Concept explainers
In doing cost analysis, you realize that there could be errors in the accounting records. For example, maintenance costs were recorded as zero in December. However, you know that maintenance was performed in December. You find that maintenance costs were about double the normal monthly amount in the next month, January. You suspect that maintenance costs were not recorded in December, the last month of the year, so the department’s costs would appear to be below budget. The apparent error could affect regression analysis because you are using both December and January in your analysis. Should you report your concerns about the way maintenance costs have been recorded? If so, to whom would you report your concerns?
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Chapter 5 Solutions
Gen Combo Fundamentals Of Cost Accounting; Connect Access Card
- Reton Company is reviewing the results of itts production during tthe most recent fiscal year. Due to seasonality of the business, the volume of production fluctuates during the year. Renton would like to analyze the fixed and variable costs for purposes of estimating the budget for the upcoming fiscal year. The cost accountant provided the following data: UNITS PRODUCED TOTAL COST January 1,100 ₱12,530 February 1,200 13,260 March 1,400 14,720 April 1,500 15,450 May 1,800 17,640 June 2,100 19,830 July 2,000 19,100 August 1,900 18,370 September 1,400 14,720 October 1,500 15,450 November 1,300 13,990 December 1,700 16,910 TOTAL 18,900 191,970 Required: Calculate the variable cost per unit and the total fixed cost using the following: Average method (compare the two lowest quarters) Graphical method Method of least squaresarrow_forwardReton Company is reviewing the results of itts production during tthe most recent fiscal year. Due to seasonality of the business, the volume of production fluctuates during the year. Renton would like to analyze the fixed and variable costs for purposes of estimating the budget for the upcoming fiscal year. The cost accountant provided the following data: UNITS PRODUCED TOTAL COST January 1,100 ₱12,530 February 1,200 13,260 March 1,400 14,720 April 1,500 15,450 May 1,800 17,640 June 2,100 19,830 July 2,000 19,100 August 1,900 18,370 September 1,400 14,720 October 1,500 15,450 November 1,300 13,990 December 1,700 16,910 TOTAL 18,900 191,970 Calculate the variable cost per unit and the total fixed cost using the Graphical method.arrow_forwardMoses Moonrocks Inc. has developed a balanced scorecard with a measure map that suggests that the number of erroneous shipments has a direct effect on operating profit. The company estimates that every shipment error leads to a reduction of revenue by $6,000 and increased costs of about $4,000. Sales $227,000 Cost of goods sold 142,000 Depreciation expense 17,000 Other expenses 18,000 If the company has the above budgeted sales and costs for next month (without accounting for any possible shipping errors), determine how many shipping errors the company can afford to have and still break even. Break-even shipping errors : ?arrow_forward
- Renton company is reviewing the results of its production during the most recent fiscal year. Due to seasonality of the bussiness, the volume of production flactuates during the year. Renton would like to analyze the fixed and variable costs for purposes of estimating the budget for upcoming fiscal year. The cost accountant provided the following data: Units produce total costs January 1,100 12,530 February 1,200 13,260 March 1,400 14,720 April 1,500 15,450 May 1,800 17,640 June 2,100 19,830 July 2,000 19,100 August 1,900 18,370 September 1,400 14,720 October 1,500 15,450 November 1,300 13,990 December 1,700 16,910 Total 18,900 191,170 Required: Calculate the variable cost per unit and the total fixed cost using the following: a. High and low point method b. Average method (compare the two lowest quarters) c. Graphical method d. Method of least squaresarrow_forwardThe division manager of Division B received the following operating income data for the past year: The manager of the division is surprised that the T205 product line is not profitable. The division accountant estimates that dropping the T205 product line will decrease fixed cost of goods sold by $75,000 and decrease fixed selling and administrative expenses by $10,000. Prepare a differential analysis to show whether Division B should drop the T205 product line. What is your recommendation to the manager of Division B?arrow_forwardThe executives at Stark Inc., a plumbing supply manufacturer, recently reviewed production capacity for the upcoming year and set production budgets. Based on the number of units that they expected to produce, they budgeted sales and set sales targets for each of their retail locations. They did not ask for the input of the individual store managers as they believed that they had sufficient information and they wanted to ensure that the store targets were not easily attainable. When the actual sales numbers started to come in, they were much lower than the budget. In investigating the variance, the company found that one location had a new competitor that had just opened down the street, and another had significant road construction that impeded the traffic flow and cut down on customers. There were also some new products on the market that were cutting into the company’s market share. Because of the missed sales budget, the company had overproduced, resulting in excess inventory.…arrow_forward
- You are beginning your own business and developed a budget based on modest sales and expense assumptions. The actual results are very close to the budget at the end of the first and second months. During the third month, both cash collected and paid differ significantly from the budget. What could be the cause and what should you do?arrow_forwardWhich of the following statements concerning budget preparation for a merchandiser is correct? A. Operating expenses differ from operating cash outflows solely as a result of timing differences between when an expense is incurred and when an expense is paid. B. Only an understanding of cost behavior is required to prepare an operating expense budget. C. If a company requires its ending inventory to equal a certain percentage of the cost of next month’s sales, the company would be able to prepare purchases budgets for 4 months if it only knew the cost of sales for those 4 months. D. Assuming only a portion of a company’s sales are made on account, bad debt expense under the income statement method is calculated by multiplying sales on account by the estimated uncollectible percentage. E. None of the above statements are correct.arrow_forwardVincent Bassani has come to the accounting department for help in interpreting his variance report. He says that he understands that last month was not a very good one for output, but he really thought everyone put forth good effort, so he is confused about the existence of an unfavorable labor efficiency variance. He cites as an example of the workers' effort their willingness to work extra hours to get full output, even when a whole week's worth of production had to be scrapped. He knew that his materials costs would be higher, and that overtime would make his rate variance unfavorable, but he certainly didn't think his workers had been inefficient. Required: Write a short note to Vincent explaining the probable cause of the unfavorable labor efficiency variancearrow_forward
- The management of Hess, Inc., is developing a flexible budget for the upcoming year. It was not pleased with the small amount of net income the budget showed at all sales levels and Is contemplating using a less expensive material. This action reduces direct material cost by $1 per unit. What would be the effects on financial statements and a flexible budget if management takes this approach? Are there other factors that need to be considered?arrow_forwardThe president of a small manufacturing firm is concerned about the continual increase in manufacturing costs over the past several years. The following figures provide a time series of the cost per unit for the firms leading product over the past eight years: a. Construct a time series plot. What type of pattern exists in the data? b. Use simple linear regression analysis to find the parameters for the line that minimizes MSE for this time series. c. What is the average cost increase that the firm has been realizing per year? d. Compute an estimate of the cost/unit for next year.arrow_forwardThe controller for Dohini Manufacturing Company felt that the number of purchase orders alone did not explain the monthly purchasing cost. He knew that nonstandard orders (for example, one requiring an overseas supplier) took more time and effort. He collected data on the number of nonstandard orders for the past 12 months and added that information to the data on purchasing cost and total number of purchase orders. Multiple regression was run on the above data; the coefficients shown by the regression program are: Required: 1. Construct the cost formula for the purchasing activity showing the fixed cost and the variable rate. 2. If Dohini Manufacturing Company estimates that next month will have 430 total purchase orders and 45 nonstandard orders, what is the total estimated purchasing cost for that month? (Round your answer to the nearest dollar.) 3. What if Dohini Manufacturing wants to estimate purchasing cost for the coming year and expects 5,340 purchase orders and 580 nonstandard orders? What will estimated total purchasing cost be? What is the total fixed purchasing cost? Why doesnt it equal the fixed cost calculated in Requirement 2? (Round your answers to the nearest dollar.)arrow_forward
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