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Management Accounting 6th Canadian edition Charles T. Horngren, Gary L. Sundem, William O. Stratton, Phillip Beaulieu - Solutions
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 in cost analysis. His first assignment was to apply regression analysis to various costs in the
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 online approach has the lower cost? What is the indifference level of orders, or the
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 ........................................................................... $22,000Depreciation
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 2001, Expedia reported an operating loss of $19 million on sales revenue of $57 million. In the
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 you to measure the function for mixed-cost behaviour of repairs and maintenance from the following
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 analysis suggests that support costs are driven primarily by the number of manual operations performed
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 how much is variable. The following data are the only records available:1. Find monthly fixed support
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 them or applies a natural finish. She has a good sense of her labour and materials cost behaviour,
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 integer (person).2. Suppose that QCS uses the small conference room in Hotel Suburb and that 18
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 expenses.3. Compute the 2011 patient-days that would have been necessary for the obstetrics department to
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 and still maintain the current contribution margin ratio?3. What volume of sales in dollars must
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 levels. Each situation described below is to be considered independently.1. Production and sales are
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, of which 68.1 percent were filled. (A seat-kilometre is one seat travelling one kilometre. For
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 computer-controlled robots. The change was necessary because of fierce competitive pressures. Improvements in
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, multiscreen theatres. Popcorn machines in most of the chain’s theatres need to be replaced. New
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 even. Shaun McHale, the district manager, looks into the matter and compiles the following information
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 takers ..................................................... $160,000Commissioner’s
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 believes that at least 10 individuals should be retained for a year or more even if billings drop
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 variable costs consist of the $10 unit purchase price and a handling cost of $2 per unit.
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 each room rented. It operates 365 days per year. The hotel is subject to an income tax rate of 40
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 millions):Sales ..................................................... $ 9,416Costs of
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 serves it. The budget data for 2012 areThe company prepares the items in the same kitchens, delivers
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 agency supplements each person’s income by $5,000 annually. The agency’s fixed costs are $280,000.
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 conducting its weekly bingo nights. The parish has no hall, but a local hotel would be willing to
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 millions):Net sales ..................................................................................
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 present variable costs average $10.60 per meal.1. How many meals must she serve to attain a profit
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 100 percent of the receipts and will return 30 percent to the individual local closed-circuit theatre
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, and each glass costs Joe an average of $2.20. Joe has hired a bartender and waiter at $3,000 and
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 $42,000?
A fully licensed fireworks company located in Ontario has budgeted sales of $75,000, and expected expenses are as follows:Cost of fireworks .......................... $36,000Labour cost ................................... 15,000Other costs
Alpha Psi (BAP), the accounting honorary fraternity, held a homecoming party. The fraternity expected attendance of 70 persons and prepared the following budget:Room rental ................................... $ 140Food ................................................
Matsunaga Farms produces strawberries and raspberries. Annual fixed costs are $15,600. The cost driver for variable costs is “litres of fruit produced.” The variable cost is $0.75 per litre of strawberries and $0.95 per litre of raspberries. Strawberries sell for $1.10 per litre, raspberries
Motel 6 pioneered the economy-lodging brand in 1962. It now has 91,000 rooms in 1,000 locations (average is 91 rooms) in the United States and Canada. Suppose a particular Motel 6 has annual fixed costs of $1.2 million for its 100-room motel, average daily room rents of $50, and average variable
Martin Hospital has overall variable costs of 20 percent of total revenue and fixed costs of $40 million per year.1. Compute the break-even point expressed in total revenue. 2. A patient-day—which is one patient spending one day in the hospital—is often used to measure the volume of a
From the two graphs below, construct two graphs that depict the cost behaviour on a total cost basis. Which of the two constructed graphs shows fixed cost behaviour? Variable cost behaviour? $0.14 - $0.07 - 0.06 - 0.12 – 0.05 0.10 0.04 0.08 0.06 0.03 0.04 0.02 - Q.02 – 0.01 ' 140,000 '140,000
From the two graphs below, construct two graphs that depict the cost behaviour on a perdriver-unit basis. Which of the two constructed graphs shows fixed cost behaviour? Variable cost behaviour? $30,000 $12,000 25,000 10,000 20,000 8,000- 15,000 - 6,000 4.000 – 10,000- 5,000 2,000 100,000 125,000
Fill in the blanks for each of the following independent cases: (b) (a) Selling Variable Total (c) (d) Total (e) Total (f) Net Case Price Per Cost Per Units Contribution Fixed Income Unit Margin Costs Unit Sold $25 120,000 $720,000 $650,000 $ 1. 2. 10 100,000 320,000 15,000 3. 20 15 100,000 12,000
Fill in the blanks for each of the following independent cases (ignore income taxes): Variable Expenses Contribution Margin Net Income Sales Fixed Expenses 1. $900,000 $500,000 2. 800,000 3. $330,000 350,000 80,000 600,000 360,000 250,000
“Two products were sold. Total budgeted and actual total sales in number of units were identical. Unit variable costs and sales prices were the same. Actual contribution margin was lower.” What could be the reason for the lower contribution margin?
“Incremental analysis is quicker, but it has no other advantage over an analysis of all costs and revenues associated with each alternative.” Do you agree? Why or why not?
Describe three ways of lowering a break-even point.
“It is essential to choose the right CVP technique—equation, contribution margin, or graphical. If you pick the wrong one, your analysis will be faulty.” Do you agree? Explain.
“Companies in the same industry generally have about the same break-even point.” Do you agree? Explain.
“Contribution margin is the excess of sales over fixed costs.” Do you agree? Explain.
Identify two simplifying assumptions that underlie CVP analysis.
“The relevant range pertains to fixed costs, not variable costs.” Do you agree? Explain.
“It is confusing to think of fixed costs on a per unit basis.” Do you agree? Why or why not?
“Fixed costs decline as volume increases.” Do you agree? Explain.
“Cost behaviour is simply identification of cost drivers and their relationships to costs.” Comment.
Each problem is unrelated to the others.1. Given: Selling price per unit, $20; total fixed expenses, $5,000; variable expenses per unit, $16. Find break-even sales in units.2. Given: Sales, $40,000; variable expenses, $30,000; fixed expenses, $8,000; net income, $2,000. Find break-even sales in
Beth Durham opened Beth’s Corner, a small day care facility, just over two years ago. After a rocky start, Beth’s Corner has been thriving. Durham is now preparing a budget for November 2012.Monthly fixed costs for Beth’s Corner areRent ...........................................
The Keg Steakhouse offers steak, chicken, and seafood served in restaurants across Canada and in the United States. Maintaining a clean environment for customers is a key success factor at The Keg. Each restaurant is cleaned regularly after closing. In addition to regular cleaning, from 5 to 20
Barkins Moving Company specializes in hauling heavy goods over long distances. The company’s revenues and expenses depend on revenue kilometres, a measure that combines both weights and distance travelled. Summarized budget data for next year are based on predicted total revenue kilometres of
Food Services Company operates and services snack vending machines located in restaurants, gas stations, and factories. The machines are rented from the manufacturer. In addition, Tessier must rent the space occupied by its machines. The following expense and revenue relationships pertain to a
Consider a particular Bombardier plant. Maintaining a clean working environment is important to Bombardier. Cleaning the plant is the responsibility of the maintenance department. Two of the resources needed to clean the plant are labour and cleaning supplies. The cost driver for both resources is
Mr. Crothers’s story is told in The Globe and Mail article, “This WestJet staffer blew the whistle on his employer’s corporate spying. He’s still waiting for someone to say thanks,” by B. Jang and P. Brethour (Oct. 18, 2006, p. A1). Obtain this article. Mr. Crothers was not an accountant,
1. Identify the key success factors for Earthstone Clays Ltd. and identify how they have changed since the company’s initial operation.2. What information is required by the president to manage Earthstone Clays successfully?Reprinted, with permission, from Uniform Final Examination, Paper III,
1. Discuss why Rebecca Long has an ethical responsibility to take some action about her suspicion of illegal dumping of toxic wastes.2. For each of the three alternative courses of action, explain whether the action is appropriate.3. Assume that Rebecca sought the advice of the vice president,
Electronic Equipment Leasing Company (EEL) leases office equipment to a variety of customers. The company’s organization chart is shown below.The four positions identified in the chart are described below:Ralph Biddle, assistant controller, special projects. Biddle works on projects assigned to
Sandy Tanaka, newly hired controller of Braxton Industries, had been lured away from a competitor to revitalize the controller’s department. Her first day on the job proved to be an eye-opener. One of her first interviews was with Adrian Belton, production supervisor in the Alberta factory.
A news story reported the following anecdote: John Anderson, a veteran of Rockwell’s automotive operations, recalls that when he sat in on meetings at the company’s North American Aircraft Operations twenty years ago, “there’d be 60 or 70 guys talking technical problems, with never a word
Historically, Canadian universities were funded primarily on a per student basis in the form of tuitions and government grants. More recently there has been increased use of program-specific grants, and ceilings have been placed on the number of students that the government will fund at any one
Jan Harvi, an able mechanical engineer, was informed that she would be promoted to assistant factory manager. Jan was pleased but uncomfortable. She knew little about accounting and she had taken only one course in “financial” accounting. Jan planned to enrol in a management accounting course
Why is it important for management accountants to abide by a code of ethics?
What is the essence of the JIT philosophy?
“The accounting system is intertwined with operating management. Business operations would be a hopeless tangle without the paperwork that is so often regarded with disdain.” Do you agree? Explain, giving examples.
“The controller does control, in a special sense.” Explain.
Name the six business functions that comprise the value chain.
Explain the term “key success factors” and why it is important to identify them for a company.
“Good accounting provides automatic control of operations.” Do you agree? Explain.
“Management by exception means abdicating management responsibility for planning and control.” Do you agree? Explain.
Distinguish among a budget, a performance report, and a variance.
“Planning is much more vital than control.” Do you agree? Explain.
Give examples of special nonrecurring decisions and of long-range planning.
“The emphases of financial accounting and management accounting differ.” Explain.
What are the three broad purposes of an accounting system?
What two major themes will be emphasized in succeeding chapters?
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