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Management Accounting 6th Canadian edition Charles T. Horngren, Gary L. Sundem, William O. Stratton, Phillip Beaulieu - Solutions

Give four examples of activities and related cost drivers that can be used in an ABC system to allocate costs to products, services, or customers.
Why is it especially difficult to allocate joint costs and byproduct costs?
How does the term cost application differ from cost allocation?
“The step-down method allocates more costs to the producing departments than does the direct method.” Do you agree? Explain.
How could national advertising costs be allocated to territories?
“A commonly misused basis for allocation is dollar sales.” Explain.
“We used a lump-sum allocation method for fixed costs a few years ago, but we gave it up because managers always predicted usage below what they actually used.” Is this a common problem? How might it be prevented?
Why should budgeted-cost rates, rather than actual-cost rates, be used for assigning the variable costs of service departments?
What are the three types of allocations?
What are the three purposes of cost allocation?
Give five terms that are sometimes used as substitutes for the term allocate.
Red Deer Milling buys oats at $0.60 per kilogram and produces CRM Oat Flour, CRM Oat Flakes, and CRM Oat Bran. The process of separating the oats into oat flour and oat bran costs $0.30 per kilogram. The oat flour can be sold for $1.50 per kilogram, the oat bran for $2.00 per kilogram. Each
Brandon Cleaning provides cleaning services for a variety of clients. The company has two producing departments, Residential and Commercial, and two service departments, Personnel and Administrative. The company has decided to allocate all service department costs to the producing departments—
The Tsang Manufacturing Company has two producing departments, machining and assembly. Mr. Tsang recently automated the machining department. The installation of a computer-aided manufacturing (CAM) system, together with robotic workstations, drastically reduced the amount of direct labour
Quebec Metals buys raw ore on the open market and processes it into two final products, A and B. The ore costs $10 per kilogram, and the process separating it into A and B has a cost of $4 per kilogram. During 2012, Quebec plans to produce 200,000 kilograms of A and 600,000 kilograms of B from
Wheelick Controls Company has two producing departments, Mechanical Instruments and Electronic Instruments. In addition, there are two service departments, Building Services and Materials Receiving and Handling. The company purchases a variety of component parts from which the departments assemble
Kiku Yamamoto is the controller of Watanabe Inc., an electronic controls company located in Osaka. She recently attended a seminar on activity-based costing (ABC) in Tokyo. Watanabe’s traditional cost accounting system has three cost categories: direct materials, direct labour, and indirect
The following data (in thousands) summarize the factory operations of the Smothers Manufacturing Company for the year 2011, its first year in business:a. Direct materials purchased for cash ...................................................$360b. Direct materials issued and used
The Eastclock Corporation (EC) manufactures timing devices that are used in industrial settings. Recently, profits have fallen, and management is seeking your advice as an outside consultant on changes that should be made.During its 60-year history, EC has developed a strong and loyal customer base
Independent Outside Underwriters Co. (IOU) established a Systems Department two years ago to implement and operate its own data processing systems. IOU believed that its own system would be more cost-effective than the service bureau it had been using.IOU’s three departments—Records, Claims,
Maritime Desserts Inc. (MDI) produces a variety of premium cheesecakes and sells them in individual packages directly to retail customers and in packages of 10 cakes to restaurants in New Brunswick, Nova Scotia, and Prince Edward Island. MDI started as a small retail outlet, where it developed a
Company is an automotive component supplier. O’Sullivan has been approached by Honda Canada’s Alliston, Ontario, plant to consider expanding its production of part 24Z2 to a total annual quantity of 2,000 units. This part is a low-volume, complex product with a high gross margin that is based
Hipercor is a grocery company with stores throughout Spain. Suppose the company is planning an expansion of its store in central Madrid. A preliminary analysis has shown the Packaged Food department to be the most profitable, so the company plans to increase its space the most.Assume that the
Refer to the chapter’s Pacific Power Company (PPC) ABC illustration.1. One of the activity centres is Account Inquiry. Based on Exhibits 5-7 through 5-9, estimate the variable and fixed costs included in the total Account Inquiry cost, $205,332.2. Is the cost driver used to assign Account Inquiry
Winnipeg Wholesale Distributors uses an activity-based costing system to determine the cost of handling its products. One important activity is the receiving of shipments in the warehouse. Three resources support that activity: Recording and record-keeping, labour, and inspection.Recording and
The Glasgow Electronics Company produces three types of circuit boards: L, M, and N. The cost accounting system used by Glasgow until 2012 applied all costs except direct materials to the products using direct-labour-hours as the only cost driver. In 2012 the company undertook a cost study. The
General Textiles Company has prepared departmental overhead budgets for normal activity levels before reapportionment's as follows:Building and grounds ..............................................$ 20,000Personnel ......................................................................1,200General
Reliable Machining Products (RMP) is an automotive component supplier. RMP has been approached by Chrysler with a proposal to significantly increase production of Part T151A to a total annual quantity of 100,000. Chrysler believes that by increasing the volume of production of Part T151A, RMP
Lower Mainland Railroad (LMR) has a commuter operation that services passengers along a route between Vancouver and Mission. Problems of cost allocation were highlighted in a news story about LMR’s application to the Public Utilities Commission (PUC) for a rate increase. The PUC staff claimed
Jade Soon, the administrator of Saint Jude Hospital, is interested in obtaining more accurate cost allocations on the basis of cause and effect. The $210,000 of laundry costs had been allocated on the basis of 600,000 kilograms processed for all departments, or $0.35 per kilogram.Soon is concerned
A chemical company has a batch process that takes 1,000 litres of a raw material and transforms it into 80 kilograms of X1 and 400 kilograms of X2. Although the joint costs of their production are $1,200, both products are worthless at their split-off point. Additional separable costs of $350 are
The Western Canadian Railroad allocates all central corporate overhead costs to its divisions. Some costs, such as specified internal auditing and legal costs, are identified on the basis of time spent. However, other costs are harder to allocate, so the revenue achieved by each division is used as
1. Allocate the costs of the service departments using the step-down method.2. Using the results of number 1, compute the cost per direct-labourhour in the Mechanical Instruments department and the cost per component in the Electronic Instruments department.3. Using the results of number 2, compute
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. That is, hospitals cannot bill government agencies for the use of the equipment unless the boards
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 $0.75 per 1,000 tonne-kilometres operated in the North and South regions. (A tonne-kilometre is the
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 automobile plus $0.10 per kilometre variable cost to own, operate, and maintain cars such as those
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, $75,000; and indirect production, $80,000. The grand total was $355,000. The machining department
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 system. As a first step in analyzing the feasibility of the change, the company identified its major
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 as a by-product. During the 2012 fiscal year, the company paid $1,000,000 to purchase 8 million
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 employs 14 tellers, 3 retail sales managers (RSMs), and the branch managing officer. 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 are called “Hansel” and “Gretel.” They require 0.20 and 0.40 kg of materials, respectively,
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. Solvent A can be sold at split-off for $30 per litre and solvent B for $45 per litre.1. Allocate the
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 costs on the basis of number of employees. Butler allocates custodial costs on the basis of square
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 November:1. Compute the central costs allocated to each store with budgeted sales as the
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. Departments had projected a need for 100,000 copies a month. The City Planning Department predicted its
The following data have been condensed from Chateau Corporation’s report of 2012 operations (in $000’s):1. Prepare the 2012 income statement in contribution form, ignoring income taxes.2. Chateau’s operations have been fairly stable from year to year. In planning for the future, top
Stephenson Corporation provides you with the following miscellaneous data regarding operations for 2012:Break-even point (in sales dollars) ............................................$ 66,667Direct materials used .....................................................................24,000Gross
The Gumey Hosiery Company provides you with the following miscellaneous data regarding operations in 2012:Gross margin ..................................................................$ 20,000Net income (loss) ..............................................................(5,000)Sales
Fashions Company manufactured and sold 1,000 pairs of leather handbags during July. Selected data for this month follow.Sales ........................................................................$110,000Direct materials used ................................................31,000Direct labour
Marlinski had the following data (in thousands) for a given period. Assume there are no inventories.Direct labour ...................................................................$170Direct materials .................................................................210Variable factory overhead
Yoko Trucks Ltd. had the following data (in millions of yen) for a given period:Sales ................................................................................¥770Direct materials ...............................................................290Direct labour
The Notley Company had the following data (in thousands) for a given period:Sales .................................................................$700Direct materials.................................................210Direct labour......................................................150Indirect
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 sheet?Data From Previous ProblemsAssume that the Bolton Company had no beginning inventories. The
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 direct labour 1604. Acquire factory overhead 2005. Complete all goods that were started ??6. Cost of
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 activity or volume changes over wide ranges of activity. You will have two answers, D or I and V or F, for
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 specific cost is direct to the department but indirect to the product, place a D in column 1 and an I in
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 million instead of $40 million. Suppose also that the cost of goods sold is unchanged.1. Recast the
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 costs.Exhibits 4-4 Sales (8,000,000 units @ $10) Cost of goods manufactured and $80,000,000 sold:
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 units during 2010 wereVariable overhead ..........................¥14,160,000Fixed overhead
Chan Manufacturing Company data for 2010 are as follows:Sales: 12,000 units at $18 eachActual production ........................................................15,000 unitsExpected volume of production ................................18,000 unitsManufacturing costs incurredVariable
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 years of operation areYear Absorption Costing Variable Costing2010 $80,000
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 $16,000 for factory rent and other fixed factory overhead. In 2012, it manufactured nothing and sold
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 ....................................................................................1,400Units produced ..........................................................................1,900Direct
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 fixed costs were identical in 2010 and 2011. There is no beginning or ending work-in-process.1.
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. Both sell the devices for $180.In 2012, Orinoco produced 10,000 devices from Sonex at the following
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 additional setup hourThe regression equationb. Using the information provided in Exhibit 3A-1,
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 25 weeks of logistics cost and number of orders data for measuring logistics cost behaviour?3.
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 division using each cost driver? Do the Forest Resources and Lumber Products divisions have legitimate
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 like to improve its ability to forecast these expenses for next year. The head office is in Vancouver
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 batches of output. The following data show the results of a random sample of 10 batches of one pattern 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 summer. However, the region is rather sedate in the fall and winter. The fall/winter population of
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 produced. She collected the following quarterly data:1. Using the high-low method to estimate costs,
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 sufficient for an additional 20 percent. Ford had considered building new highly automated assembly
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 costs of the manufacturing maintenance activity, since maintenance is a significant mixed cost.
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 private music lessons for up to 150 band students a year (where a year is nine months of education)
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 assembly operation. Mr. Ellis is concerned that the cost function that he currently uses—based on
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 production was above average, however, the division spent less than predicted for supplies; when
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 of Richmond, Leslie Paton, is especially concerned with understanding the effects of support cost
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 $820,000 for 2009 and $870,000 for 2008. Total expenses for 2009 were $810,000 and for 2008 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 across-the-board increase in prices for a particular test because of the increased testing and
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 an expected cost of $7 per tax return, based on measurement studies that allow 20 minutes per
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 activity increases, variable rate decreasing as activity increases, mixed? More than one of these terms
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 function for Southampton.
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. Y=$3,000+$6X1+$30X2e. Y=$9,000+$3X1+$2X2f. Y=$8,000+$1.50X12

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