Managerial Accounting: Creating Value in a Dynamic Business Environment
11th Edition
ISBN: 9781259569562
Author: Ronald W Hilton Proffesor Prof, David Platt
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 5, Problem 65P
Fresno Fiber Optics, Inc. manufactures fiber optic cables for the computer and telecommunications industries. At the request of the company vice president of marketing, the cost management staff has recently completed a customer-profitability study. The following activity-based costing information was the basis for the analysis.
Cost-driver data for two of Fresno’s customers for the most recent year are
The following additional information has been compiled for Fresno Fiber Optics for two of its customers, Trace Telecom and Caltex Computer, for the most recent year:
Required:
- 1. Prepare a customer profitability analysis for Trace Telecom and Caltex Computer. (Hint: Refer to Exhibit 5–13 for guidance.)
- 2. Build a spreadsheet: Construct an Excel spreadsheet to solve requirement (1) above. Show how the solution will change if the following information changes: Trace Telecom’s sales revenue was $185,000 and Caltex Computer’s cost of goods sold was $59,000.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Chapter 5 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
Ch. 5 - Briefly explain how a traditional, volume-based...Ch. 5 - Prob. 2RQCh. 5 - Explain how an activity-based costing system...Ch. 5 - What are cost drivers? What is their role in an...Ch. 5 - List and briefly describe the four broad...Ch. 5 - How can an activity-based costing system alleviate...Ch. 5 - Prob. 7RQCh. 5 - How is the distinction between direct and indirect...Ch. 5 - Explain the concept of a pool rate in...Ch. 5 - Briefly explain two factors that tend to result in...
Ch. 5 - List three factors that are important in selecting...Ch. 5 - Prob. 12RQCh. 5 - Explain why a new product-costing system may be...Ch. 5 - Prob. 14RQCh. 5 - Are activity-based costing systems appropriate for...Ch. 5 - Explain why maintaining their medical-services...Ch. 5 - How could the administration at Immunity Medical...Ch. 5 - Prob. 18RQCh. 5 - Prob. 19RQCh. 5 - What is meant by the term activity analysis? Give...Ch. 5 - Prob. 21RQCh. 5 - What is meant by customer-profitability analysis?...Ch. 5 - Explain the relationship between customer profit...Ch. 5 - What is a customer profitability profile?Ch. 5 - Describe the use of practical capacity in a TDABC...Ch. 5 - Tioga Company manufactures sophisticated lenses...Ch. 5 - Urban Elite Cosmetics has used a traditional cost...Ch. 5 - Kentaro Corporation manufactures Digital Video...Ch. 5 - Kentaro Corporation manufactures Digital Video...Ch. 5 - Prob. 31ECh. 5 - Refer to the description given for Wheelco, Inc....Ch. 5 - Prob. 33ECh. 5 - United Technologies Corporation implemented...Ch. 5 - Redwood Company sells craft kits and supplies to...Ch. 5 - Non-value-added costs occur in nonmanufacturing...Ch. 5 - Since you have always wanted to be an...Ch. 5 - Prob. 39ECh. 5 - Prob. 42ECh. 5 - Big Apple Design Company specializes in designing...Ch. 5 - Prob. 44ECh. 5 - Borealis Manufacturing has just completed a major...Ch. 5 - Ontario, Inc. manufactures two products, Standard...Ch. 5 - Kitchen Kings Toledo plant manufactures three...Ch. 5 - Prob. 48PCh. 5 - Maxey Sons manufactures two types of storage...Ch. 5 - Prob. 50PCh. 5 - John Patrick has recently been hired as controller...Ch. 5 - The controller for Tulsa Medical Supply Company...Ch. 5 - Prob. 53PCh. 5 - Prob. 54PCh. 5 - Prob. 55PCh. 5 - World Gourmet Coffee Company (WGCC) is a...Ch. 5 - Knickknack, Inc. manufactures two products: Odds...Ch. 5 - Prob. 58PCh. 5 - Marconi Manufacturing produces two items in its...Ch. 5 - Gigabyte, Inc. manufactures three products for the...Ch. 5 - Refer to the new target prices for Gigabytes three...Ch. 5 - Prob. 62PCh. 5 - Better Bagels, Inc. manufactures a variety of...Ch. 5 - Midwest Home Furnishings Corporation (MHFC)...Ch. 5 - Fresno Fiber Optics, Inc. manufactures fiber optic...Ch. 5 - Refer to the information given in the preceding...Ch. 5 - Whitestone Company produces two subassemblies,...Ch. 5 - Morelli Electric Motor Corporation manufactures...Ch. 5 - Refer to the product costs developed in...Ch. 5 - Morelli Electric Motor Corporations controller,...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Mott Company recently implemented a JIT manufacturing system. After one year of operation, Heidi Burrows, president of the company, wanted to compare product cost under the JIT system with product cost under the old system. Motts two products are weed eaters and lawn edgers. The unit prime costs under the old system are as follows: Under the old manufacturing system, the company operated three service centers and two production departments. Overhead was applied using departmental overhead rates. The direct overhead costs associated with each department for the year preceding the installation of JIT are as follows: Under the old system, the overhead costs of the service departments were allocated directly to the producing departments and then to the products passing through them. (Both products passed through each producing department.) The overhead rate for the Machining Department was based on machine hours, and the overhead rate for assembly was based on direct labor hours. During the last year of operations for the old system, the Machining Department used 80,000 machine hours, and the Assembly Department used 20,000 direct labor hours. Each weed eater required 1.0 machine hour in Machining and 0.25 direct labor hour in Assembly. Each lawn edger required 2.0 machine hours in Machining and 0.5 hour in Assembly. Bases for allocation of the service costs are as follows: Upon implementing JIT, a manufacturing cell for each product was created to replace the departmental structure. Each cell occupied 40,000 square feet. Maintenance and materials handling were both decentralized to the cell level. Essentially, cell workers were trained to operate the machines in each cell, assemble the components, maintain the machines, and move the partially completed units from one point to the next within the cell. During the first year of the JIT system, the company produced and sold 20,000 weed eaters and 30,000 lawn edgers. This output was identical to that for the last year of operations under the old system. The following costs have been assigned to the manufacturing cells: Required: 1. Compute the unit cost for each product under the old manufacturing system. 2. Compute the unit cost for each product under the JIT system. 3. Which of the unit costs is more accurate? Explain. Include in your explanation a discussion of how the computational approaches differ. 4. Calculate the decrease in overhead costs under JIT, and provide some possible reasons that explain the decrease.arrow_forwardQuincy Farms is a producer of items made from farm products that are distributed to supermarkets. For many years, Quincys products have had strong regional sales on the basis of brand recognition. However, other companies have been marketing similar products in the area, and price competition has become increasingly important. Doug Gilbert, the companys controller, is planning to implement a standard costing system for Quincy and has gathered considerable information from his coworkers on production and direct materials requirements for Quincys products. Doug believes that the use of standard costing will allow Quincy to improve cost control and make better operating decisions. Quincys most popular product is strawberry jam. The jam is produced in 10-gallon batches, and each batch requires six quarts of good strawberries. The fresh strawberries are sorted by hand before entering the production process. Because of imperfections in the strawberries and spoilage, one quart of strawberries is discarded for every four quarts of acceptable berries. Three minutes is the standard direct labor time required for sorting strawberries in order to obtain one quart of strawberries. The acceptable strawberries are then processed with the other ingredients: processing requires 12 minutes of direct labor time per batch. After processing, the jam is packaged in quart containers. Doug has gathered the following information from Joe Adams, Quincys cost accountant, relative to processing the strawberry jam. a. Quincy purchases strawberries at a cost of 0.80 per quart. All other ingredients cost a total of 0.45 per gallon. b. Direct labor is paid at the rate of 9.00 per hour. c. The total cost of direct material and direct labor required to package the jam is 0.38 per quart. Joe has a friend who owns a strawberry farm that has been losing money in recent years. Because of good crops, there has been an oversupply of strawberries, and prices have dropped to 0.50 per quart. Joe has arranged for Quincy to purchase strawberries from his friends farm in hopes that the 0.80 per quart will put his friends farm in the black. Required: 1. Discuss which coworkers Doug probably consulted to set standards. What factors should Doug consider in establishing the standards for direct materials and direct labor? 2. Develop the standard cost sheet for the prime costs of a 10-gallon batch of strawberry jam. 3. Citing the specific standards of the IMA Statement of Ethical Professional Practice described in Chapter 1, explain why Joes behavior regarding the cost information provided to Doug is unethical. (CMA adapted)arrow_forwardBumblebee Mobiles manufactures a line of cell phones. The management has identified the following overhead costs and related cost drivers for the coming year. The following were incurred in manufacturing two of their cell phones, Bubble and Burst, during the first quarter. REQUIREMENT Review the worksheet called ABC that follows these requirements. You have been asked to determine the cost of each product using an activity-based cost system. Note that the problem information is already entered into the Data Section of the ABC worksheet.arrow_forward
- Big Mikes, a large hardware store, has gathered data on its overhead activities and associated costs for the past 10 months. Nizam Sanjay, a member of the controllers department, believes that overhead activities and costs should be classified into groups that have the same driver. He has decided that unloading incoming goods, counting goods, and inspecting goods can be grouped together as a more general receiving activity, since these three activities are all driven by the number of receiving orders. The 10 months of data shown below have been gathered for the receiving activity. Required: 1. Prepare a scattergraph, plotting the receiving costs against the number of purchase orders. Use the vertical axis for costs and the horizontal axis for orders. 2. Select two points that make the best fit, and compute a cost formula for receiving costs. 3. Using the high-low method, prepare a cost formula for the receiving activity. 4. Using the method of least squares, prepare a cost formula for the receiving activity. What is the coefficient of determination?arrow_forwardThe Chocolate Baker specializes in chocolate baked goods. The firm has long assessed the profitability of a product line by comparing revenues to the cost of goods sold. However, Barry White, the firms new accountant, wants to use an activity-based costing system that takes into consideration the cost of the delivery person. Following are activity and cost information relating to two of Chocolate Bakers major products: Using activity-based costing, which of the following statements is correct? a. The muffins are 2,000 more profitable. b. The cheesecakes are 75 more profitable. c. The muffins are 1,925 more profitable. d. The muffins have a higher profitability as a percentage of sales and, therefore, are more advantageous.arrow_forwardYoung Company is beginning operations and is considering three alternatives to allocate manufacturing overhead to individual units produced. Young can use a plantwide rate, departmental rates, or activity-based costing. Young will produce many types of products in its single plant, and not all products will be processed through all departments. In which one of the following independent situations would reported net income for the first year be the same regardless of which overhead allocation method had been selected? a. All production costs approach those costs that were budgeted. b. The sales mix does not vary from the mix that was budgeted. c. All manufacturing overhead is a fixed cost. d. All ending inventory balances are zero.arrow_forward
- Randy Harris, controller, has been given the charge to implement an advanced cost management system. As part of this process, he needs to identify activity drivers for the activities of the firm. During the past four months, Randy has spent considerable effort identifying activities, their associated costs, and possible drivers for the activities costs. Initially, Randy made his selections based on his own judgment using his experience and input from employees who perform the activities. Later, he used regression analysis to confirm his judgment. Randy prefers to use one driver per activity, provided that an R2 of at least 80 percent can be produced. Otherwise, multiple drivers will be used, based on evidence provided by multiple regression analysis. For example, the activity of inspecting finished goods produced an R2 of less than 80 percent for any single activity driver. Randy believes, however, that a satisfactory cost formula can be developed using two activity drivers: the number of batches and the number of inspection hours. Data collected for a 14-month period are as follows: Required: 1. Calculate the cost formula for inspection costs using the two drivers, inspection hours and number of batches. Are both activity drivers useful? What does the R2 indicate about the formula? 2. Using the formula developed in Requirement 1, calculate the inspection cost when 300 inspection hours are used and 30 batches are produced. Prepare a 90 percent confidence interval for this prediction.arrow_forwardThe chief executive officer of Acadia, Inc. attended a conference in which one of the sessions was devoted to variable costing. The CEO was impressed by the presentation and has asked that the following data of Acadia, Inc. be used to prepare comparative statements using variable costing and the companys absorption costing. The data follow: The factory produced 80,000 units during the period, and 70,000 units were sold for 700,000. 1. Prepare an income statement using variable costing. 2. Prepare an income statement using absorption costing. (Round unit costs to three decimal places.)arrow_forwardA manufacturing company has two service and two production departments. Human Resources and Machine Repair are the service departments. The production departments are Grinding and Polishing. The following data have been estimated for next years operations: The direct charges identified with each of the departments are as follows: The human resources department services all departments of the company, and its costs are allocated using the numbers of employees within each department, while machine repair costs are allocable to Grinding and Polishing on the basis of machine hours. 1. Distribute the service department costs, using the direct method. 2. Distribute the service department costs, using the sequential distribution method, with the department servicing the greatest number of other departments distributed first.arrow_forward
- The management of Wheeler Company has decided to develop cost formulas for its major overhead activities. Wheeler uses a highly automated manufacturing process, and power costs are a significant manufacturing cost. Cost analysts have decided that power costs are mixed; thus, they must be broken into their fixed and variable elements so that the cost behavior of the power usage activity can be properly described. Machine hours have been selected as the activity driver for power costs. The following data for the past eight quarters have been collected: Required: 1. Prepare a scattergraph by plotting power costs against machine hours. Does the scatter-graph show a linear relationship between machine hours and power cost? 2. Using the high and low points, compute a power cost formula. 3. Use the method of least squares to compute a power cost formula. Evaluate the coefficient of determination. 4. Rerun the regression and drop the point (20,000; 26,000) as an outlier. Compare the results from this regression to those for the regression in Requirement 3. Which is better?arrow_forwardCommunication The controller of New Wave Sounds Inc. prepared the following product profitability report for management, using activity-based costing methods for allocating both the factory overhead and the marketing expenses. As such, the controller has confidence in the accuracy of this report. In addition, the controller interviewed the vice president of marketing, who provided the following insight into the companys three products: The home theater speakers are an older product that is highly recognized in the marketplace. The wireless speakers are a new product that was just recently launched. The wireless headphones are a new technology that has no competition in the marketplace, and it is hoped that they will become an important future addition to the companys product portfolio. Initial indications are that the product is well received by customers. The controller believes that the manufacturing costs for all three products are in line with expectations. Based on the information provided: 1. Calculate the ratio of gross profit to sales and the ratio of operating income to sales for each product. 2. Write a brief (one-page) memo using the product profitability report and the calculations in (a) to make recommendations to management with respect to strategies for the three products.arrow_forwardA manufacturing company has two service and two production departments. Building Maintenance and Factory Office are the service departments. The production departments are Assembly and Machining. The following data have been estimated for next years operations: The direct charges identified with each of the departments are as follows: The building maintenance department services all departments of the company, and its costs are allocated using floor space occupied, while factory office costs are allocable to Assembly and Machining on the basis of direct labor hours. 1. Distribute the service department costs, using the direct method. 2. Distribute the service department costs, using the sequential distribution method, with the department servicing the greatest number of other departments distributed first.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,
Principles of Cost AccountingAccountingISBN:9781305087408Author:Edward J. Vanderbeck, Maria R. MitchellPublisher:Cengage Learning
Excel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:Cengage Learning,
Principles of Cost Accounting
Accounting
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Cengage Learning
Excel Applications for Accounting Principles
Accounting
ISBN:9781111581565
Author:Gaylord N. Smith
Publisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Cost Accounting - Definition, Purpose, Types, How it Works?; Author: WallStreetMojo;https://www.youtube.com/watch?v=AwrwUf8vYEY;License: Standard YouTube License, CC-BY