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Management Accounting 6th Canadian edition Charles T. Horngren, Gary L. Sundem, William O. Stratton, Phillip Beaulieu - Solutions
Stang Sports Equipment Company made 40,000 basketballs in a given year. Its manufacturing costs were $256,000 variable and $95,000 fixed. Assume that no price changes will occur in the following year and that no changes in production methods are applicable. Compute the budgeted cost for producing
Lean accounting and value stream management are related costing and management techniques that differ radically from flexible budgeting, standard costing, and variance analysis as presented in this chapter. This assignment requires students to investigate and understand how these techniques differ
Imperial Mills is a small flour company in the West. Claude Laurent became president in 2010. He is concerned with the ability of his production manager to control costs. To aid his evaluation, Laurent set up a standard-cost system. Standard costs were based on 2010 costs in several
The new printing department of Shark Advertising Inc. provides printing services to the other departments. Prior to the establishment of the in-house printing department, the departments contracted with external printers for their printing work. The Shark printing policy is to charge those
Belfair Kayak Company makes moulded plastic kayaks. Standard costs for an entry-level whitewater kayak are Direct materials, 60 kilograms @ $5.50 per kilogram......$330 Direct labour, 1.5 hours @ $16 per hour.............24 Overhead, @ $12 per
Sung Park owns and operates Transpac Machining, a subcontractor to several aerospace-industry contractors. When Mr. Park wins a bid to produce a piece of equipment, he sets standard costs for the production of the item. He then compares actual manufacturing costs with the standards to judge the
Study the format of the analysis of variances in Exhibit 12-12. Suppose production is 156,000 units. Also assume the following: Prepare an analysis of variances similar to that shown in Exhibit 12-12. Exhibit 12-12 Analysis of Variances Therefore, in practice, all cost variances are
The expected activity of the paper-making plant of Leventhal Paper Company was 45,000 machine-hours per month. Practical capacity was 60,000 machine-hours per month. The standard machine-hours allowed for the actual output achieved in January were 54,000. The budgeted fixed factory overhead items
The Mendoza Company is installing an absorption standard costing system and a flexible overhead budget. Standard costs have recently been developed for its only product and are as follows: Expected production activity is expressed as 7,500 standard directlabour-hours per month. Fixed overhead
Kronos Shipping Company’s general manager reports quarterly to the company’s president on the firm’s operating performance. The company has used a budget based on detailed expectations for the forthcoming quarter. For example, the condensed performance report for a recent quarter (in dollars)
Horst Company is a chemical manufacturer that supplies industrial users. The company plans to introduce a new solution and needs to develop a standard product cost for this new solution. The new chemical solution is made by combining altium and bollium, boiling the mixture, adding a third
Pandosy Company reported the following sales and factory overhead variances for fiscal 2010, a year in which sales and production in units were both 18 percent greater than expected. The company uses standard costing and allocates factory overhead on the basis of
Consider the following data: From the information given, fill in the blanks below. The flexible-budget variance is $ Fixed $
Cost behaviour analysis for the four activity centres in the Billing Department of Great Lakes Power Company is as follows: The Billing Department constructs a flexible budget for each activity centre, based on the following ranges of cost-driver activity: 1. Develop flexible-budget
The L. Ming Company has had great difficulty controlling costs in Singapore during the past three years. Last month a standard cost and flexible-budget system was installed. Results for a department follow. All dollar figures are Singapore dollars. The department initially planned to
Suppose Parks Canada prepared the following budget for one of its national parks for 2010: Revenue from fees...............$5,000,000 Variable costs (miscellaneous)..........500,000 Contribution margin................4,500,000 Fixed costs
Woodstock Precision Machining (WPM) has a highly automated manufacturing process for producing a variety of auto parts. Through the use of computer-aided manufacturing and robotics, the company has reduced its labour costs to only 5 percent of total manufacturing costs. Consequently, the company
The Zurich Chocolate Company uses standard costs and a flexible budget to control its manufacture of fine chocolates. The purchasing agent is responsible for material price variances, and the production manager is responsible for all other variances. Operating data for the past week are summarized
The University of Liverpool offers an extensive continuing education program in many cities throughout Britain. For the convenience of its faculty and administrative staff and to save costs, the university operates a motor pool. The motor pool operated with 25 vehicles until February of this year,
The emergency room at University Hospital uses a flexible budget based on patients seen as a measure of activity. The hospital must maintain an adequate staff of attending and on-call physicians at all times, so patient activity does not affect physician scheduling. Nurse scheduling varies as
The performance (in thousands of dollars) of Kenmore Airlines for the most recent year is shown in the following table. The master budget had been based on a budget of $0.20 revenue per passenger-kilometer. A passenger-kilometre is one paying passenger flown one kilometre. An average airfare
Suppose a chain of KFC franchises in Beijing had budgeted sales for 2010 of RMB7.3 million (where RMB stands for the Chinese unit of currency, officially the renminbi, also called the yuan). Cost of goods sold and other variable costs were expected to be 60 percent of sales. Budgeted annual fixed
Damerow Credit Services produces reports for consumers about their credit ratings. The company’s standard contribution margins average 70 percent of dollar sales, and average selling prices are $50 per report. Average productivity is four reports per hour. Some employees work for sales
Higgins Company produced 80,000 units, 8,000 more than budgeted. Production data are as follows. Except for physical units, all quantities are in dollars. 1. Fill in the unknowns. 2. Give a brief summary explanation of why the original target income was not attained. Actual Results
What is the most commonly used method for disposing of standard cost variances?
“Overhead variances arise only with absorption-costing systems." Do you agree?
"Fixed overhead volume variances arise with normal absorption and standard-absorption costing, but not with actual costing." Explain.
"An unfavourable fixed overhead volume variance means that fixed manufacturing costs have not been well controlled. ?Do you agree" Explain.
Why is there no fixed overhead volume variance for direct labour?
"The dollar amount of the fixed overhead volume variance depends on what expected volume of production was chosen to determine the fixed overhead rate." Explain.
"In a standard absorption-costing system, the amount of fixed manufacturing overhead applied to the products rarely equals the budgeted fixed manufacturing overhead." Do you agree? Explain.
When should managers investigate variances?
How does the variable overhead spending variance differ from the direct labour price variance?
Are direct material price variances generally recognized when the materials are purchased or when they are used? Why?
"A standard is one point in a band or range of acceptable outcomes." Criticize.
What are two possible interpretations of currently attainable standards?
Differentiate between ideal standards and currently attainable standards.
Who is usually responsible for sales-volume variances? Why?
Differentiate between a master budget variance and a flexible-budget variance.
"Effectiveness and efficiency go hand in hand. You can’t have one without the other." Do you agree? Explain.
Explain the role of understanding cost behaviour and costdriver activities for flexible budgeting.
"We want a flexible budget because costs are hard to predict. We need the flexibility to change budgeted costs as input prices change." Does a flexible budget serve this purpose? Explain.
You have been asked to prepare an analysis of the overhead costs in the order processing department of a mail-order company. As an initial step, you prepare a summary of some events that bear on overhead for the most recent period. Variable overhead is applied based on hours of processing-clerk
Consider the following data for a manufacturing company: 1. Compute the price, quantity, and flexible-budget variances for direct materials and direct labour. Use U or F to indicate whether the variances are unfavourable or favourable. 2. Prepare a plausible explanation for the
Consider the following data for David Skold Tax Services, a firm much like H&R Block: Master (static) budget data: sales, 2,500 clients at $350 each; variable costs, $250 per client; fixed costs, $150,000. Actual results at actual prices: sales, 3,000 clients at $360 per client;
Barber Brass manufactures trumpets, trombones, tubas, and other brass instruments. The following standards were developed for a line of trumpets. During April, Barber scheduled 550 trumpets for production. However, the company produced only 525. Barber purchased and used 1,240 kilograms of
The systems consulting department of Bennett Baseball Products designs systems for data collection, encoding, and reporting to fit the needs of other departments within the company. An overall cost driver is the number of requests made to the systems consulting department. The expected variable
Ivan Sharpova is trying to decide whether he is going to need to take a loan in January to buy a new microcomputer system for his business. The microcomputer will cost $10,800. Sharpova has collected the following information about his operations as of December 31: 1. Balances of selected
Part A: Millie Bandes, a successful entrepreneur, is setting up a new division for the manufacture of three new products that will complement her current line of business. Millie is currently involved in the manufacture of motorboats. She believes that overall corporate profits can be enhanced by
George Brown, a self-employed management consultant, had just settled down to work when he received a call from Ray Sharma, vice president of Software Corporation (SC), a software distributing and consulting firm. Sharma had been through a hectic holiday period and, to some extent, he had let
Tom’s Outdoor Experience (TOE) is a sporting goods store owned by Tom Dennison. Tom handles limited product lines. Summer sales centre on bicycles, camping gear, and clothing for both activities. Crosscountry skis and related equipment and clothing are the major winter lines. The store is a
Own the Podium 2010 (OTP) was an Olympic funding organization comprising Sport Canada, the Canadian Olympic Committee, the Canadian Paralympic Committee, and the Vancouver Organizing Committee (VANOC). For the 2010 Winter Olympic Games in Vancouver, OTP set an ambitious goal for the Canadian team:
The DVD division (DVDD) of Micro Storage Inc. produces DVD drives for personal computers. The drives are assembled from purchased components. The costs (value) added by DVDD are indirect costs (which include assembly labour), packaging, and shipping. Cost behaviour is as follows: Both DVD
The Speedy-Mart Store has the following budgeted sales, which are uniform throughout the month: Excel Spreadsheet Template May $450,000 June 375,000 July 330,000 August 420,000 Cost of goods sold averages 70 percent of sales and inventory is purchased as it is needed.
Suppose you are the controller of Ryerson University. The university president is preparing for her annual fundraising campaign for 2010 2011. To set an appropriate target, she has asked you to prepare a budget for the academic year. You have collected the following data for the current year (2009
Grace Hospital provides a wide range of health services in its community. The board of directors has authorized the following capital expenditures: The expenditures are planned for October 1, 2011, and the board wants to know how much, if anything, the hospital has to borrow. Jill Todd,
Jane Myers is the manager of an extremely successful gift shop, Jane’s Gifts, which is operated for the benefit of local charities. From the data below, she wants a cash budget showing expected cash receipts and disbursements for the month of April, and the cash balance expected as of April 30,
Consider the following information for the month ending June 30, 2012, for the Johnson Company: The cash balance, May 31, 2012, is $15,000. Sales proceeds are collected as follows: 80 percent month of sale, 10 percent second month, 10 percent third month. Accounts receivable are $40,000
All sales of Dunn’s Building Supplies (DBS) are made on credit. Sales are billed twice monthly, on the 10th of the month for the last half of the prior month’s sales and on the 20th of the month for the first half of the current month’s sales. The terms of all sales are 2/10, net 30. Based on
Mathew Philp, president of Ontario Mining Ltd., has made budgets a major focus for managers. Making budget was such an important goal that the only two managers who had missed their budgets in 2011 (by 2 percent and 4 percent, respectively) had been summarily fired. This caused all managers to be
A recent directive from Eugenia Yu, CEO of Comtel, has instructed each department to cut its costs by 10 percent. The traditional functional budget for the shipping and receiving department was as follows: Therefore, the shipping and receiving department needed to find $43,335 to
The Ritz-Carlton has four hotels and resorts in the Caribbean and Mexico. Suppose that for one of these hotels, management expects occupancy rates to be 95 percent in December, January, and February; 85 percent in November, March, and April; and 70 percent the rest of the year. This hotel has 300
Prepare the estimated cash receipts and disbursements section of a cash budget (not including the financing section) for October 2011 for the Botanica Company, which sells one product, herbal soap, by the case. On October 1, 2011, part of the trial balance showed The company pays for its
The inventory of the Manchester Appliance Company was £200,000 on May 31. The manager was upset because the inventory was too high. She has adopted the following policies regarding merchandise purchases and inventory. At the end of any month, the inventory should be £15,000 plus 90 percent of the
Renovation Lighting Supply plans inventory levels (at cost) at the end of each month as follows: May, $275,000; June, $220,000; July, $200,000; and August, $240,000. Sales are expected to be June, $440,000; July, $350,000; and August, $300,000. Cost of goods sold is 60 percent of
Northwest Equipment offers a 2 percent discount to customers who pay cash at the time of sale and a 1 percent discount to customers who pay within the first 10 days of the month after sale. Past experience shows that cash collections from customers tend to occur in the following pattern: Cash
A Kyoto clothing wholesaler was preparing its sales budget for the first quarter of 2012. Forecast sales are: January ¥200,000 February ¥220,000 March ¥240,000 Sales are 20 percent cash and 80 percent credit. Fifty percent of the credit accounts
Suppose a Zellers store has the following data: Accounts receivable, May 31: (0.3 × May sales of $350,000) = $105,000 Monthly forecast sales: June, $430,000; July, $440,000; August, $500,000; September, $530,000 Sales consist of 70 percent cash and 30 percent credit. All credit
All sales of Jenny’s Jeans and Uniforms (JJU) are made on credit. Sales are billed twice monthly, on the 5th of the month for the last half of the prior month’s sales and on the 20th of the month for the first half of the current month’s sales. For accounts paid within the first 10 days after
Ronco Products, a wholesaler of fishing equipment, budgeted the following sales for the indicated months: All merchandise is marked up to sell at its invoice cost plus 25 percent. Target merchandise inventories at the beginning of each month are 30 percent of that month’s projected cost of
Enter the word or phrase that best completes each sentence. 1. The financial budget process includes the following budgets: a.___________________b.___________________c.___________________2. The master budget process usually begins with the__________________ budget. 3.
What are financial planning models?
What factors influence the sales forecast?
Differentiate between a sales forecast and a sales budget.
What is the principal objective of a cash budget?
Explain the relationship between the sales (or service) forecast and cost-driver activity.
"Budgeting is an unnecessary burden on many managers. It takes time away from important day-to-day problems." Do you agree? Explain.
"Pro forma statements are those statements prepared in conjunction with continuous budgets." Do you agree? Explain.
“Capital budgets are plans for managing long-term debt and common shares. Do you agree? Explain.
“Budgets are primarily a tool used to limit expenditures." Do you agree? Explain.
Is budgeting used primarily for scorekeeping, attention directing, or problem solving?
Wallaby Kite Company, a small Melbourne firm that sells kites on the Web, wants a master budget for the three months beginning January 1, 2012. It desires an ending minimum cash balance of $20,000 each month. Sales are forecast at an average wholesale selling price of $8 per kite. Merchandise costs
You are the new manager of the Rapidbuy Electronics store in West Edmonton Mall. Top management of Rapidbuy Electronics is convinced that management training should include the active participation of store managers in the budgeting process. You have been asked to prepare a complete master budget
Calgary Pipefitters Ltd. (CPL) is considering the purchase of a new fabricating machine for $40,000. The new machine will replace an old machine that has a book value of $10,000 but can be sold for $7,500. The new machine has an estimated life of five years, after which it would have a salvage
In November 2006 Charles Bird, President of Bird Packaging Co. in Guelph, Ontario, was trying to decide whether the company should purchase a new scoringprinting machine. The attraction of the new machine was that it would double capacity and also reduce labour costs. However, the relatively large
Desteur Plastics Limited (DPL) manufactures a wide range of household plastic products for kitchens and bathrooms. The company’s products are sold primarily to large retailers, including department stores, discount chains, and grocery chains. One of DPL’s products is a line of plastic dishware
Tube and Pipe Ltd. (T&P) was founded in the early 1970s and its sales grew very rapidly until the beginning of the 1980s. At that time, several competitors expanded their operations and sales by T&P stabilized. T&P uses substantial amounts of electricity in its manufacturing
Steve Hammer started his contracting business, Hammer Contractors (HC), six years ago and now owns three machines: a bulldozer, an excavator, and a front-end loader. His business is primarily excavating, landscaping, and moving earth. His sole proprietorship has a year-end of December 31. He
Ydeeps Limited was incorporated under the Ontario Business Corporations Act four months ago. The owner of Ydeeps, Mr. M. Sadim, incorporated the company because he believed that he would be investing in an automobile repair franchise. After a delay, Sadim has been able to assemble the following
Refer to the preceding problem, E7-12. Using FIFO, answer the same questions.Data From Exercises 12Earthtones Paint Company uses a process-cost system. Materials are added at the beginning of a particular process, and conversion costs are incurred uniformly. Work-in-process at the beginning of the
Earthtones Paint Company uses a process-cost system. Materials are added at the beginning of a particular process, and conversion costs are incurred uniformly. Work-in-process at the beginning of the month is 40 percent complete; at the end, 20 percent.One litre of material makes one litre of
Position Company manufactures an automotive GPS product. The manufacturing costs of the Assembly Department were:For simplicity, assume that this is a two-department company— assembly and finishing. There was no beginning work-in-process.Suppose 900,000 units were begun in the assembly
Consider the following data for 2010:
Fill in the unknowns:* Degree of completion: direct materials, 80%; conversion costs, 40%.† Degree of completion: direct materials, 40%; conversion costs, 10%. (Step 2) Equivalent Units (Step 1) PhysicalUnits Materials Direct Conversion Flow of Production in Units Costs Work-in-process, beginning
The production department of Garcia Paints Inc. had the following flow of litres of latex paint for the month of April:Litres completed:From work-in-process on April 1..................................5,000From April production .................................................25,000
Roxbury Clinic has been under pressure to keep costs down. The clinic administrator has been managing various revenue-producing centers to maximize contributions to the recovery of the operating costs of the clinic as a whole. The administrator has been considering whether to buy a special-purpose
Suppose the Norlo Canadian Pacific Railway is considering replacement of a power jack tamper, used for maintenance of track, with a new automatic raising device that can be attached to a production tamper. The present power jack tamper cost $24,000 five years ago and had an estimated life of
Assume that new equipment will cost $100,000 in cash and that the old machine cost $84,000 and can be sold now for $16,000 cash. Annual cash savings of $15,000 are expected for 10 years. 1. Compute the net present value of the replacement alternative, assuming that the minimum desired rate of
Study Exhibit 10-2. Suppose the annual cash inflow will be $2,500 rather than $2,000. What is the internal rate of return? Exhibit 10-2 Oniginal investment, $6,075. Useful lif,for yar. Anual csh inflow from operations, $2,00 Itenal rate of retum (seleted by ril-and-error methods), 12 percent.
Fill in the blanks. Number of Years 28 18 $ 7,000 Amount of annual cash inflow* $10,000 $ $ 80,000 Required initial investment $29,099 Internal rate of return 18% 16% Minimum desired rate of return 14% 26% $(13,835) $ Net present value * To be received at the end of each year.
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