Financial And Managerial Accounting
Financial And Managerial Accounting
15th Edition
ISBN: 9781337902663
Author: WARREN, Carl S.
Publisher: Cengage Learning,
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Chapter 25, Problem 6TIF
To determine

Explain the weakness in the report of Company PB on the basis of the additional data provided.

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Chapter 25 Solutions

Financial And Managerial Accounting

Ch. 25 - Lease or sell Plymouth Company owns equipment with...Ch. 25 - Prob. 2BECh. 25 - Make or buy A company manufactures various-sized...Ch. 25 - Replace equipment A machine with a book value of...Ch. 25 - Process or sell Product J19 is produced for 11 per...Ch. 25 - Prob. 6BECh. 25 - Product cost markup percentage Green Thumb Garden...Ch. 25 - Prob. 8BECh. 25 - Differential analysis for a lease or sell decision...Ch. 25 - Prob. 2ECh. 25 - Differential analysis for a discontinued product A...Ch. 25 - Differential analysis for a discontinued product...Ch. 25 - Prob. 5ECh. 25 - Decision to discontinue a product On the basis of...Ch. 25 - Make-or-buy decision Somerset Computer Company has...Ch. 25 - Make-or-buy decision for a service company The...Ch. 25 - Machine replacement decision A company is...Ch. 25 - Differential analysis for machine replacement...Ch. 25 - Sell or process further Calgary Lumber Company...Ch. 25 - Sell or process further Dakota Coffee Company...Ch. 25 - Decision on accepting additional business...Ch. 25 - Accepting business at a special price Box Elder...Ch. 25 - Prob. 15ECh. 25 - Product cost method of product pricing La Femme...Ch. 25 - Product cost method of product costing Smart...Ch. 25 - Target costing Toyota Motor Corporation (TM) uses...Ch. 25 - Target costing Instant Image Inc. manufactures...Ch. 25 - Product decisions under bottlenecked operations...Ch. 25 - Prob. 21ECh. 25 - Total cost method of product pricing Based on the...Ch. 25 - Variable cost method of product pricing Based on...Ch. 25 - Differential analysis involving opportunity costs...Ch. 25 - Differential analysis for machine replacement...Ch. 25 - Differential analysis for sales promotion proposal...Ch. 25 - Prob. 4PACh. 25 - Prob. 5PACh. 25 - Product pricing using the cost-plus approach...Ch. 25 - Differential analysis involving opportunity costs...Ch. 25 - Differential analysis for machine replacement...Ch. 25 - Differential analysis for sales promotion proposal...Ch. 25 - Differential analysis for further processing The...Ch. 25 - Prob. 5PBCh. 25 - Product pricing using the cost-plus approach...Ch. 25 - Analyze Pacific Airways Pacific Airways provides...Ch. 25 - Service yield pricing and differential equations...Ch. 25 - Prob. 3MADCh. 25 - Service yield pricing and differential analysis...Ch. 25 - Aaron McKinney is a cost accountant for Majik...Ch. 25 - Prob. 3TIFCh. 25 - Prob. 4TIFCh. 25 - Accepting service business at a special price If...Ch. 25 - Prob. 6TIFCh. 25 - In differential cost analysis, which one of the...Ch. 25 - Prob. 2CMACh. 25 - Prob. 3CMACh. 25 - Oakes Inc. manufactured 40,000 gallons of Mononate...
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  • Activity-based costing and product cost distortion The management of Four Finger Appliance Company in Exercise 14 has asked you to use activity-based costing instead of direct labor hours to allocate factory overhead costs to the two products. You have determined that 81,000 of factory overhead from each of the production departments can be associated with setup activity (162,000 in total). Company records indicate that blenders required 135 setups, while the toaster ovens required only 45 setups. Each product has a production volume of 7,500 units. Determine the three activity rates (assembly, test and pack, and setup). Determine the total factory overhead and factory overhead per unit allocated to each product using the activity rates in (A).
    Southward Company has implemented a JIT flexible manufacturing system. John Richins, controller of the company, has decided to reduce the accounting requirements given the expectation of lower inventories. For one thing, he has decided to treat direct labor cost as a part of overhead and to discontinue the detailed direct labor accounting of the past. The company has created two manufacturing cells, each capable of producing a family of products: the radiator cell and the water pump cell. The output of both cells is sold to a sister division and to customers who use the radiators and water pumps for repair activity. Product-level overhead costs outside the cells are assigned to each cell using appropriate drivers. Facility-level costs are allocated to each cell on the basis of square footage. The budgeted direct labor and overhead costs are as follows: The predetermined conversion cost rate is based on available production hours in each cell. The radiator cell has 45,000 hours available for production, and the water pump cell has 27,000 hours. Conversion costs are applied to the units produced by multiplying the conversion rate by the actual time required to produce the units. The radiator cell produced 81,000 units, taking 0.5 hour to produce one unit of product (on average). The water pump cell produced 90,000 units, taking 0.25 hour to produce one unit of product (on average). Other actual results for the year are as follows: All units produced were sold. Any conversion cost variance is closed to Cost of Goods Sold. Required: 1. Calculate the predetermined conversion cost rates for each cell. 2. Prepare journal entries using backflush accounting. Assume two trigger points, with completion of goods as the second trigger point. 3. Repeat Requirement 2, assuming that the second trigger point is the sale of the goods. 4. Explain why there is no need to have a work-in-process inventory account. 5. Two variants of backflush costing were presented in which each used two trigger points, with the second trigger point differing. Suppose that the only trigger point for recognizing manufacturing costs occurs when the goods are sold. How would the entries be listed here? When would this backflush variant be considered appropriate?
    Activity-based department rate product costing and product cost distortions Big Sound Inc. manufactures two products: receivers and loudspeakers. The factory overhead incurred is as follows: The activity base associated with the two production departments is direct labor hours. The indirect labor can be assigned to two different activities as follows: The activity-base usage quantities and units produced for the two products follow: Instructions Determine the factory overhead rates under the multiple production department rate method. Assume that indirect labor is associated with the production departments, so that the total factory overhead is 420,000 and 294,000 for the Subassembly and Final Assembly departments, respectively. Determine the total and per-unit factory overhead costs allocated to each product, using the multiple production department overhead rates in (1). Determine the activity rates, assuming that the indirect labor is associated with activities rather than with the production departments. Determine the total and per-unit cost assigned to each product under activity-based costing. Explain the difference in the per-unit overhead allocated to each product under the multiple production department factory overhead rate and activity-based costing methods. production department factory overhead rate and activity-based costing methods.
  • Analyzing process cost elements across product types Mystic Bottling Company bottles popular beverages in the Bottling Department. The beverages are produced by blending concentrate with water and sugar. The concentrate is purchased from a concentrate producer. The concentrate producer sets higher prices for the more popular concentrate flavors. A simplified Bottling Department cost of production report separating the cost of bottling the four flavors follows: Beginning and ending work in process inventories are negligible, so they are omitted from the cost of production report. The flavor changeover cost represents the cost of cleaning the bottling machines between production runs of different flavors. A production ran of a new flavor is produced after a flavor changeover from the previous flavor. Higher-demand flavors are produced in larger production runs, while smaller-demand flavors are produced in smaller production runs. Prepare a memo to the production manager, analyzing this comparative cost information. In your memo, provide recommendations for further action, along with supporting schedules showing the total cost per case and cost per case by cost element. Round supporting calculations to the nearest cent.
    Good Scent, Inc., produces two colognes: Rose and Violet. Of the two, Rose is more popular. Data concerning the two products follow: The company uses a conventional costing system and assigns overhead costs to products using direct labor hours. Annual overhead costs follow. They are classified as fixed or variable with respect to direct labor hours. Required: 1. Using the conventional approach, compute the number of cases of Rose and the number of cases of Violet that must be sold for the company to break even. 2. Using an activity-based approach, compute the number of cases of each product that must be sold for the company to break even.
    Variable and Fixed Costs What follows are a number of resources that are used by a manufacturer of futons. Assume that the output measure or cost driver is the number of futons produced. All direct labor is paid on an hourly basis, and hours worked can be easily changed by management. All other factory workers are salaried. a. Power to operate a drill (to drill holes in the wooden frames of the futons) b. Cloth to cover the futon mattress c. Salary of the factory receptionist d. Cost of food and decorations for the annual Fourth of July party for all factory employees e. Fuel for a forklift used to move materials in a factory f. Depreciation on the factory g. Depreciation on a forklift used to move partially completed goods h. Wages paid to workers who assemble the futon frame i. Wages paid to workers who maintain the factory equipment j. Cloth rags used to wipe the excess stain off the wooden frames Required: Classify the resource costs as variable or fixed.
  • Mt. Palomar Manufacturing Co. uses a process cost system. Its manufacturing operation is carried on in two departments: Machining and Finishing. The Machining Department uses the weighted average cost method, and the Finishing Department uses the FIFO cost method. Materials are added in both departments at the beginning of operations, but the added materials do not increase the number of units being processed. Units are lost in the Machining Department throughout the production process, and inspection occurs at the end of the process. The lost units have no scrap value and are considered to be a normal loss. Production statistics for July show the following data: Required: Prepare a cost of production summary for each department. (Round unit costs to three decimal places.) Which department will have an easier time determining how its unit costs compare from month to month? Why?
    Assigning Costs to a Cost Object, Direct and Indirect Costs Hummer Company uses manufacturing cells to produce its products (a cell is a manufacturing unit dedicated to the production of subassemblies or products). One manufacturing cell produces small motors for lawn mowers. Suppose that the motor manufacturing cell is the cost object. Assume that all or a portion of the following costs must be assigned to the cell. a. Salary of cell supervisor b. Power to heat and cool the plant in which the cell is located c. Materials used to produce the motors d. Maintenance for the cells equipment (provided by the maintenance department) e. Labor used to produce motors f. Cafeteria that services the plants employees g. Depreciation on the plant h. Depreciation on equipment used to produce the motors i. Ordering costs for materials used in production j. Engineering support (provided by the engineering department) k. Cost of maintaining the plant and grounds l. Cost of the plants personnel office m. Property tax on the plant and land Required: Classify each of the costs as a direct cost or an indirect cost to the motor manufacturing cell.
    Explain how a plantwide overhead rate, using a unit-based driver, can produce distorted product costs. In your answer, identify two major factors that impair the ability of plantwide rates to assign cost accurately.
  • Reducir, Inc., produces two different types of hydraulic cylinders. Reducir produces a major subassembly for the cylinders in the Cutting and Welding Department. Other parts and the subassembly are then assembled in the Assembly Department. The activities, expected costs, and drivers associated with these two manufacturing processes are given below. Note: In the assembly process, the materials-handling activity is a function of product characteristics rather than batch activity. Other overhead activities, their costs, and drivers are listed below. Other production information concerning the two hydraulic cylinders is also provided: Required: 1. Using a plantwide rate based on machine hours, calculate the total overhead cost assigned to each product and the unit overhead cost. 2. Using activity rates, calculate the total overhead cost assigned to each product and the unit overhead cost. Comment on the accuracy of the plantwide rate. 3. Calculate the global consumption ratios. 4. Calculate the consumption ratios for welding and materials handling (Assembly) and show that two drivers, welding hours and number of parts, can be used to achieve the same ABC product costs calculated in Requirement 2. Explain the value of this simplification. 5. Calculate the consumption ratios for inspection and engineering, and show that the drivers for these two activities also duplicate the ABC product costs calculated in Requirement 2.
    Multiple production department factory overhead rates The management of Spotted Cow Dairy Company, described in Problem 1B, now plans to use the multiple production department factory overhead rate method. The total factory overhead associated with each department is as follows: Instructions Determine the multiple production department factory overhead rates, using machine hours for the Blending Department and direct labor hours for the Packing Department. Determine the product factory overhead costs, using the multiple production department rates in (1).
    Variable and Fixed Costs, Cost Formula, High-Low Method Li Ming Yuan and Tiffany Shaden are the department heads for the accounting department and human resources department, respectively, at a large textile firm in the southern United States. They have just returned from an executive meeting at which the necessity of cutting costs and gaining efficiency has been stressed. After talking with Tiffany and some of her staff members, as well as his own staff members, Li Ming discovered that there were a number of costs associated with the claims processing activity. These costs included the salaries of the two paralegals who worked full time on claims processing, the salary of the accountant who cut the checks, the cost of claims forms, checks, envelopes, and postage, and depreciation on the office equipment dedicated to the processing. Some of the paralegals time appears to vary with the routine processing of uncontested claims, but considerable time also appears to be spent on the claims that have incomplete documentation or are contested. The accountants time appears to vary with the number of claims processed. Li Ming was able to separate the costs of processing claims from the costs of running the departments of accounting and human resources. He gathered the data on claims processing cost and the number of claims processed per month for the past 6 months. These data are as follows: Required: 1. Classify the claims processing costs that Li Ming identified as variable and fixed. 2. What is the independent variable? The dependent variable? 3. Use the high-low method to find the fixed cost per month and the variable rate. What is the cost formula? 4. CONCEPTUAL CONNECTION Suppose that an outside company bids on the claims processing business. The bid price is 4.60 per claim. If Tiffany expects 75,600 claims next year, should she outsource the claims processing or continue to do it in-house?
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