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managerial accounting decision making
Managerial Accounting 6th Edition Pierre L. Titard - Solutions
If the sales variance is favorable, must the net income variance also be favorable? Explain.
Define standard cost and standard cost system. How are standard costs used in budgeting?
Distinguish between ideal standards and currently attainable standards. Which are normally better to use? Why?
What do you think is meant by the terms loose standards and tight standards?
Which standard is probably the most difficult to set? Why?
The materials price variance at Kerr Company is consistently favorable. Does that indicate that the purchasing agent is doing a good job in buying? Explain.
The supervisor of a manufacturing department had a significantly high favorable labor rate variance. When questioned about it, the supervisor replied that, because of a shortage of skilled labor, he hired unskilled workers and saved the company money. Does the favorable variance indicate good
The manager of a large division of a company never questions his department supervisor about variances as long as the total departmental variance is within limits. Is this a good policy? Explain.
What is the significance of the overhead efficiency variance? How can overhead be efficient or inefficient?
How does a standard cost system help control costs? After all, even if the variances are unfavorable, the costs already have been incurred; and the firm can't get that money back.
Where is cost control generally focused in an automated manufacturing environment??
List the "costs of quality."
Materials Variances. Standard materials costs and usage for Kelly Company are $2.00 per gallon and three gallons per finished unit. In a recent month, the company purchased and used 14.8001 gallons at a cost of $2.10 per gallon to produce 5,000 finished units. Determine the following variances:a.
Material Variances. Blannery Corporation purchased 5,000 pounds of direct materials at $3.55 per pound. It used 2,900 pounds in manufacturing 6,000 finished units. Standard materials cost is $3.50 per pound, and standard materials usage is 5 pound per finished unit. Determine the following
Labor Variances. Standard direct labor costs for Stanley Company are $8 per hour. The labor efficiency standard is two hours per finished imit. In a recent month, the company completed 3,000 units using 6,100 direct labor hours at a cost of $7.85 per hour. Determine the following variances:a. Labor
Variable Overhead Variances. Drake Company applies variable factory overhead on the basis of 5.80 per direct labor hour. The labor efficiency standard is three hours per finished unit. Last month, the firm completed 6,000 units while using 17,800 direct labor hours. Actual variable factory.
Labor and Variable Overhead Variances. Hatfield Corporation uses a standard costsystem. Standard direct labor costs are $9.00 per hour, with an efficiency standard of 25 hour per finished unit. Variable factory overhead is applied at the rate of $4 per direct labor hour. In March, the company
Why is it important to analyze individual items of variable factory overhead? 2 A portion of a departmental performance report for variable overhead prepared on a flexible budget basis is shown below: Maintenance Ubities Budget Actual Varance $10,000 10,000 $5,000 15,000 $5.000 F 5.000 U . The
Name four cost drivers that can be used for applying variable factory overhead.
In a highly automated manufacturing company that does not use activity-based costing, what is probably the most appropriate cost driver to ase in applying variable overhead? Why?
Since an unfavorable materials usage variance indicates possible waste in the use of direct materials, and since an unfavorable labor efficiency variance indicates possible waste in the use of direct labor. why doesn't an unfavorable variance overhead efficiency variance indicate possible waste in
Explain why there is no variable overhead efficiency variance when units are used as the basis for applying variable overhead.
Why is fixed overhead a problem in a standard cost system?
Which fixed overhead variance reflects the fact that more was spent on fixed overhead items than was planned?
Upon looking at a performance report that showed a $40,000 unfavorable fixed overhead volume variance, a manufacturing division supervisor was heard to say. "This is outrageous! This overspending has got to stop?" Comment
Why is there no fixed overhead volume variance when variable costing is used?
If a firm consistently has a significant unfavorable fixed overhead volume variance, would it be appropriate to increase the fixed overhead application rate? Explain.
How does a standard cost system differ from an actual/normal cost system? How are they similar?
How does a standard cost system help in taking a physical inventory?
What is activity-based costing? Why is it superior to traditional cesting for firms that manufacture more than one product?
Variable Overhead Variance. Clark Company developed the following variable overhead budget for expected production requiring 50,000 direct labor hours: Indiect materials. Indirect labor Ulites $25,000 37,500 12.500 Standard hours allowed for actual production were 46,000 direct labor hours. Actual
Variable Overhead Variances: Performance Reports. Thompson Tent Company applies variable overhead at the following rates per direct labor hour.
Supples Indirect labor Power Total $1.25 The standard direct labor efficiency standard is 1.5 hours per tent. In March, the company produced 6,000 tents using 8.600 direct labor hours. Actual variable overhead costs were supplies, $10,500, indirect labor. $21,000; and power, S6,500.a. Calculate the
Variable Overhead Variances Madison Mop and Broom Company applies variable factory overhead at the rate of $3.00 per mop or broom. Last month, the company made 850 mops and 1,200 brooms. Total variable overhead was $6,000. Calculate all appropriate variable overhead variances.
Fixed Overhead Variances. Barbara's Beauty Products Company applies fixed factory overhead at the rate of $2.50 per direct labor hour. The fixed overhead budget is $20,000 per month. The standard hours allowed for direct labor is 5 hour per finished unit. Last month, the company produced 18.000
Find Overhead Variances. Landry Corporation budgeted fixed factory overhead in October at $80.000. It planned to produce 20,000 units but only produced 19,500. Fixed overhead is applied at the rate of $2 per direct labor hour; and the labor efficiency standard requires two hours per finished unit.
Fixed Overhead Variances. Hasley Book Company incurred $221,500 of fixed overhead costs in the first quarter of the year. It produced 148,000 books-2.000 less than budgeted. The fixed overhead application rate is $1.50 per book. Calculate the following fixed overhead variances:a. Budget.b.
Variable and Fixed Overhead Variances. Information on Fire Company's overhead costs is as follows: Actual variable overhead Actual fixed overhead Standard hours allowed for actual producion Standard variable head rate per direct labor hour Standard fixed ovelhead rate per direct berhar $75,000
Volume Variance. Information on Ripley Company'soverhead costs for the January 20x1 production activity is as follows:Budgeted fixed overhead.. Standard ved overhead rate per direct late hour. Standard variable overhead rale per direct lalar hour Standard direct hours allowed for actud production.
Variable and Fixed Overhead Variances. Grady Company budgeted fixed factory overhead cost at $50,000 a month. Fixed factory overbead is applied at the rate of $2 per direct labor hour and variable at $3 per direct labor haar. Standard direct labor hours allowed for July production were 23,500. The
Division Evaluation. As the manager of the Plastic Parts Division of your company, you have received the following performance reports from the departments in your division, all of which are cost centers. Management considers any variance over 5% as exceptional. Department Number Bucke $35.000
Types of Responsibility Centers. Indicate whether each of the following responsibility centers would be considered a cost center, a profit center, or an investment center.a. Painting department of an automobile manufacturing firm.b. Automobile division of an automobile manufacturing firm.c. Store
Segment Margin. Using the appropriate format, calculate the segment margin for each of the following independent companies: Company A Branch 1 Branch 2 Company B Branch Branch 2 Costs of goods sold Units sold Home office expenses. $30.000 $10,000 $60,000 $16,000 60% $5,000 40% $5,000 4,000 2,800
Division Evaluation Partial performance reports for two divisions of Marcelle's Marvels, Inc. are presented below: Division Dsion A 8 Contribution margin $20,000 $40,000 Faed selling and adminstrative expenses (40,000) (25,000) Home office expenses [32,000) 16.000 Net income (loss) $8,000 $1,000
Types of Cast. Below are listed ten items of cost at the Malcom Manufacturing Company. Across the top are listed the titles of several individuals employed by the company. Painting Vice Department Custodial President Supervisor Supervisor of Sales Credit Department Managera. Wages in Painting
What is meant by cost-volume-profit-analysis?
If prices are determined by the marketplace, how can CVP analysis help management to determine prices?
Explain how CVP analysis might be used by a firm in determining how many units to produce.
Why is CVP analysis applied differently for multiple products than for single products?
What will be the effect on a firm's break even point if selling price per unit increases by the same amount as variable cost per unit increases?
A firm's unit contribution margin is 5.25. Fixed costs increase by $1.000 per year. What is the effect on the break-even point in terms of units?
A retailer, whose only variable cost is cost of goods sold, buys an item for $6 and sells it for $10. He remarks, "I make a $4 profit on every unit sold." Is he correct? Explain.
How is a firm with a high volume of sales often able to sell at a lower price than a firm with a low volume of sales, while earning the same total profit?
What is meant by sales mix? How does sales mix affect a firm's break-even point?
DEF Corporation sells Product A, with a 45 percent contribution margin, and Product B, with a 30 percent contribution margin, Current total sales are composed of 60 percent Product A, and 401 pescent Product B. What will happen to the firm's break-even point if the sales mix changes to 50 percent
Can the total costs line of a CVP graph ever be above the total sales line at any point to the right of the break-even point? Explain.
Refer to the profit-volume graph in Exhibit 9-6. Determine the firm's net income or loss for the following sales levels:a. 50,000 units.b. 100,000 units.c. 150,000 units.
In reviewing divisional budgets for next year, the president of a firm noted that both of the firm's divisions project a satisfactory return on investment. However, the margin of safety is 10 percent for Division A and 2 percent for Division B. What is the significance of these facts?
The fact that a sumber of assumptions must be valid in order for CVP analysis to be valid reduces the usefulness of the analysis." Do you agree with this statement? Why or why not?
Single Product: Break-Even Point: Desired Profit. Timothy Company sells its product for $6.00 per unit. Variable costs are $4.75 per unit, and fixed costs total $40,000 per year. Determine how many units must be sold each year so that the firm will:a. Break even.b. Earn a profit of $20,000.
Single Product: Break-Even Point; Desired Profit. Bixley Company sells its product for $8 per unit. Variable costs are $6 per unit, and fixed costs total $12,000 per year.a. Determine the break-even point in: 1.Units 2.Dollars.b. Determine the number of units that must be sold so that the firm
Single Product; Break-Even Point: Desired Profit. Laura's Clothing Store sells dresses at an average price of S60 each, with a variable cost of $45 cach. Fixed costs are $60,000 per year. Determine how many dresses must be sold each year in order for the firm to:a. Break even.b. Earn a profit of
Single Product; Required Selling Price. John Baker is planning to sell a product with a variable cost of $5.50 per unit. Fixed costs are expected to be $50,000 per year. John estimates that he can sell 100.000 units per year. Determine the required selling price, assuming John wants:
a. A net income of $30,000.b. A 15 percent return on sales.c. A 10 percent return on his $150,000 investment. Single Product: Required Selling Price. Janice Tyler opened a candy shop. The variable cost per box of candy is $4. She anticipates fixed costs of $10,000 per year and expects to sell
Single Product; Increased Selling Price. Region Company sells a product for $35 per unit. The variable production and sales costs are $21 per unit. If Region adopts a 40 percent increase in the selling price of its product, by what percentage can unit sales decline before total profits decline?
Single Product; Change in Relevant Range: Desired Profit. Dallas Corporation wishes to market a new product for $1.50 per unit. Fixed costs to manufacture this product are $100,000 for less than 500,000 units and $150,000 for 500,000 units or more. The contribution margin ratio is 20 percent. How
Multiple Products; Break-Even Point; Desired Profit. Ace Company incurs fixed costs of $60,000 per year. Its variable costs average 75 percent of sales. Calculate:a. Break-even sales.b. Sales required to earn a profit of $50,000.c. Sales required to earn a 10 percent return on sales.
Multiple Products; Break-Even Point. Walter Company's income statement for last year is as follows: Sales Fixed costs Net income $400,000 $240,000 100,000 40.000 $60,000 What was the company's break-even level of sales?
Determining Sales from Break-Even Point Tice Company is a medium-sized manufacturer of lamps. During the year, a new line called "Horalin" was made available to Tice's customers. The break-even point for sales of Horalin is $200,000, with a contribution margin of 40 percent. Assuming that the
Operating Leverage. Last year, Bakely Company had sales of $600,000. Variable costs totalled $400,000, and fixed costs were $150,000 Management projects a 20 percent increase in sales for the current year.a. Determine the firm's operating leverage based on results from last year.b. Use the
Break-Even Point: Sales Mix. Jarvis Company has fixed costs of $200,000. It has two products that it can sell, Tetra and Min. Jarvis sells these products at a rate of two units of Tetra to one unit of Min. The contribution margin is $1 per unit of Tetra and $2 per unit of Min. How many units of Min
Profit Change: Sales Mix. Kary Company sells two products-Kary Sauce and Kary Juice. The contribution margin ratio is 40 percent for sauce and 25 percent for juice. In 20x1, sales of sauce were $100,000 and sales of juice were $50,000. Sales in 20x2 were $75,000 for each product.a. Calculate the
b. How much was the increase or decrease in profit in 20x2 compared with 20x1?c. Explain the reason for the change in profit.
Single Product; Break-Even Point: Margin of Safety: Operating Leverage. Battle Company sells its product, Battlem, for $30 per unit. Variable costs are $18 per unit, and fixed costs are $120,000 per year. Next year, it projects sales of $500,000. Calculate the following:a. Break-even point in units
Projecting Sales from Margin of Safery. The Black Company manufactures and sells a specialty perfume. The company budgets a margin of safety of 20 percent for next year. Fixed costs are budgeted at $270,000 annually. Variable costs are $6.60 per ounce. If the sales price per ounce is $12.00, what
Why is there a difference between cost considerations in long-run and short-run decisions!
What is the difference between quantitative factors and qualitative factors? Which is more important?
List three qualitative factors that may be important in decision-making
Since product quality ultimately affects sales, should quality be classified as a quantitative factor?
Define relevant cost.
What is a sank cost? Why is it considered irrelevant to decisions about the future?
How does the inclusion of data that are the same between alternatives affect relevant cost analysis?
A manager was heard to say, "I don't understand these accountants. They tell us how important it is to make a profit, and then they say that disposing of an asset at a loss is irrelevant." How would you respond tothis comment?
Appleton Appliances is planning a big refrigerator sale. The first 100 customers who buy refrigerates will receive kitchen step stools free. The store has 200 stools in stock. One hundred stools were purchased several months ago for $20 per stool. The other 100 stools were just recently received
"A product should never be dropped as long as it is providing a segment margin." Do you agree with this statement? Explain.
What is ment by joint product cost? Give an example. What is the accounting problem associated with joint product cost?
What is the primary criterion used to determine whether a product should be sold at the split-off point or processed further?
What is meant by opportunity cost? Why is it not accounted for in the formal accounting system?
Vivian Paterson plans to buy a new car for $30,000. If she pays cash, she must use her savings, which have beca carning 8 percent interest per year. If she borrows money to buy the car, she will pay 12 percent annual interest. What is Vivian's opportunity cost if she pays cash?
What is the difference between incremental cost pricing and full cost pricing? Which is better? Explain.
Equipment Replacement. Rodney Company purchased a machine five years ago for $30,000. It had an estimated useful life of ten years with no salvage value. Operating costs are $12,000 per year. The machine could be disposed of today for $5,000. A new machine with a five-year life and no salvage value
Equipment Replacement. Maxwell Company has an opportunity to acquire a new machine to replace one of its present machines. The new machine would cost $95,000, have a five-year life, and have no estimated salvage value. Variable operating costs would be $90,000 per year. The present machine has a
Segment Operations. Colson Manufacturing Company produces a variety of products. Sales of "Zlone." one of its products, total $500,000 per year; variable costs, $350,000 per year, and separable fixed costs, $80,000 per year. Common fixed costs allocated to Zlone total $120,000. Company management
Segment Operations. Operating results for the Westmeyer Writing Company were disappointing last year as shown below: Sales Variable costs Contribution margin Fixed costs: Separable Pins Pencils Erasers Total $150.000 190.000 $100,000 $50,000 $300,000 50,000 (35,000) (175,000) $ 60.000 $ 50,000
Relative Sales Valar. Paulson Products Company manufactures three products: A, B, and C. Final sales are $100,000 for A. $60,000 for B. and $40,000 for C. Joint product costs total $75,000. Separable costs are $60,000 for A, $35,000 for B, and $25,000 for C.a. Allocate joint product costs to each
Relate Sales Value. Helen Corporation manufactures products W. X, Y, and Z through a joint process. Additional information is as follows: Processed Further Lines Product Produced Sp-Off Additional Costs Sales Vale W 6,000 $ HL000 $7,500 $ 90,000 X 5,000 000 6.000 70.000 4,000 0,000 4,000 50,000
Make or Buy Decision. Reggie's Restaurant serves delicious pies made by Reggie's own cooks. The cost of each pie has been calculated as follows: Ingredients Electricity Labor Total $1.00 50 200 $450 Cooks are paid $9.00 per hour, and each pie requires about twenty minutes of a cook's time. The
Make or Buy Decision; Opportunity Cost. Golden, Inc., has been manufacturing 5,000 units of Part 10541 per year. It is used in the manufacture of one of its products. At this level of production, the cost per unit of manufacturing Part 10541 is as follows: Direct materials Direct labor Variable
Limiting Factors. Twin Company has been producing two popular products, Twink and Twank. It has been able to keep up with the demand for these products. Twink sells for $4.00 per unit, has a variable cost of $2.50 per unit, and requires 15hrs of production time per unit. Each unit of Twank sells
Limiting Factors. E-Z Chair Manufacturing Company produces two types of chairs, both of which are much in demand. The firm uses a special type direct material that results in a very comfortable chair. Variable unit costs are as follows: Direct materials Direct labor Variable factory overhead
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