Questions and Answers of Management Accounting

Many provinces have a hospital regulatory board that must approve the acquisition of specified medical equipment before hospitals can qualify for cost-based reimbursement related to that equipment.
The Vigil Trucking Company has one service department and two regional operating departments. The budgeted cost behaviour pattern of the service department is $750,000 monthly in fixed costs plus
The vehicle pool of a major city provides cars for the use of various city departments. Currently, the vehicle pool has 50 cars. A recent study showed that it costs $2,400 in annual fixed costs per
Zhao Manufacturing Company has two departments, machining and finishing. For a given period, the following costs were incurred by the company as a whole: direct materials, $200,000; direct labour,
A motorcycle manufacturer was concerned with declining market share because of foreign competition. To become more efficient, the company was considering changing to a just-in-time (JIT) production
Vernon Company buys apples from local orchards and presses them to produce apple juice. The pulp that remains after pressing is sold to farmers as livestock food. This livestock food is accounted for
The Calgary branch of Southern Alberta Savings Bank (SASB) is a retail branch in a rapidly growing residential area. It services individuals and local businesses. To support its services, the branch
The Deutsche Toy Company makes a variety of alpine dolls at its operation in Munich. Its manufacturing process is highly automated. A recently installed ABC system has four activity centres:Two dolls
Robinson Chemical Company’s production process for two of its solvents can be diagrammed as follows:The cost of the joint input, including processing costs before the split-off point, is $300,000.
Butler Home Products has two producing departments, Machining and Assembly, and two service departments, Personnel and Custodial. The company’s budget for April 2012 isButler allocates personnel
Johnny’s Markets has three grocery stores in the metropolitan Toronto area. Central costs are allocated using sales as the cost-allocation base. The following are budgeted and actual sales during
The City of Nanaimo signed a lease for a photocopy machine at $2,500 per month and $0.02 per copy. Operating costs for toner, paper, operator salary, and so on are all variable at $0.03 per copy.
The following data have been condensed from Chateau Corporation’s report of 2012 operations (in $000’s):1. Prepare the 2012 income statement in contribution form, ignoring income taxes.2.
Stephenson Corporation provides you with the following miscellaneous data regarding operations for 2012:Break-even point (in sales dollars) ............................................$ 66,667Direct
The Gumey Hosiery Company provides you with the following miscellaneous data regarding operations in 2012:Gross margin ..................................................................$ 20,000Net
Fashions Company manufactured and sold 1,000 pairs of leather handbags during July. Selected data for this month follow.Sales
Marlinski had the following data (in thousands) for a given period. Assume there are no inventories.Direct labour ...................................................................$170Direct
Yoko Trucks Ltd. had the following data (in millions of yen) for a given period:Sales ................................................................................¥770Direct materials
The Notley Company had the following data (in thousands) for a given period:Sales .................................................................$700Direct
Refer to the preceding problem. Suppose some goods were still in process that cost $100,000. Half the goods completed were sold. What are the balances of all the accounts in the ending balance
Assume that the Bolton Company had no beginning inventories. The following transactions occurred in 2009 (in thousands):1. Purchase of direct materials $3502. Direct materials used 3003. Acquire
Classify each of the following as direct or indirect (D or I) with respect to trace ability to product and as variable or fixed (V or F) with respect to whether the cost fluctuates in total as
A company uses an absorption cost system. Prepare headings for two columns: (1) assembly department costs, and (2) products assembled. Fill in the two columns for each of the costs below. If a
Refer to Exhibits 4-4 and 4-5. Suppose manufacturing costs were the same, but there was an ending work-in-process inventory of $3 million. The cost of the completed goods would therefore be $37
Give the amounts of the following with respect to the cost of goods available for sale: (1) Prime costs, (2) Conversion costs, (3) Factory overhead, and (4) Indirect manufacturing
Osaka Manufacturing Company budgeted its 2010 variable overhead at ¥14,100,000 and its fixed overhead at ¥26,230,000. Expected 2010 volume was 6,100 units. Actual costs for production of 5,800
Chan Manufacturing Company data for 2010 are as follows:Sales: 12,000 units at $18 eachActual production ........................................................15,000 unitsExpected volume of
The Balakrishnan Corporation began business on January 1, 2010, to produce and sell a single product. Reported operating income figures under both absorption and variable costing for the first four
Khalid Company began business on January 1, 2011, with assets of $150,000 cash and equities of $150,000 capital shares. In 2011, it manufactured some inventory at a cost of $60,000 cash, including
Compare the contribution margin with the gross margin.
Why is variable costing used only for internal reporting and not for external financial reporting?
“Absorption costing regards more categories of costs as product costs.” Explain. Be specific.
“The primary classifications of costs are by variable and fixed cost behaviour patterns, not by business functions.” Name three commonly used terms that describe this type of income statement.
What is the advantage of the contribution approach as compared with the absorption approach?
Why is there no direct labour inventory account on a manufacturing company’s balance sheet?
“Unexpired costs are always inventory costs.” Do you agree? Explain.
“Depreciation is an expense for financial statement purposes.” Do you agree? Explain.
Many cost accounting systems have a twofold instead of a threefold category of manufacturing costs. What is a common name for the second item in the twofold category?
“For a furniture manufacturer, glue and tacks become an integral part of the finished product, so they would be direct material.” Do you agree? Explain.
“The typical accounting system does not allocate selling and administrative costs to units produced.” Do you agree? Explain.
“Economic feasibility is an important guideline in designing cost accounting systems.” Do you agree? Explain.
“The same cost can be direct and indirect.” Do you agree? Explain.
“Departments are not cost objects or objects of costing.” Do you agree? Explain.
What is the major purpose of detailed cost accounting systems?
Name four cost objectives or cost objects.
Consider the following information pertaining to a year’s operations of Hamilton Manufacturing:Units sold
Examine the Trahn Company’s simplified income statement based on variable costing for 2011. Assume that the budgeted volume for absorption costing in 2010 and 2011 was 1,400 units and that total
Orinoco Inc. produces and sells wireless reading devices. A competitor, Nile Electronic Products (NEP), sells similar wireless reading devices that it purchases at wholesale from Sonex for $97 each.
a. From the results of the regression output of overhead cost with machine hours and setup hours (Exhibit 3A-1, regression 4), identify the following:The independent variablesThe marginal cost of an
1. Plot logistics cost versus number of orders. What cost behaviour is evident? What do you think happened in week 14?2. What is your recommendation to Kelly Hudsa regarding the relevance of the past
1. Discuss the plausibility and probable reliability of each of the cost drivers—number of employees or number of reports.2. What are the 2009 and 2010 SS costs per unit of cost driver for each
Waterford Inc. is conducting cost-behaviour analysis on its selling and administrative expenses over a 15-month period. This was a period of significant growth for the company, and management would
Liao Inc., a manufacturer of fine china and stoneware, is troubled by fluctuations in productivity and wants to compute how much manufacturing support costs are related to the various sizes of
Atlantic Jail requires a staff of at least one guard for every four prisoners. The jail will hold 48 prisoners. Atlantic has a beach that attracts numerous tourists and transients in the spring and
On November 15, 2012, Sandra Cook, a newly hired cost analyst at Demgren Company, was asked to predict overhead costs for the company’s operations in 2013, when 500 units are expected to be
Ford had been outsourcing production to Mazda and using overtime for as much as 20 percent of production—Ford’s plants and assembly lines were running at 100 percent of capacity and demand was
Wheatown Implement Company produces farm implements for various large vehicles used for farming. Wheatown is in the process of measuring its manufacturing costs and is particularly interested in the
Morrison Musical Education Company (MME) provides instrumental music education to children of all ages. Payment for services comes from two sources: (1) a contract with Country Day School to provide
Richard Ellis, the director of cost operations of Ontario Micro Devices, wishes to develop an accurate cost function to explain and predict support costs in the company’s printed circuit board
The Tent Division of PEI Outdoor Equipment Company has had difficulty controlling its use of supplies. The company has traditionally regarded supplies as a purely variable cost. Nearly every time
Richmond Software develops and markets computer software for the agriculture industry. Because support costs are a large portion of the cost of software development, the director of cost operations
Lakeview School, a private high school, is preparing a planned income statement for the coming academic year ending August 31, 2010. Tuition revenues for the past two years ending August 31 were
A staff meeting has been called at SportsLab, a drug-testing facility retained by several professional and college sports leagues and associations. The chief of testing, Dr. Hyde, has demanded an
Auditors for Canada Revenue Agency (CRA) scrutinize income tax returns after they have been prescreened with the help of computer tests for normal ranges of deductions claimed by taxpayers. CRA uses
Which of the following terms describes the cost behaviour represented in the plot of data below: fixed, variable, step, variable rate constant as activity increases, variable rate increasing as
Southampton Foundry produced 45,000 tonnes in March at a cost of £1,100,000. In April, 35,000 tonnes were produced at a cost of £900,000. Using only these two data points, determine the cost
Let Y = total costs, X1 = production volume, and X2 = number of setups. Which of the following are linear cost functions? Which are mixed-cost functions?a. Y=$1,000b. Y=$8X1c. Y=$5,000+$4X1d.
The head of the Warehousing Division of the Lackton Co. was concerned about some cost-behaviour information given to her by the new assistant controller, who was hired because of his recent training
Recreational Sports, an outdoor sports retailer, is planning to add a website for online sales. The estimated costs of two alternative approaches are as follows:At the expected level of orders, which
Identify and compute total discretionary fixed costs and total committed fixed costs from the following list prepared by the accounting supervisor for Huang Building Supply:Advertising
Expedia provides travel services on the Internet. The year 2002 was important for Expedia because it reported positive operating income after three years of operating losses. In the first quarter of
How can a company’s choice of technology affect its costs?
What are the benefits of using “cost functions” to describe cost behaviour?
“Variable costs should fluctuate directly in proportion to sales.” Do you agree? Explain.
Explain linear-cost behaviour.
The president and the controller of Monterrey Transformer Company (Mexico) have agreed that refinement of the company’s cost measurements will aid planning and control decisions. They have asked
Nampa Technology, an Idaho manufacturer of printed circuit boards, has always estimated the support cost of its circuit boards with a 100 percent “markup” over its material costs. An activity
Martina Stemmler, president of Evert Tool Co., has asked for information about the cost behaviour of manufacturing support costs. Specifically, she wants to know how much support cost is fixed and
Evergreen Signs makes customized signs for businesses and residences. These signs are made of wood, which the owner glues and carves by hand or with power tools. After carving the signs, she paints
1. Calculate where, in terms of number of people who register, the first Calgary run of the Creative Goal Setting for Accountants seminar will break even. If necessary, round up answers to the next
1. Compute the 2011 volume of activity in patient-days.2. Compute the 2011 patient-days that would have been necessary for the obstetrics department to recoup all fixed expenses except nursing
1. What is Friendly Candy Company’s break-even point in boxes of candy for the current year?2. What selling price per box must Friendly charge to cover the 15 percent increase in the cost of candy
The Disposable Camera Division of Saari Optics Co. has the following cost-behaviour patterns:Maximum production capacity is 20,000 units per year. Variable costs per unit are $5 at all production
Airline companies regularly provide operating statistics with their financial statements. In 2012, North America Airlines reported that it had approximately 61,000 million seat-kilometres available,
A division of Hewlett-Packard Company changed its production operations from one where a large labour force assembled electronic components to an automated production facility dominated by
Multiplex Cinema owns and operates a nationwide chain of movie theatres. The 500 properties in the Multiplex chain vary from lowvolume, small-town, single-screen theatres to high-volume, big-city,
Yuko Nomo is a travelling inspector for Environment Canada. She uses her own car and the department reimburses her at $0.23 per kilometre. Yuko claims she needs $0.27 per kilometre just to break
The Western Race Track is a horse-racing track. Its revenue is derived mainly from attendance and a fixed percentage of the betting. Its expenses for a 90-day season areWages of cashiers and ticket
Boulder Systems Group (BSG) has a substantial year-to-year fluctuation in billings to clients. Top management has the following policy regarding the employment of key personnel:Top management
Victor Company is a wholesaler of DVDs. The projected after-tax net income for the current year is $120,000, based on a sales volume of 200,000 DVDs. Victor has been selling the DVDs at $16 each. The
The Four Winds Hotel in downtown Halifax has annual fixed costs applicable to rooms of $9.2 million for its 600-room hotel, average daily room rates of $105, and average variable costs of $25 for
Eastman Kodak Company is a provider of imaging technology products and services to the photographic, graphic communications, and health-care markets. A condensed 2008 income statement follows (in
One of Niagara Catering Company’s specialties is Mexican dinners that it prepares, freezes, and ships to restaurants in southwestern Ontario. When a diner orders an item, the restaurant heats and
A social welfare agency has a budget from the provincial government for 2012 of $900,000. The agency’s major mission is to help disabled persons who are unable to hold jobs. On the average, the
Bingo is very popular in Winnipeg, where some churches have a tradition of fundraising with bingo. Suppose that, due to recent changes in costs, a parish in Winnipeg is reviewing the desirability of
Procter & Gamble Company produces household products under brand names such as Gillette, Bounty, Crest, Folgers, and Tide. The company’s 2008 income statement showed the following (in
Jacqui Giraud owns and operates a restaurant. Her fixed costs are $21,000 per month. She serves luncheons and dinners. The average total bill (excluding tax and tip) is $19 per customer. Giraud’s
Productions Ltd. is promoting a rock concert in London. The bands will receive a flat fee of £7 million in cash. The concert will be shown worldwide on closed-circuit television. BBT will collect
Joe Bell recently opened Joe’s Pub in the university district. Because of licensing restrictions, the only liquor he can sell is beer. The average price of beer at Joe’s Pub is $3.00 per glass,
Suppose Merla Security Company has a 40 percent income tax rate, a contribution-margin ratio of 30 percent, and fixed costs of $440,000. How many sales are necessary to achieve an after-tax income of

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