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managerial accounting 8th
Managerial Accounting Creating Value In A Dynamic Business Environment Mass Market Paperback Jan 01 2013 Hilton Platt 10th Edition David Platt Ronald W Hilton - Solutions
A company with an advanced manufacturing environment typically will have a higher break-even point, greater operating leverage, and larger safety margin than a labor-intensive firm. True or false? Explain.
Two companies have identical fixed expenses, unit variable expenses, and profits. Yet one company has set a much lower price for its product. Explain how this can happen.
How could cost-volume-profit analysis be used in budgeting? In making a decision about advertising?
How can a hotel’s management use cost-volume-profit analysis to help in deciding on room rates?
A car rental agency rents subcompact, compact, and full-size automobiles. What assumptions would be made about the agency’s sales mix for the purpose of a cost-volume-profit analysis?
What does the term sales mix mean? How is a weighted-average unit contribution margin computed?
When sales volume increases, which company will experience a larger percentage increase in profit:company X, which has mostly fixed expenses, or company Y, which has mostly variable expenses?
East Company manufactures VCRs using a completely automated production process. West Company also manufactures VCRs, but its products are assembled manually.How will these two firms’ cost structures differ? Which company will have a higher operating leverage factor?
What is the difference between a manufacturing company’s gross margin and its total contribution margin?
Why do many operating managers prefer a contribution income statement instead of a traditional income statement?
List the most important assumptions of cost-volumeprofit analysis.
How can a profit-volume graph be used to predict a company’s profit for a particular sales volume?
An art museum covers its operating expenses by charging a small admission fee. The objective of the nonprofit organization is to break even. A local arts enthusiast has just pledged an annual donation of$10,000 to the museum. How will the donation affect the museum’s break-even attendance level?
What will happen to a company’s break-even point if the sales price and unit variable cost of its only product increase by the same dollar amount?
In a strategy meeting, a manufacturing company’s president said, “If we raise the price of our product, the company’s break-even point will be lower.”The financial vice president responded by saying,“Then we should raise our price. The company will be less likely to incur a loss.” Do
Delmarva Oyster Company has been able to decrease its variable expenses per pound of oysters harvested. How will this affect the firm’s break-even sales volume?
Suppose the fixed expenses of a travel agency increase.What will happen to its break-even point, measured in number of clients served? Why?
What does the term safety margin mean?
What information is conveyed by a cost-volume-profit graph in addition to a company’s break-even point?
What is the meaning of the term unit contribution margin? Contribution to what?
Briefly explain each of the following methods of computing a break-even point in units: ( a ) contributionmargin approach, ( b ) equation approach, and ( c )graphical approach.
Understand the effect of income taxes on CVP analysis (appendix).
Be aware of the effects of advanced manufacturing technology on CVP relationships.
Understand the implications of activity-based costing for CVP analysis.
Explain the role of cost structure and operating leverage in CVP relationships.
Prepare and interpret a contribution income statement.
List and discuss the key assumptions of CVP analysis.
Compute the break-even point and prepare a profit-volume graph for a multiproduct enterprise.
Apply CVP analysis to determine the effect on profit of changes in fixed expenses, variable expenses, sales prices, and sales volume.
Prepare a cost-volume-profit (CVP) graph and explain how it is used.
Compute the contribution-margin ratio and use it to find the break-even point in sales dollars.
Compute a break-even point using the contribution-margin approach and the equation approach.
Refer to the data and accompanying information in the preceding case.Required:1. Use the high-low method to estimate the cost behavior for the clinic’s administrative costs.Express the cost behavior in formula form ( Y 5 a 1 bX ). What is the variable cost per patient?2. Build a spreadsheet:
I don’t understand this cost report at all,” exclaimed Jeff Mahoney, the newly appointed administrator of Valley General Hospital. “Our administrative costs in the new pediatrics clinic are all over the map. One month the report shows $7,000, and the next month it’s $13,900. What’s going
Outside Environment, Inc. provides commercial landscaping services in San Diego. Sasha Cairns, the firm’s owner, wants to develop cost estimates that she can use to prepare bids on jobs. After analyzing the firm’s costs, Cairns has developed the following preliminary cost estimates for each
Jefferson County Airport handles several daily commuter flights and many private flights. The county budget officer has compiled the following data regarding airport costs and activity over the past year.Required:1. Draw a scatter diagram of the airport costs shown above.2. Build a spreadsheet:
Randolph Dana owns a catering company that prepares banquets and parties for business functions throughout the year. Dana’s business is seasonal, with a heavy schedule during the summer months and the year-end holidays. During peak periods there are extra costs; however, even during nonpeak
Shortly after being hired as a cost analyst with Florida International Airlines, Kim Williams was asked to prepare a report that focused on passenger ticketing cost. The airline writes most of its own tickets, makes little use of travel agents, and has seen an increased passenger interest in
The controller of Saratoga Auto Cylinder Company believes that the identification of the variable and fixed components of the firm’s costs will enable the firm to make better planning and control decisions. Among the costs the controller is concerned about is the behavior of indirect-materials
Shenandoah Valley Golf Association is a nonprofit, private organization that operates three 18-hole golf courses in Virginia. The organization’s financial director has just analyzed the course maintenance costs incurred by the golf association during recent summers. The courses are maintained by
Refer to the data in the preceding problem for Nantucket Marine Supply.Required:1. Build a spreadsheet: Construct an Excel spreadsheet and use the Excel commands to perform a least-squares regression. Estimate of the variable- and fixed-cost components in the company’s material-handling
Nantucket Marine Supply is a wholesaler for a large variety of boating and fishing equipment. The company’s controller, Alan Denney, has recently completed a cost study of the firm’s material-handling department. The activity measure (independent variable) used in the study was hundreds of
The following selected data were taken from the accounting records of Manitoba Manufacturing Company. The company uses direct-labor hours as its cost driver for overhead costs.Month Direct-Labor Hours Manufacturing Overhead January .............................................................
Lone Mountain Extraction, which mines ore in Idaho, uses a calendar year for both financial-reporting and tax purposes. The following selected costs were incurred in December, the low point of activity, when 1,400 tons of ore were extracted:Straight-line depreciation ....................... $30,000
Liberty Bell Fitness, Inc. operates a chain of fitness centers in Philadelphia. The firm’s controller is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the firm’s equipment maintenance costs must be determined. The accounting
The Piedmont School of Music has hired you as a consultant to help in analyzing the behavior of the school’s costs. Use the account-classification method of cost estimation to classify each of the following costs as variable, fixed, or semivariable. Before classifying the costs, choose an
For each of the following cost items (1 through 11), choose the graph (a through l) that best represents it.1. The cost of utilities at a university. For low student enrollments, utility costs increase with enrollment, but at a decreasing rate. For large student enrollments, utility costs increase
Recent monthly costs of providing on-board flight service incurred by New England Airlines are shown in the following table.Month Number of Passengers Cost of On-Board Flight Service July ............................................................ 16,000
Gator Beach Marts, a chain of convenience grocery stores in the Fort Lauderdale area, has store hours that fluctuate from month to month as the tourist trade in the community varies. The utility costs for one of the company’s stores are listed below for the past six months.Month Total Hours of
The State Department of Taxation processes and audits income-tax returns for state residents. The state tax commissioner has recently begun a program to estimate the costs of running the department. The independent variable used in the program is the number of returns processed. The analysis
Weathereye, Inc. manufactures weather satellites. The final assembly and testing of the satellites is a largely manual operation involving dozens of highly trained electronics technicians. The following learning curve has been estimated for the firm’s newest satellite model, which is about to
Refer to the data in the preceding exercise.Required:1. Draw a scatter diagram and graph the company’s energy cost behavior using the visual-fit method.2. Predict the energy cost for a month in which 78,000 pints of applesauce are produced.3. What peculiarity is apparent from the scatter diagram?
Jonathan Macintosh is a highly successful upstate New York orchardman who has formed his own company to produce and package applesauce. Apples can be stored for several months in cold storage, so applesauce production is relatively uniform throughout the year. The recently hired controller for the
Visit the website of one of the following companies, or a different company of your choosing.Levi Strauss www.levi.com Apple Computer www.apple.com General Electric www.ge.com Boeing www.boeing.com Ford www.ford.com/us Honeywell www.honeywell.com Required: Read about the company’s products and
The Kansas City Veterinary Laboratory performs a variety of diagnostic tests on commercial and domestic animals. The lab has incurred the following costs over the past year.Required:1. Plot the data above in a scatter diagram. Assign cost to the vertical axis and the number of diagnostic tests to
The behavior of the annual maintenance and repair cost in the Grounds Department of the Allegheny Public School District is shown by the solid line in the following graph. The dashed line depicts a semivariable-cost approximation of the department’s repair and maintenance cost.Required:1. What is
Brazilia Bus Tours has incurred the following bus maintenance costs during the recent tourist season.(The real is Brazil’s national monetary unit. On the day this exercise was written, the real was equivalent in value to .5092 U.S. dollar.)Required:1. Use the high-low method to estimate the
Lancaster Meat Company produces one of the best sausage products in southeastern Pennsylvania. The company’s controller used the account-classification method to compile the following information.a. Depreciation schedules revealed that monthly depreciation on buildings and equipment is $21,000.b.
Draw a graph of the cost behavior for each of the following costs incurred by the Valley View Hospital.The hospital measures monthly activity in patient days. Label both axes and the cost line in each graph.1. The cost of food varies in proportion to the number of patient days of activity. In
WMTB is an independent television station run by a major state university. The station’s broadcast hours vary during the year depending on whether the university is in session. The station’s productioncrew and supervisory costs are as follows for August and October.Required:1. Compute the cost
Briefly describe two methods that can be used to evaluate a particular least-squares regression line.
List several possible cost drivers that could be used by a cruise line such as Carnival.
Distinguish between simple regression and multiple regression.
Use an equation to express a least-squares regression line. Interpret each term in the equation.
Explain the meaning of the term least squares in the least-squares regression method of cost estimation.
What is the chief drawback of the high-low method of cost estimation? What problem could an outlier cause if the high-low method were used?
Describe the visual-fit method of cost estimation. What are the main strengths and weaknesses of this method?
Explain the cost estimation problem caused by allocated and discretionary costs.
What is an outlier? List some possible causes of outliers. How should outliers be handled in cost estimation?
Suggest an appropriate independent variable to use in predicting the costs of the following tasks.a. Handling materials at a loading dock.b. Registering vehicles at a county motor vehicle office.c. Picking oranges.d. Inspecting computer components in an electronics firm.
What is meant by a learning curve? Explain its role in cost estimation.
A cost analyst showed the company president a graph that portrayed the firm’s utility cost as semivariable.The president criticized the graph by saying, “This fixed-cost component doesn’t look right to me. If we shut down the plant for six months, we wouldn’t incur half of these costs.”
Indicate which of the following descriptions is most likely to describe each cost listed below.Description Costs Engineered cost Annual cost of maintaining an interstate highway Committed cost Cost of ingredients in a breakfast cereal Discretionary cost Cost of advertising for a credit card company
Using graphs, show how a semivariable (or mixed) cost behavior pattern can be used to approximate ( a ) a stepvariable cost and ( b ) a curvilinear cost.
Explain the impact of an increase in the level of activity(or cost driver) on ( a ) total variable cost and ( b ) variable cost per unit.
Explain why a manufacturer’s cost of supervising production might be a step-fixed cost.
Explain the impact of an increase in the level of activity(or cost driver) on ( a ) total fixed cost and ( b ) fixed cost per unit of activity.
Draw a simple graph of each of the following types of cost behavior patterns: ( a ) variable, ( b ) step-variable, ( c ) fixed,( d ) step-fixed, ( e ) semivariable, and ( f ) curvilinear.
Suggest an appropriate activity base (or cost driver) for each of the following organizations: ( a ) hotel, ( b ) hospital,( c ) computer manufacturer, ( d ) computer sales store,( e ) computer repair service, and ( f ) public accounting firm.
Define the following terms, and explain the relationship between them: ( a ) cost estimation, ( b ) cost behavior, and( c ) cost prediction.
Describe the importance of cost behavior patterns in planning, control, and decision making.
Perform and interpret a least-squares regression analysis with a single independent variable (appendix).
Describe some problems often encountered in collecting data for cost estimation.
Describe the multiple regression, engineering, and learning-curve approaches to cost estimation.
Describe and use the following cost estimation methods: account classification, visual fit, high-low, and least-squares regression.
Define and give examples of engineered costs, committed costs, and discretionary costs.
Explain the importance of the relevant range in using a cost behavior pattern for cost prediction.
Define and describe the behavior of the following types of costs: variable, step-variable, fixed, step-fixed, semivariable (or mixed), and curvilinear.
Explain the relationships between cost estimation, cost behavior, and cost prediction.
Madison Electric Pump Corporation’s controller, Erin Jackson, developed new product costs for the three pump models using activity-based costing. It was apparent that the firm’s traditional productcosting system had been undercosting the advanced model electric pump by a significant amount.
Refer to the product costs developed in requirement (2) of the preceding problem. Prepare a table showing how Madison Electric Pump Corporation’s traditional, volume-based product-costing system distorts the product costs of the three pump models. (You may wish to refer to Exhibit 5–10 for
Madison Electric Pump Corporation manufactures electric pumps for commercial use. The company produces three models, designated as regular, advanced, and deluxe. The company uses a job-order cost accounting system with manufacturing overhead applied on the basis of direct-labor hours. The system
Cincinnati Cycle Company produces two subassemblies, JY-63 and RX-67, used in manufacturing motorcycles. The company is currently using an absorption costing system that applies overhead based on direct-labor hours. The budget for the current year ending December 31, 20x4 is as follows:Jay Rexford,
Refer to the information given in the preceding problem for FiberCom, Inc., and two of its customers, Caltex Computer and Trace Telecom. Additional information for six of FiberCom’s other customers for the most recent year follows:Customer Operating Income Network-All, Inc
FiberCom, Inc., manufactures fiber optic cables for the computer and telecommunications industries. At the request of the company vice president of marketing, the cost management staff has recently completed a customer-profitability study. The following activity-based costing information was the
Contemporary Kitchen Furnishings, Inc. (CKF) manufactures a variety of housewares for the consumer market in the midwest. The company’s three major product lines are cooking utensils, tableware, and flatware. CKF implemented activity-based costing four years ago and now has a well-developed ABC
Refer to the information given in the preceding problem for Bodacious Bagels, Inc.Required:Redesign the bagel production process after eliminating the non-value-added costs. What new equipment could the company purchase to make the production process more efficient?
Bodacious Bagels, Inc., manufactures a variety of bagels, which are frozen and sold in grocery stores.The production process consists of the following steps.1. Ingredients, such as flour and raisins, are received and inspected. Then they are stored until needed.2. Ingredients are carried on hand
Prepare a table showing how Gigabyte’s traditional, volume-based product-costing system distorts the product costs of gismos, thingamajigs, and whatchamacallits. (You may wish to refer to Exhibit 5–10 for guidance. Because of rounding in the calculation of the product costs, there will be a
Refer to the product costs developed in requirement (5) of Problem
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