jobs 70, 72, 73, and 75 were completed. On June 30, Jobs 72
Refer to Exercise 5-9. Dabo’s marketing and administrative expense for June was $1,200.Required:Prepare an income statement for Dabo Company for June.
Kaycee, Inc., manufactures brown paper grocery bags. During the month of May, the following occurred:a. Purchased materials on account for $23,175.b. Requisitioned materials totaling $19,000 for use in production.c. Incurred direct labor payroll for the month of $17,850, with an average wage
During October, Molson Company worked on three jobs. Data relating to these three jobs follow:Overhead is assigned on the basis of direct labor hours at a rate of $5.30 per direct labor hour. During October, Jobs 43 and 44 were completed and transferred to finished goods inventory. Job 44 was sold
Smeyak Company uses an ABC system to apply overhead. There are three activity rates:During August, Smeyak worked on three jobs. Data relating to these jobs follow:During August, Jobs 80 and 82 were completed and transferred to finished goods inventory.Job 80 was sold by the end of the month. Job 81
Porter Company uses job-order costing. During January, the following data were reported:a. Purchased materials on account: direct materials, $82,000; indirect materials, $10,500.b. Issued materials: direct materials, $72,500; indirect materials, $7,000.c. Incurred labor cost: direct labor, $52,000;
Zavner Company is a job-order costing firm that uses activity-based costing to apply overhead to jobs. Zavner identified three overhead activities and related drivers. Budgeted information for the year is as follows:By July 31, Jobs 60 and 62 were completed and sold. The remaining jobs were in
During May, the following transactions were completed and reported by Perlmutter Products, Inc.:a. Purchased materials on account for $50,100.b. Issued materials to production to fill job-order requisitions: direct materials,$30,000; indirect materials, $15,000.c. Accumulated payroll for the month:
Karanth Company manufactures specialty tools to customer order. Budgeted overhead for the coming year is as follows:Previously, Sharon Benetton, Karanth Company’s controller, had applied overhead on the basis of machine hours. Expected machine hours for the coming year are 10,000.Sharon has been
Anselmo’s Kwik Print provides a variety of photocopying and printing services. On June 5, Anselmo invested in some computer-aided photography equipment that enables customers to reproduce a picture or illustration, input it digitally into the computer, enter text into the computer, and then print
Garvey Company is a specialty print shop. Usually, printing jobs are priced at standard cost plus 50 percent. Job 95-301 involved printing 500 wedding invitations with the following standard costs:Normally, the invitations would be taken from the machine, the top one inspected for correct wording,
Jackson’s Sporting Goods Store sells a variety of sporting goods and clothing. In a back room, Jackson’s has set up heat-transfer equipment to personalize T-shirts for Little League teams. Typically, each team has the name of the individual player put on the back of the T-shirt. Last week,
Sutton Construction, Inc., is a privately held, family-founded corporation that builds single- and multiple-unit housing. Most projects Sutton Construction undertakes involve the construction of multiple units. Sutton Construction has adopted a job-order costing system for determining the cost of
Nutratask, Inc., is a pharmaceutical manufacturer of amino-acid-chelated minerals and vitamin supplements. The company was founded in 1974 and is capable of performing all manufacturing functions, including packaging and laboratory functions. Currently, the company markets its products in the
Use “think-pair-share” to work on this exercise. First, read the following exercise. Then, take one to two minutes to think of your answers. Pair with another student to discuss your answers. Finally, be prepared to share your responses with the rest of the class.Name a product and a service
Hospitals, clinics, and doctors’ offices use a job-order costing system. This has led to extensive paperwork involving patients’ records, billings, and insurance company reimbursements.A number of medical offices are exploring the possibility of paperless offices.For example, Kaiser Permanente,
What are transferred-in costs?
Explain why transferred-in costs are a special type of material for the receiving department.
How is the equivalent unit calculation affected when direct materials are added at the beginning or end of the process rather than uniformly throughout the process?
Under what conditions will the weighted average and FIFO methods give essentially the same results?
Lawson Company has three process departments: mixing, encapsulating, and bottling.At the beginning of the fiscal year (July 1), there were no work-in-process or finished goods inventories. The following data are available for the month of July:Required:1. Prepare journal entries that show the
A local barbershop cuts the hair of 1,000 customers per month. The clients are men, and the barbers offer no special styling. During the month of March, 1,000 customers were serviced. The cost of haircuts includes the following:Required:1. Explain why process costing is appropriate for this
Manzer Company uses JIT manufacturing. Several manufacturing cells are set up within one of its factories. One of the cells makes speakers for computers. The cost of production for the month of April is as follows:During April, 10,000 sets of speakers were produced and sold.Required:1. Explain why
Mizukawa, Inc., produces a subassembly used in the production of hydraulic cylinders.The subassemblies are produced in three departments: plate cutting, rod cutting, and welding. Overhead is applied using the following drivers and activity rates:Required:1. Prepare a physical flow schedule.2.
Deercreek Company manufactures insect repellant. The mixing department, the first process department, mixes the chemicals required for the repellant. The following data are for 2007:Direct materials are added at the beginning of the process. Ending inventory is 95 percent complete with respect to
Darim Company manufactures a product that passes through two processes: fabrication and assembly. The following information was obtained for the fabrication department for June:a. All materials are added at the beginning of the process.b. Beginning work in process had 60,000 units, 30 percent
Alden Company uses the FIFO method to account for the costs of production. For crushing, the first processing department, the following equivalent units schedule has been prepared:The cost of beginning work in process was direct materials, $30,000; conversion costs, $25,000.Required:1. Determine
Watson Products, Inc., produces plastic cases used for video cameras. The product passes through three departments. For May, the following equivalent units schedule was prepared for the first department:Costs assigned to beginning work in process: direct materials, $30,000; conversion costs,
Fordman Company has a product that passes through two processes: grinding and polishing.During December, the grinding department transferred 20,000 units to the polishing department. The cost of the units transferred into the second department was$40,000. Direct materials are added uniformly in the
Using the same data found in Exercise 6-12, assume the company uses the FIFO method.Required:Prepare a schedule of equivalent units, and compute the unit cost for the month of December.
Baxter Company has two processing departments: assembly and finishing. A predetermined overhead rate of $10 per direct labor hour is used to assign overhead to production.The company experienced the following operating activity for April:a. Issued materials to assembly, $24,000.b. Incurred direct
Norton Parts, Inc., manufactures bumpers (plastic or metal, depending on the plant)for automobiles. Each bumper passes through three processes: molding, drilling, and painting. In August, the molding department of the Oklahoma City plant reported the following data:a. In molding, all direct
Stewart Company produces a product that passes through three processes: fabrication, assembly, and finishing. All manufacturing costs are added uniformly for both processes.The following information was obtained for the assembly department for May 2007:a. Work in process, May 1, had 10,000 units
Refer to the data in Problem 6-18.Required:Prepare a cost of production report for the assembly department for May using the FIFO method of costing.
Granger Credit Corporation is a wholly owned subsidiary of a large manufacturer of computers. Granger is in the business of financing computers, software, and other services that the parent corporation sells. Granger has two departments that are involved in financing services: the credit department
Muskoge Company uses a process-costing system. The company manufactures a product that is processed in two departments: molding and assembly. In the molding department, direct materials are added at the beginning of the process; in the assembly department, additional direct materials are added at
Golding Manufacturing, a division of Farnsworth Sporting, Inc., produces two different models of bows and eight models of knives. The bow-manufacturing process involves the production of two major subassemblies: the limbs and the handle. The limbs pass through four sequential processes before
Larkin Company produces leather strips for western belts using three processes: cutting, design and coloring, and punching. The weighted average method is used for all three departments. The following information pertains to the design and coloring department for the month of June.a. There was no
AKL Foundry manufactures metal components for different kinds of equipment used by the aerospace, commercial aircraft, medical equipment, and electronics industries.The company uses investment casting to produce the required components. Investment casting consists of creating, in wax, a replica of
Understanding the nature of process manufacturing helps to understand the nature of process costing. Using an Internet search, find the home pages of one or more cement companies where the processes used to manufacture portland cement are described.Other Internet resources such as an online
Leanne and Janine are planning a trip to Padre Island, Texas, during spring break. Members of the varsity volleyball team, they are looking forward to five days of beach volleyball and parasailing. They will drive Leanne’s car and estimate that they will pay the following costs during the
Barry Alexander owns a block of shops on a street just off Rodeo Drive. Of the 10 store spaces in the building, seven are rented by boutique owners, and three are vacant. Barry has decided that offering more services to stores in the mall would enable him to increase occupancy. He has decided to
Refer to the data in Exercise 7-7. When the capacity of the HR department was originally established, the normal usage expected for each department was 20,000 direct labor hours. This usage is also the amount of activity planned for the two departments in Year 1 and Year 2.Required:1. Allocate the
Pagilla Company manufactures both sunscreen and tubes of lip balm, with each product manufactured in separate departments. Three support departments support the production departments: power, general factory, and purchasing. Budgeted data on the five departments are as follows:The company does not
Refer to the data in Exercise 7-9. The company has decided to use the sequential method of allocation instead of the direct method.Required:1. Allocate the overhead costs to the producing departments using the sequential method. (Take allocation ratios out to four significant digits.)2. Using

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