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managerial accounting
Questions and Answers of
Managerial Accounting
Discuss the benefits and drawbacks of ABC.
An ABM costing analysis has revealed that it should take 40 minutes to render a service that now takes 60 minutes. The cost per hour is $15, and the monthly production volume is 8,000 hours of
For each of the following activities, provide appropriate cost drivers if activities do not differ (use similar resources) and if activities vary significantly (use different resources).Drivers:U:
Companies frequently react to economic downturns by downsizing the workforce (firing employees). Describe in detail how activity-based management (ABM) could assist companies in making decisions and
Are ABC and ABM applicable only to the production of products, or can they be used for providing services? Explain.
The ABC team found that one of the company’s products was losing money because it was using significant resources of setups, customer handling, and material handling. The chief financial officer
Brokerage Service, Inc., is a firm that charges a fee to buy and sell investment orders for its clients. The company has three types of service lines: discount brokers, mutual funds, and full-line
Valiente Company makes equipment for three major customers. As part of its ABC and ABM project, the following customer profitability report for 2022 was prepared.Other facts:
Give an example of how ABC can be useful in assigning general, selling, and administrative costs to various customers so that the customers are properly charged.
The Neighborhood Bank has gathered data related to its customers for a pilot project at one of its branches. The ABC team has identified three main product lines: regular account holders, loans, and
ABC and ABM can help companies identify ways to improve certain situations and develop measures to assess quality, efficiency, flexibility, and reduction of costs through a focus on prevention rather
For each of the following independent scenarios and items, indicate whether the activity described is:VA: Primarily value-added and efficientNVA: Primarily non–value-added (If NVA, indicate how
Indicate whether each of the following statements is true or false.T: TrueF: Falsea. Building complexity into the costing process is an important part of the ABC philosophy.b. The levels of
For each of the following activities, identify whether the activity cost is:U: UnitB: BatchP: Product-sustainingC: Customer-sustainingF: Facility-sustaininga. Making engineering changesb. Manually
Caring Hospital directly captures the cost of surgical labor. The hospital has collected the following indirect cost information and identified the corresponding cost drivers:a. With respect to
How can ABM be integrated with other managerial accounting tools and data analytics?
Sometimes, through ABM, management finds that the customers who were thought to be “low cost and profitable” are actually “high cost and unprofitable.” Explain.
Comment on each of the following independent scenarios. Apply the ABC and ABM techniques of focusing on processes and identifying non–value-added activities that could be either eliminated or made
Indicate whether each of the following is more descriptive of a traditional system or an ABC system:a. Costs are classified as unit, batch, product sustaining, customer sustaining, and facility
Look up a company such as Southwest Airlines or any of the companies listed in the chapter that have incorporated ABC into their operations. Write a memo to your boss on what you learned from your
One of the key components of ABM is the analysis of value-added activities and non–value-added activities. Contrast the two types of activities.
Tucker produces 40,000 Simple and 4,000 Complex small machines. It currently allocates overhead based on machine hours. An ABC study revealed the following activity cost pool data, including the use
Why does ABC correct the allocation of primarily batch and product- or customer-sustaining costs rather than correcting the allocation of unit or facility-sustaining costs?
The management of Toth Company has always taken pride in the quality of its motor products. Some of the company’s principles are:➢ Products should be designed for
There is a saying, “It is better to be approximately right than precisely wrong.” Discuss how that saying could be applied to ABC if a company uses the wrong assignment of costs and drivers.
To reduce waste, management should focus only on reducing costs. Do you agree? If you do not fully agree, indicate why you disagree. Be specific.
The best driver (base) when assigning the electricity used in manufacturing to products or jobs would be direct labor hours, since payroll numbers are already recorded. Do you agree? If you do not
After an ABC and ABM study, Analytical Company identified four groups of activities, as follows:● Group 1: Activities designed to prevent errors and mistakes during production and delivery● Group
Katelynn Corporation manufactures two products—kites and gliders.Annual production:● Kites: 2,000 units and 2,000 direct labor hours● Gliders: 400 units and 2,000 direct labor hours● Total
In an ABC system, facility-sustaining expenses should all be assigned to specific product lines according to the direct labor hours or machine hours consumed by each product line. Do you agree? If
The goal of a properly constructed ABC system is to have the most precise costs (typically per-unit costs are carried out to three digits). Do you agree? If you do not fully agree, indicate why you
ABC systems should be used primarily for budgeting (spending) decisions. Do you agree? If you do not fully agree, indicate why you disagree. Be specific.
Traditional cost accounting systems typically distort product costs by overcosting the complex products and undercosting the simple products. ABC systems have been introduced primarily to correct
Most ABC systems should be initiated, planned, and controlled by top management personnel, such as the chief executive officer, because those managers are in a position to understand both the costs
Refer to the information in Problem 2. Record the information in the T-accounts.Data from Problem 2Sue Enterprises uses a normal job order costing system and a predetermined overhead rate based on
CMG uses a normal job order costing system and applies overhead on the basis of direct labor hours. At the beginning of 2022, management estimated that 250,000 direct labor hours would be worked and
Sue Enterprises uses a normal job order costing system and a predetermined overhead rate based on machine hours. At the beginning of 2022, Sue estimated the overhead for the year would be $720,000
The Moez Company uses a normal job order cost system. Other data:• There are three jobs that pass through the two production departments.• Job 401 and Job 402 were completed and sold during
Precious Glassworks, Inc., produces unique hand-blown glass light fixtures for custom-built homes and uses a job order costing system for its production costs. The company bases its predetermined
Refer to the information in Problem 4. Record the information in the T-accounts.Data from Problem 4.Precious Glassworks, Inc., produces unique hand-blown glass light fixtures for custom-built homes
Following are the 2022 estimated and actual recorded subsidiary ledger results from several jobs for an architectural firm:The president is concerned with the wide differences and with the loss on
Assume the same data from Problem 4. Record all necessary journal entries.Data from Problem 4DER, Inc., manufactures a single product. The following information is available for 2022:● Raw
The following information applies to Amanda Company for 2022:• Prime costs were $145,000.• Direct labor was one-third of conversion costs.• Sales were
Premium Manufacturers is a manufacturer. Positive selected account balances for the company as of January 1, 2022, were as follows:During the month of January, Premium Manufacturers had the following
HEW estimates 2022 factory overhead at $320,000 and direct labor cost at $200,000. Direct labor hours are estimated to be 20,000. Cost information for the month of April, 2022 is as follows:a. If
Managers should analyze underallocated overhead to determine why there was not enough overhead estimated. If overhead is overallocated, there is no need to analyze why it was overallocated. Do you
Mignon Company has estimated overhead of $50,000 in 2022 ($10,000 in Department 1 and $40,000 in Department 2), and estimates a total of 10,000 machine hours in each of its two departments (20,000
Explain what is meant by a normal costing system.
Why is overhead typically estimated and allocated as opposed to just traced to each job and recorded as indirect costs are paid?
Explain how seasonal fluctuations may affect overhead application.
If the under- or overallocated overhead amount is material, it should be recorded as a separate period expense (selling, general, and administrative). Do you agree? If you do not agree, explain why
Would it be unethical to intentionally develop the overhead rate by overestimating the total indirect costs or by using an incorrect driver (no cause and effect)?
In an attempt to reduce direct material costs, a company may be tempted to use less expensive materials from a different supplier with an “introductory cost offer.” Given the objective of
Give examples of both internally and externally generated data that a company could analyze to determine possible production delays.
How can predictive analytics be used by a public accounting firm to assess the risk of taking on a new client?
If overhead is overallocated, the actual overhead must be greater than the allocated overhead incurred. Do you agree? If you do not agree, explain why the statement is false.
Direct materials, direct labor, and overhead are usually recorded as incurred both in the general ledger and in each job cost account so that the actual overhead and the allocated overhead match. Do
Assume that a normal costing system is used. Estimated overhead was $100. Estimated practical capacity hours were 50. Actual hours worked were 54. What was the over- or underallocated overhead?
For each of the following, indicate whether the statement is true or false.a. The main difference between job order and process costing systems is the amount of detail captured for each product.b.
Under a normal costing system, overhead is typically recorded in the work in process account at the beginning of the year for the amount estimated and then allocated to specific jobs as each job is
Ellen’s Company produces boxes. In 2022, the company incurred the following costs: There were no balances in the beginning or ending work in process and finished goods inventories. The company
You have been hired by the company president to review the records of Fast Shipping Company. You found that the sales department has reported 20% of jobs as “sold,” even though the customers have
The accompanying diagram reflects the costs of various jobs for the month of September. a. Which job has proportionately more overhead relative to direct labor? Why do you think this would
Assume the following information for Donna Company for 2022. The company uses a normal cost system and a predetermined overhead rate based on direct labor hours.a. What is the predetermined overhead
For many companies today, an electronic match of purchase orders, purchase requisitions, and receiving reports automatically triggers an electronic payment to be made to the vendor. Such a practice
A job cost sheet is a report that summarizes the costs of direct materials, direct labor, overhead, selling, and administrative costs for a specific job. Do you agree? If you do not agree, explain
Indicate if any part of the following chart is incorrect. Direct materials Direct labor Overhead recorded Overhead rate Overhead allocation bases (drivers) Actual Costing Job Order System 1. Recorded
For each of the following document descriptions, give the letter of the document term that best fits the description.a. Purchase requisitionb. Purchase orderc. Receiving reportd. Job cost sheete.
Service companies do not need a job costing system since such companies do not manufacture a product. Do you agree? If you do not agree, explain why the statement is false
Describe some operational business decisions that can benefit from a job costing system.
Following are the current assets sections of the balance sheets for three different companies.a. Which company is a service company?b. Which company is a retailer?c. Which company is a
Give some strategic business decisions that can benefit from a job costing system.
Identify whether each of the following companies would likely use a job order system or a process costing system.a. Construction company that builds specific bridges and highwaysb. Bakery that makes
Affordable Tutoring Services had the following results for 2022:Included in the miscellaneous expense category are marketing costs, a legal retainer, accounting fees, and travel costs.a. Is this
Answer the questions regarding the partially completed T-accounts for XYZ Company for the month of May:<ART: Use minus signs instead of hyphens. Make sure a space follows the + signs for “+
The following information for 2022 applies to Sue, Inc., which makes pet items:a. Complete the T-accounts for raw materials, work in process, and finished goods.b. What are prime costs?c. What are
Assume the following information for NVO, a retailer, in 2022:a. What is cost of goods sold?b. What are selling and administrative costs?c. What additional information would be useful for NVO to
JKL produces boxes. In 2022, the company incurred the following costs:a. What is the amount of manufacturing overhead?b. What are product costs during the period?c. What are period costs? Indirect
Chapter 1, the Institute of Management Accounting’s Standards of Ethical Professional Practice were described as competence, confidentiality, integrity, and credibility. The president of Clever
For each of the following, indicate whether the statement is true or false.a. A carpenter’s salary for a company that builds houses is both a product cost and a prime cost.b. Raw materials
DER, Inc., manufactures a single product. The following information is available for 2022:● Raw materials: Beginning balance: $5,000. Purchased $40,000 on credit. Direct materials used in
Assume the same data from Problem 1. Record all necessary journal entries.Data from Problem 1Best Furniture had the following data in 2022:There were no changes in the work in process inventory or
Best Furniture had the following data in 2022:There were no changes in the work in process inventory or the finished goods inventory.a. What was cost of goods manufactured?b. What were period
For each of the following, indicate whether the cost is a direct cost or an indirect cost.a. Nurse practitioner in a doctor’s officeb. Server in a restaurantc. Housekeeper in a hoteld. Forklift
Assume the same data from Problem 1 except that the work in process inventory increased by $2,000 and the finished goods inventory decreased by $3,000.a. What was cost of goods manufactured?b. What
Identify whether each of the following costs is a product cost or a period cost.a. Depreciation on salesperson’s carb. Salary of factory supervisorc. Overtime premium paid on night shiftd.
Prime costs plus conversion costs equals the cost of goods manufactured. Do you agree? If you do not agree, explain why the statement is false.
Direct costs are the costs that actually become a part of the product. Indirect costs are the costs that are not used in production. Do you agree? If you do not agree, explain why the statement is
Describe the different inventory accounts for a manufacturing firm.
Suppose an accountant incorrectly classified direct labor costs as a period cost instead of a product cost. Explain the potential impact on the amount reported as net income.
The cost of goods available to be sold represents the total amount of product expenses reported on the income statement. Do you agree? If you do not agree, explain why the statement is false.
Discuss in terms of debits and credits how raw materials, work in process, and finished goods are increased.
For each of the following decisions or actions, indicate which of the three areas of managerial accounting apply. Select the best option by placing the corresponding letter in the space
A home improvement store is interested in tracking why customers return merchandise. An employee suggests developing a spreadsheet to track the reasons for returns. He suggests that the return
Differentiate between operational and strategic information needs.
For each of the following types of information, identify whether the information would be most applicable to financial (F) or managerial (M) accounting.i. Income statement given to owners (for
For each of the following, indicate whether the statement is True or False.a. Storyboarding is a financial accounting chart of accounts used by major corporations to prepare financial statements.b.
For the following scenarios, indicate which of the four standards in the IMA’s Statement of Ethical Professional Practice is being violated: (1) Competence; (2) Confidentiality; (3)
From a familiar setting, such as your classes or a job, describe a special decision made using managerial information, including both financial and nonfinancial information.
Paul wants to start a barbershop. He would like to have an extra $450 per month to help with his house payments. He has found a location that will rent him space for $425 per month, plus an
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