Calculate
Suppose that back in the 1970s, Steve was asked to build speakers for two friends. The first friend, Jan, needed a speaker for her band. The second friend, Ed, needed a speaker built into the back of his hatchback automobile. Steve figured the following costs for each:
Steve knew that Jan’s job would be easier, since he had experience in building the type of speaker she needed. Her job would not require any special equipment or specialized fitting. Ed’s job, on the other hand, required specialized design and precise fitting. Steve thought he might need to build a mock-up of the speaker first, to fit it into the space. In addition, he might have to add to his tool collection to complete the job. Normally, Steve figured a wage rate of $6 per hour and charged 20% of labor and materials as an
Required:
- 1. Prepare job-order cost sheets for the two jobs, showing total cost.
- 2. CONCEPTUAL CONNECTION Which cost do you think is more likely to be accurate? How might Steve build in some of the uncertainty of Ed’s job into a budgeted cost?
Trending nowThis is a popular solution!
Chapter 4 Solutions
Managerial Accounting: The Cornerstone of Business Decision-Making
- Stan is opening a coffee shop next to Big State University. He knows that controlling his costs will be important to the success of the shop. He will not be able to work all the hours the shop is open, so the employees will need some guidelines to perform their jobs correctly. After talking to an accounting professor, he decides he needs a standard cost system for his shop. Describe the process Stan should follow in setting his standards for materials and labor.arrow_forwardColin OShea has a carpentry shop that employs 4 carpenters. Colin received an order for 1,000 coffee tables. The coffee tables have a round table top and four decorative legs. An offer for $500 per table was received. Colin found an unfinished round table top that he could buy for $50 each. A. Using this quantitative cost data to make the table top, should Colin buy the table top or make it? B. What qualitative factors would be included in your decision. B. Can the vendor make it to the same quality standards? Can it be completed on time? Is there idle capacity in the factory that could be used?arrow_forwardPocket Umbrella, Inc. is considering producing a new type of umbrella. This new pocket-sized umbrella would fit into a coat pocket or purse. Classify the following costs of this new product as direct materials, direct labor, manufacturing overhead, or selling and administrative. Cost of advertising the product Fabric used to make the umbrellas Maintenance of cutting machines used to cut the umbrella fabric so it will fit the umbrella frame Wages of workers who assemble the product Presidents salary The salary of the supervisor of the people who assemble the product Wages of the product tester who stands in a shower to make sure the umbrellas do not leak Cost of market research survey Salary of the companys sales managers Depreciation of administrative office buildingarrow_forward
- Salem Electronics currently produces two products: a programmable calculator and a tape recorder. A recent marketing study indicated that consumers would react favorably to a radio with the Salem brand name. Owner Kenneth Booth was interested in the possibility. Before any commitment was made, however, Kenneth wanted to know what the incremental fixed costs would be and how many radios must be sold to cover these costs. In response, Betty Johnson, the marketing manager, gathered data for the current products to help in projecting overhead costs for the new product. The overhead costs based on 30,000 direct labor hours follow. (The high-low method using direct labor hours as the independent variable was used to determine the fixed and variable costs.) All depreciation. The following activity data were also gathered: Betty was told that a plantwide overhead rate was used to assign overhead costs based on direct labor hours. She was also informed by engineering that if 20,000 radios were produced and sold (her projection based on her marketing study), they would have the same activity data as the recorders (use the same direct labor hours, machine hours, setups, and so on). Engineering also provided the following additional estimates for the proposed product line: Upon receiving these estimates, Betty did some quick calculations and became quite excited. With a selling price of 26 and just 18,000 of additional fixed costs, only 4,500 units had to be sold to break even. Since Betty was confident that 20,000 units could be sold, she was prepared to strongly recommend the new product line. Required: 1. Reproduce Bettys break-even calculation using conventional cost assignments. How much additional profit would be expected under this scenario, assuming that 20,000 radios are sold? 2. Use an activity-based costing approach, and calculate the break-even point and the incremental profit that would be earned on sales of 20,000 units. 3. Explain why the CVP analysis done in Requirement 2 is more accurate than the analysis done in Requirement 1. What recommendation would you make?arrow_forwardAssume you are the leather department manager at the Famous Football Factory. The leather department is a cost center and you are reviewing the scrap costs for the previous year, shown here: A. Using Microsoft Excel or another spreadsheet application, create a line chart with markers showing the leather scrap expense. Describe your observations. B. Knowing that leather is susceptible to indoor temperature, you decide to talk with the maintenance manager and obtain the following information: Using Microsoft Excel or another spreadsheet application, create individual line charts with markers showing the indoor temperature, spare parts inventory, and breakdowns. Describe your observations and actions you might consider.arrow_forwardAlameda Tile sells products to many people remodeling their homes and thinks that it could profitably offer courses on tile installation, which might also increase the demand for its products. The basic installation course has the following (tentative) price and cost characteristics.arrow_forward
- Danielle Hastings was recently hired as a cost analyst by CareNet Medical Supplies Inc. One of Danielle's first assignments was to perform a net present value analysis for a new warehouse. Danielle performed the analysis and calculated a present value index of 0.75. The plant manager, Jerrod Moore, is intent on purchasing the warehouse because he believes that more storage space is needed. Jerrod asks Danielle to come to his office, where the following conversation takes place: Jerrod: Danielle, you're new here, aren't you? Danielle: Yes, I am. Jerrod: Well, Danielle, I'm not at all pleased with the capital investment analysis that you performed on this new warehouse. I need that warehouse for my production. If I don't get it, where am I going to place our output? Danielle: Well, we need to get product into our customers' hands. Jerrod: I agree, and we need a warehouse to do that. Danielle: My analysis does not support constructing a new warehouse. The numbers…arrow_forwardAs part of his cost-reduction efforts, Fletch is interested in reducing labor costs. He asks you to evaluate the financial impact of a proposal involving an alternative labor contract for manual finishing labor (MAN-5). Under the proposed contract, the company would guarantee a 40-hour workweek for these employees. The hourly wage under the guaranteed 40-hour workweek would be $14 instead of $15. Based on the number of MAN-5 employees that the company plans to employ, this means that the company is committed to paying its MAN-5 employees for 1,600 hours each month, even if there is not enough work to keep them busy. If the number of MAN-5 labor hours per month is higher than 1,600 hours, MAN-5 employees will receive time-and-a-half overtime pay. MACH-2 labor hours will not be impacted. To fulfil Fletch’s request, first, insert a new worksheet at the end of the Excel template and set up a new direct labor budget (only for MAN-5). Then, answer the following questions: a. Calculate the…arrow_forwardGreen Thumb Gardening is a small gardening service that uses activity-based costing to estimate costs for pricing and other purposes. The proprietor of the company believes that costs are driven primarily by the size of customer lawns, the size of customer garden beds, the distance to travel to customers, and the number of customers. In addition, the costs of maintaining garden beds depends on whether the beds are low maintenance beds (mainly ordinary trees and shrubs) or high maintenancebeds (mainly flowers and exotic plants). Accordingly, the company uses the five activity cost pools listed below: Required:Compute the activity rate for each of the activity cost pools.arrow_forward
- Green Thumb Gardening is a small gardening service using activity-based costing to estimate costs for pricing and other purposes. The owner of the company believes costs are driven primarily by the size of customer lawns, the size of customer garden beds, the distance to travel to customers, and the number of customers. In addition, the costs of maintaining garden beds depend on whether the beds are low-maintenance beds (mainly ordinary trees and shrubs) or high-maintenance beds (mainly flowers and exotic plants). Accordingly, the company uses the five activity cost pools listed below: Activity Cost Pool Activity Measure Caring for lawn Square feet of lawn Caring for garden beds–low maintenance Square feet of low-maintenance beds Caring for garden beds–high maintenance Square feet of high-maintenance beds Travel to jobs Miles Customer billing and service Number of customers The company completed its first-stage cost allocations and summarized its annual costs and…arrow_forwardAssume that HASF furniture Inc., as described, currently purchases the chair cushions for its lawn set from an outside vendor for $30 per set. Modern Furniture’s chief operations officer wants an analysis of the comparative costs of manufacturing these cushions to determine whether bringing the manufacturing in-house would save the firm money. Additional information shows that if Modern furniture’s were to manufacture the cushions, the materials cost would be $16 and the labor cost would be $10 per set and that it would have to purchase cutting and sewing equipment, which would add $25,000 to annual fixed costs. Required Computation for 10,000 units What amount should have been inccrued if company produce 10,000 units What amount should have been inccrued if company purhcase 10,000 units from outside What amount company save if company make 10,000 cushionsarrow_forwardHicks Contracting collects and analyzes cost data in order to track the cost of installing decks on new home construction jobs. The following are some of the costs that they incur. Classify these costs as fixed or variable costs and as product or period costs. Lumber used to construct decks ($12.00 per square foot) Carpenter labor used to construct decks ($10 per hour) Construction supervisor salary ($45,000 per year) Depreciation on tools and equipment ($6,000 per year) Selling and administrative expenses ($35,000 per year) Rent on corporate office space ($34,000 per year) Nails, glue, and other materials required to construct deck (varies per job)arrow_forward
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub