Managerial Accounting 2nd Edition James Jiambalvo - Solutions

EXERCISE 7-9. Sunk, Avoidable, and Opportunity Costs Consider the information in exercise 7-8 and identify the following statements as true or false.a. Supervisory salary is an avoidable cost if the company decides to buy the valves.b. Depreciation of building is an avoidable cost if the company
EXERCISE 7-8. Make-or-Buy Decision Howell Corporation produces an executive jet. In this regard, the comparry is currently manufacturing a fuel valve and the cost of the valve is indicated below:Cost per Unit Variable costs Direct material $ 800 Direct labor 500 Variable overhead 200 Total variable
EXERCISE 7-7. Make or Buy Decision: Relevant Costs The Tufanzi Furniture Company manufactures leather furniture. The manufacturing process uses a variety of metal pieces such as brackets, braces, and casters. Carla Reid, the resource officer of Tufanzi, has been asked to determine if it is
EXERCISE 7-6. Incremental Analysis and Opportunity Costs Sawyer's Seafood Restaurant has been approached by Wellsworth Real Estate, which wants to hold an employee recognition dinner next month. Katie Miller, a manager of the restaurant agreed to a charge of $75 per person, for food, wine, and
EXERCISE 7-5. Incremental Analysis Each year, Knight Motors surveys 6,000 former and prospective customers regarding satisfaction and brand awareness. For the current year, the company is considering outsourcing the survey to RBG Associates who have offered to conduct the survey and summarize
EXERCISE 7-4. Incremental Analysis Nelson Design, a Kitchen and Bath design company, has experienced a drop in business due to an increase in interest rates and a corresponding slowdown in remodeling projects. To stimulate business, the company is considering exhibiting at the Atlanta Home Show.
EXERCISE 7-3. Internet Assignment Go to the financial glossary Investorwords.com at http://www.investorwords.com/ and look up the words "sunk cost" and "opportunity cost." Why is it that sunk costs are never relevant to a decision whereas opportunity costs are always relevant?
EXERCISE 7-2. Writing Assignment Adrienne Ciello owns and operates an exclusive bridal boutique in Bellevue, Washington. Her accountant has prepared a product line income statement that is reproduced below (Adrienne's two lines are gowns and accessories). In preparing the income statement, the
EXERCISE 7-1. Group Assignment Describe a decision and provide an example of a fixed cost that is incremental in the context of the decision. Then, provide an example of a fixed cost that is not incremental in the context of the decision.
10. (Appendix) Why is the bottleneck department referred to as a "drum" in the Theory of Constraints?
9. (Appendix) Why are batch sizes generally larger in bottleneck departments?
8. Why is the relative sales value a more logical basis for allocating joint costs compared to physical quantity?
7. What is a qualitative advantage of making rather than buying a component?
6. Give an example of a fixed cost that is not sunk but is still irrelevant.
5. What is the proper approach to analyzing whether or not a product line should be dropped?
4. Why are opportunity costs relevant when making decisions?
3. What are avoidable costs?
2. Why are sunk costs irrelevant in decision making?
1. What are differential costs and revenues?
10. (Appendix) True or False. Generally, parts should be inspected prior to being sent to a department that is a bottleneck.
9. (Appendix) According to the Theory of Constraints, optimizing use of a constraint requires:a. Production of the product with the highest profit per unit.b. Production of the product with the shortest production time.c. Production of the product with the highest contribution margin.d. Production
8. A joint product's cost is $ 1 8, which includes $6 of allocated joint cost. Its sales price is $16. In this case:a. Profit will improve if the company discontinues production of the product.b. The company should sell as few of the items as possible to minimize the loss on sales.c. The data are
7. The joint costs incurred in a joint product situation:a. Are incurred before the split-off point.b. Are incurred after the split-off point.c. Should only be allocated based on physical attributes.d. None of the above.
6. Opportunity costs are:a. Never incremental costs.b. Always incremental costs.c. Sometimes sunk costs.d. None of the above.
5. Which of the following is not relevant when considering whether or not to drop a product?a. The contribution margin.b. Qualitative factors.c. The potential impact on demand for other products.d. Allocated common costs.
4. True or False? Fixed costs are never incremental costs.
3. Which of the following is often not a differential cost?a. Material.b. Labor.c. Variable overhead.d. Fixed overhead.
2. Which of the following costs should not be taken into consideration when making a decision?a. Opportunity costs.b. Sunk costs.c. Relevant costs.d. Differential costs.
1. Differential costs are sometimes referred to as costs.
PROBLEM 6-12. (Appendix) Activity-Based Management Each month, senior managers at Logan's Department Store review cost reports for the company's various departments. The report for the human resource (HR) group for April is as follows:Human Resources April, 2006 Salaries and benefits $63,500
PROBLEM 6-11. (Appendix) Activity-Based Management First National Bank of Denver is conducting an ABM study of its teller operations. In this regard, the company has identified the following major activities performed by bank tellers:a. Process depositsb. Process withdrawalsc. Process requests for
PROBLEM 6-10. Activity-Based Management Baxter Consulting is a consulting firm with 10 offices. Within the company is a travel group that arranges flights and hotel accommodations for the over 1 ,000 consultants. The cost of operating the travel group (excluding the costs associated with actual
PROBLEM 6-9. Activity-Based Costing Computech Company manufactures mouse devices for computers. They make 12 different models as well as several other types of computer components. They have recently adopted an activity-based costing system to assign manufacturing overhead to products. The
PROBLEM 6-8. Activity-Based Costing The Summit Manufacturing Company produces two products. One is a recreational Whitewater kayak molded from plastic and designed to perform as a durable Whitewater play boat. The other product is a high-performance competition kayak molded with high-tech
PROBLEM 6-7. Cost Allocation and Apparent Profitability Jarvis Paint Company applies paint finishes to auto parts. In the past, most finishes were applied by hand, and the overhead allocation rate in the prior year was $10 per labor hour ($2,000,000 overhead -5- 200,000 labor hours). In the current
PROBLEM 6-5. Allocating Service Department Costs Armstrong Industries produces electronic equipment for the marine industry. Armstrong has two service departments(maintenance and computing) and two production departments (assembly and testing). Maintenance costs are allocated on the basis of square
PROBLEM 6-4. Allocating Service Department Costs World Airlines has three service departments: (1) ticketing, (2) baggage handling, and (3) engine maintenance.The service department costs are estimated for separate cost pools formed by department and are allocated to two revenue-producing
PROBLEM 6-3. Cost-Pius Contracts, Allocations and Ethics Pelton Instrumentation manufactures a variety of electronic instruments that are used in military and civilian applications. Sales to the military are generally on a cost-plus profit basis with profit equal to 10 percent of cost.Instruments
PROBLEM 6-2. Allocated Cost and Opportunity Cost Binder Manufacturing produces small electric motors used by appliance manufacturers. In the past year, the company has experienced severe excess capacity due to competition from a foreign company that has entered Binder's market.The company is
PROBLEM 6-1. Number of Cost Pools Icon.com sells software and provides consulting seivices to companies that conduct business over the Internet. The company is organized into two lines of business (software and consulting), and profit statements are prepared as follows:Sales Less direct costs Less
EXERCISE 6-17. Activity-Based Management PorcheParts.com supplies parts for older Porches. Customer orders are placed over the Internet and are generally filled in one or two days using express mail services.Mary Ortega, a consultant with ABM Services has been asked to conduct an ABM study of
EXERCISE 6-16. Activity-Based Management Eldon Company has two production plants. Recently, the company conducted a study to determine the cost of processing orders for parts at each of the plants. How might an operations manager use this information to manage the cost of processing orders?
EXERCISE 6-15. Relating Cost Pools to Products Using Cost Drivers Power Electronics manufactures portable power supply units. Power has recently decided to use an activity-based approach to cost its products. Production line setups is a major activity at Power. Next year Power expects to perform
EXERCISE 6-14. Activity-Based Costing The following are six cost pools established for a company using activity-based costing. The pools are related to the company's products using cost drivers.Cost Pools:( 1 ) Inspection of raw materials(2) Production equipment repairs and maintenance(3) Raw
EXERCISE 6-13. Cost Allocation and Opportunity Cost Keller Insurance Company has a graphic design department that designs insurance forms and other documents used by the company's three subsidiaries (Keller Home Insurance, Keller Auto Insurance, and Keller Business Insurance). For practical
EXERCISE 6-12. Problems Associated with Too Few Cost Pools Mott Manufacturing allocates factory overhead using one cost pool with direct labor hours as the allocation base. Mott has two production departments (PI & P2). The new accountant at Mott estimates that next year the total factory overhead
EXERCISE 6-11. Problems with Cost Allocation Keller Insurance Company has six service departments (Human Resources, Duplicating, Janitorial, Accounting, Graphic Design and Food Services) whose costs are allocated to the company's three subsidiaries (Keller Home Insurance, Keller Auto Insurance, and
EXERCISE 6-10. Responsibility Accounting, Controllable Costs Rex Ken, the manager of the service department at the Dirt Bike Sales and Service Company, is evaluated based on the profit performance of his department. The profit of the department is down this year because the service department's
EXERCISE 6-9. Problems Associated with Cost Allocation High Country Outerwear received an offer from a motorcycle company to purchase 1 ,000 waterproof riding suits for $175 each. High Country's accountants determine that the following costs apply to the production of a riding suit:Direct material
EXERCISE 6-8. Allocation of Service Department Costs Marvin Company has three service departments (SI, S2, S3) and two production departments (PI, P2). The following data relate to Marvin's allocation of service department costs:Budgeted Costs Number of Employees 51 $3,000,000 75 52 2,000,000 50 53
EXERCISE 6-7. Allocation of Service Department Costs The building maintenance department for Wells Manufacturing Company budgets annual costs of$3,000,000 based on the expected operating level for the coming year. The costs are allocated to two production departments. Wells is considering two
EXERCISE 6-5. Choice of. Allocation Base (Cost Driver) For Service Departments Keller Insurance Company has six service departments:Human Resources (hires employees and manages benefits)Duplicating (performs copy services)Janitorial (provides routine cleaning services)Accounting (provides
EXERCISE 6-4. Reasons for Allocating Indirect Costs Star Production Company has a security department that provides security services to other departments within the company. Department managers are responsible for working with the head of security to ensure that their departments are protected.
EXERCISE 6-3. Internet Assignment At research hospitals, indirect costs must be allocated among research, clinical, and educational activities. Examples of indirect costs include the cost of buildings, administrative overhead, utilities, computing, and telecommunications. A discussion of the
EXERCISE 6-2. Writing Assignment Mansard Hotels has 5 luxury hotels located in Boston, New York, Chicago, San Francisco, and Los Angeles. For internal reporting purposes, each hotel has an income statement showing its revenue and direct expenses.Additionally, the company allocates to each hotel a
EXERCISE 6-1. Group Assignment Explain how the allocation process can make a fixed cost appear variable, leading to a poor decision.
18. How does activity-based management differ from activity-based costing?
17. What are the limitations of activity-based costing?
16. When would activity-based costing give more accurate costs than traditional costing systems?
15. How does activity-based costing differ from the traditional costing approach?
14. Briefly explain how traditional methods of allocating overhead to products might underallocate costs to low production-volume products.
13. What major problem can be created by unitizing fixed costs for allocation? How might you avoid such a problem?
12. Why might noncontrollable costs be allocated to a department?
11. What is a responsibility accounting system?
10. Why is it generally a good idea to allocate budgeted, rather than actual, service department costs?
9. If cause-and-effect relationships cannot be established when choosing an allocation base, accountants use other criteria to select an allocation base. What are three such criteria?
8. If a company is allocating cafeteria costs to all departments within the company, what allocation base might result in a cause-and-effect relationship?
7. Explain one possible advantage to having two cost pools for each service department; one for variable costs and one for fixed costs.
6. What is a "cost pool?"
5. Explain what a cost objective is and give two examples.
4. What is a "cost-plus" contract? Describe how a cost-plus contract may influence selection of an allocation base.
3. Allocated costs are, in effect, a charge for the use of internal resources or services. What are some possible advantages obtained from charging for internal resources and services?
2. Is the following statement true? "Cost allocation refers to the process of assigning direct costs."Discuss.
1. List four reasons why indirect costs are allocated.
16. Activity-based management:a. Is the same as activity-based costing.b. Has the goal of managing activities that cause costs.c. Focuses only on the costs of activities.d. Supports the management dictum, "You can always manage what you can't measure."
15. Activity-based cost systems:a. Always lead to improvements in cost control.b. Are less expensive to develop and maintain than traditional costing systems.c. Allow managers to see the costs of key activities.d. Are used to develop the full cost of products, which provides clear information for
14. Most companies that use an activity-based costing system use:a. No cost pools.b. One or two cost pools.c. Two to five cost pools.d. More than five cost pools.
13.In allocating costs to products, more accurate costing is generally obtained by:a. Allocating costs using labor hours as the allocation base.b. Having more than one cost pool.c. Always using allocation bases that are based on production volume.d. None of the above.a.b.c.Cost drivers in
11. Controllable costs for the manager of Production Department A include:a. Costs of the finance departmentb. Costs of material and labor used in Department A.c. All costs related to Department A's final product.d. All the above.12.
10. Allocation of indirect costs:a. Can be done with great accuracy and precision, if the proper techniques are used.b. Is an inherently arbitrary process, a characteristic that can lead to problems.c. Can often be justified in a variety of ways that lead to substantially different costs being
9. One way to avoid the problems associated with unitized fixed costs is to:a. Not allocate fixed costs.b. Use a lump-sum method of allocating fixed costs.c. Combine fixed and variable costs in a single cost pool.d. None of the above.
8. When fixed costs are stated on a per unit basis:a. Fixed costs are said to be "unitized."b. Fixed costs may appear to be variable to managers receiving allocations.c. Decision making is greatly improved.d. Both a and b.
7. To prevent service departments from passing on the excess cost related to inefficiencies:a. Budgeted costs should be allocated.b. Actual costs should be allocated.c. No costs should be allocated.d. None of the above.
6. The direct method of allocating costs:a. Allocates service department costs to other service departments.b. Allocates only direct costs.c. Allocates service department costs to producing departments only.d. Both b and c.
5. In the cost allocation process, an allocation base:a. Must be some characteristic that is common to all of the cost objectives.b. Ideally should result in cost being allocated based on a cause-and-effect relationship.c. Both a and b.d. None of the above.
4. An important concern in forming a cost pool is to:a. Avoid placing similar costs in the same pool.b. Limit the number of costs that make up the pool.c. Ensure that the costs in the pool are homogeneous, or similar.d. None of the above.
3. In the cost allocation process, the cost objective is:a. The allocation base used to allocate the costs.b. A grouping of individual costs whose total is allocated using one allocation base.c. The product, service, or department that is to receive the allocation.d. None of the above.
2. There are, in order, three steps in the cost allocation process. List them:(1) (2) ,(3) .
1. Costs are allocated:a. To provide information useful for decision making.b. To reduce frivolous use of resources.c. To encourage evaluation of internally provided services.d. To calculate the "full cost" of products/services for GAAP reporting.e. All of the above are reasons to allocate costs.
PROBLEM 5-8. Variable and Full Costing Income: Comprehensive Problem The following information relates to Porter Manufacturing for fiscal 2006, the company's first year of operation:Selling price per unit Direct material per unit Direct labor per unit Variable manufacturing overhead per unit
PROBLEM 5-7. Reconciling Variable and Full Costing Income The following information relates to Jarden Industries for fiscal 2006, the company's first year of operation:Units produced 100,000 Units sold 80,000 Units in ending inventory 20,000 Fixed manufacturing overhead $500,000 Requireda.
PROBLEM 5-6. Variable versus Full Costing Income and Earnings Management Renton Tractor Company was formed at the start of 2004, and produces a small garden tractor. The selling price is $5,000, variable production costs are $2,000 per unit, fixed production costs are $6,000,000 per year, and fixed
PROBLEM 5-5. Using Information from a Variable Costing Income Statement to Make a Decision Below is a variable costing income statement for Wilner Glass Company, a maker of bottles for the beverage industry. For the coming year, the company is considering hiring two additional sales representatives
PROBLEM 5-4. Reconciling Variable and Full Costing Income Miller Heating Company is a small manufacturer of auxiliary heaters. The units sell for $100 each. In 2006, the company produced 1,200 units and sold 1,000 units. Below are variable and full costing income statements for 2006.Income
PROBLEM 5-3. Variable and Full Costing: Income Effect of Clearing Excess Inventory The following information is available for Skipper Pools, a manufacturer of above-ground swimming pool kits:2006 2007 Total 10,000 6,000 16,000 8,000 8,000 16,000 $ 3,000 $ 3,000 $ 700 $ 700 $ 1,300 $ 1,300 $ 200 $
PROBLEM 5-2. Variable and Full Costing: Earnings Management with Full Costing; Changes in Production and Sales Firemaster BBQ produces stainless steel propane gas grills. The company has been in operation for three years and sales have declined each year due to increased competition. The following
PROBLEM 5-1. Variable and Full Costing: Sales Constant but Production Fluctuates Spencer Electronics produces a wireless home lighting device that allows consumers to turn on home lights from their cars and light a safe path into and through their homes. Information on the first three years of
EXERCISE 5-10. During the year, Xenoc produces 1,000 pairs of speakers and sells 900 pairs. How much fixed manufacturing overhead is in ending inventory under full costing?Compare this amount to the difference in the net incomes calculated in Exercises 8 and 9.
EXERCISE 5-9. During the year, Xenoc produces 1 ,000 pairs of speakers and sells 900 pairs. What is net income using variable costing?
EXERCISE 5-8. During the year, Xenoc produces 1 ,000 pairs of speakers and sells 900 pairs. What is net income using hill costing?

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Managerial Accounting 2nd Edition James Jiambalvo - Solutions

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