![EBK CORNERSTONES OF COST MANAGEMENT](https://www.bartleby.com/isbn_cover_images/9781305147102/9781305147102_largeCoverImage.jpg)
Concept explainers
Welcome Inns is a chain of motels serving business travelers in New Mexico and southwest Texas. The chain has grown from one motel in 2011 to five motels. In 2015, the owner of the company decided to set up an internal Accounting Department to centralize control of financial information. (Previously, local CPAs handled each motel’s bookkeeping and financial reporting.) The accounting office was opened in January 2015 by renting space adjacent to corporate headquarters in Ruidoso, New Mexico. All motels have been supplied with personal computers and internet access to transfer information to central accounting on a daily basis.
The Accounting Department has budgeted fixed costs of $135,000 per year. Variable costs are budgeted at $20 per hour. In 2015, actual cost for the Accounting Department was $223,000. Further information is as follows:
Required:
- 1. Suppose the total actual costs of the Accounting Department are allocated on the basis of 2015 sales revenue. How much will be allocated to each motel?
- 2. Suppose that Welcome Inns views 2014 sales figures as a proxy for budgeted capacity of the motels. Thus, fixed Accounting Department costs are allocated on the basis of 2014 sales, and variable costs are allocated according to 2015 usage multiplied by the variable rate. How much Accounting Department cost will be allocated to each motel?
- 3. Comment on the two allocation schemes. Which motels would prefer the method in Requirement 1? The method in Requirement 2? Explain.
![Check Mark](/static/check-mark.png)
Want to see the full answer?
Check out a sample textbook solution![Blurred answer](/static/blurred-answer.jpg)
Chapter 7 Solutions
EBK CORNERSTONES OF COST MANAGEMENT
- Al Salam trading company is a newly started company with 50 employees. The company has its head office in Muscat and 5 branches in other parts of the country. Each branch has an accountant who take care of the following functions in addition to the normal accounting functions. a. Receiving and issuing goods b. Maintenance of stock register c. Maintenance of cash book d. Preparation of purchase order e. Preparation of sales bills As an auditor of the company, comment on the internal control system of the company. (Note: Explain with not less than 150 words)arrow_forwardLamar LLC is in the process of updating its revenues and receivables systems with the implementation of new accounting software. James Loden, Inc. is an independent information technology consultant who is assisting Tamar with the project. James has developed the following checklist containing internal control points that the company should consider in this new implementation: Is the sales department separate from the credit office and the IT department?arrow_forwardShow-Off, Inc., sells merchandise through three retail outlets-in Las Vegas, Reno, and Sacramento-and operates a general corporate headquarters in Reno. A review of the company's Income statement Indicates a record year in terms of sales and profits. Management, though, desires additional Insights about the Individual stores and has asked that Judson Wyatt, a newly hired Intern, prepare a segmented Income statement. The following Information has been extracted from Show-Off's accounting records: ⚫ The sales volume, sales price, and purchase price data follow: Sales volume Unit selling price Unit purchase price Las Vegas 37,400 units Reno $ 22.00 10.25 41,400 units $ 20.50 10.25 Sacramento 46,160 units $ 18.25 12.00 • The following expenses were incurred for sales commissions, local advertising, property taxes, management salaries, and other noncontrollable (but traceable) costs: Sales commissions Las Vegas 8% Reno 8% Sacramento 8% Local advertising $16,900 Local property taxes Sales…arrow_forward
- Show-Off, Inc., sells merchandise through three retail outlets-in Las Vegas, Reno, and Sacramento-and operates a general corporate headquarters in Reno. A review of the company's income statement indicates a record year in terms of sales and profits. Management, though, desires additional insights about the individual stores and has asked that Judson Wyatt, a newly hired intern, prepare a segmented income statement. The following information has been extracted from Show-Off's accounting records: The sales volume, sales price, and purchase price data follow: Las Vegas Reno Sacramento 37,000 units 41,000 units 46,000 units Sales volume Unit selling $ 12.00 price Unit purchase 5.50 price salary Store manager salaries Other noncontrollable The following expenses were incurred for sales commissions, local advertising, property taxes, management salaries, and other noncontrollable (but traceable) costs: costs $11.00 Sales commissions Local advertising $11,000 $22,000 Local property 4,500…arrow_forwardimmy Pace has recently been hired as the manager of Jittery Jon’s Coffee Shop. Jittery Jon’s Coffee Shop is a national chain of franchised coffee shops. During his first month as store manager, Jimmy encountered the following internal control situations:a.Jittery Jon’s Coffee Shop has one cash register. Prior to Jimmy’s joining the coffee shop, each employee working on a shift would take a customer order, accept payment, and then prepare the order. Jimmy made one employee on each shift responsible for taking orders and accepting the customer’s payment. Other employees prepare the orders.b.Because only one employee uses the cash register, that employee is responsible for counting the cash at the end of the shift and verifying that the cash in the drawer matches the amount of cash sales recorded by the cash register. Jimmy expects each cashier to balance the drawer to the penny every time—no exceptions.c.Jimmy caught an employee putting a case of 1,000 single-serving tea bags in her car.…arrow_forwardJimmy Pace has recently been hired as the manager of Jittery Jon’s Coffee Shop. Jittery Jon’s Coffee Shop is a national chain of franchised coffee shops. During his first month as store manager, Jimmy encountered the following internal control situations: a. Jittery Jon’s Coffee Shop has one cash register. Prior to Jimmy’s joining the coffee shop, each employee working on a shift would take a customer order, accept payment, and then prepare the order. Jimmy made one employee on each shift responsible for taking orders and accepting the customer’s payment. Other employees prepare the orders. b. Because only one employee uses the cash register, that employee is responsible for counting the cash at the end of the shift and verifying that the cash in the drawer matches the amount of cash sales recorded by the cash register. Jimmy expects each cashier to balance the drawer to the penny every time—no exceptions. c. Jimmy caught an employee putting a case of 1,000 single-serving tea bags in…arrow_forward
- Jimmy Pace has recently been hired as the manager of Jittery Jon’s Coffee Shop. Jittery Jon’s Coffee Shop is a national chain of franchised coffee shops. During his first month as store manager, Jimmy encountered the following internal control situations:a. Jittery Jon’s Coffee Shop has one cash register. Prior to Jimmy’s joining the coffee shop, each employee working on a shift would take a customer order, accept payment, and then prepare the order. Jimmy made one employee on each shift responsible for taking orders and accepting the customer’s payment. Other employees prepare the orders.b. Because only one employee uses the cash register, that employee is responsible for counting the cash at the end of the shift and verifying that the cash in the drawer matches the amount of cash sales recorded by the cash register. Jimmy expects each cashier to balance the drawer to the penny every time—no exceptions.c. Jimmy caught an employee putting a case of 1,000 single-serving tea bags in her…arrow_forwardRichmond, Inc., operates a chain of 44 department stores. Two years ago, the board of directors of Richmond approved a large-scale remodeling of its stores to attract a more upscale clientele. Before finalizing these plans, two stores were remodeled as a test. Linda Perlman, assistant controller, was asked to oversee the financial reporting for these test stores, and she and other management personnel were offered bonuses based on the sales growth and profitability of these stores. While completing the financial reports, Perlman discovered a sizable inventory of outdated goods that should have been discounted for sale or returned to the manufacturer. She discussed the Situation with her management colleagues; the consensus was to ignore reporting this inventory as obsolete because reporting it would diminish the financial results and their bonuses. Required: According to the IMA’s Statement of Ethical Professional Practice, would it be ethical for Perlman not to report the inventory…arrow_forwardBlessed Electricals Co (Blessed) is a manufacturer of electrical equipment. It has factories across the country and its customer base includes retailers as well as individuals, to whom direct sales are made through their website. The company’s year end is 30 September 2014. You are an audit supervisor of Ackah & Co and are currently reviewing documentation of Blessed’s internal control in preparation for the interim audit. Blessed’s website allows individuals to order goods directly, and full payment is taken in advance. Currently the website is not integrated into the inventory system and inventory levels are not checked at the time when orders are placed. Inventory is valued at the lower of cost and net realisable value. Goods are despatched via local couriers; however, they do not always record customer signatures as proof that the customer has received the goods. Over the past 12 months there have been customer complaints about the delay between sales orders and receipt of…arrow_forward
- Blessed Electricals Co (Blessed) is a manufacturer of electrical equipment. It has factories across the country and its customer base includes retailers as well as individuals, to whom direct sales are made through their website. The company’s year end is 30 September 2014. You are an audit supervisor of Ackah & Co and are currently reviewing documentation of Blessed’s internal control in preparation for the interim audit. Blessed’s website allows individuals to order goods directly, and full payment is taken in advance. Currently the website is not integrated into the inventory system and inventory levels are not checked at the time when orders are placed. Inventory is valued at the lower of cost and net realisable value. Goods are despatched via local couriers; however, they do not always record customer signatures as proof that the customer has received the goods. Over the past 12 months there have been customer complaints about the delay between sales orders and receipt of…arrow_forwardDD Ltd operates a business to do with warehousing and distribution of books and CD’s for K Ltd, an on-line business. For this purpose, DD rented warehouses in each major town in the country and the actual delivery of orders was outsourced to a courier service. The market was becoming increasingly competitive and the year ending 31 December 2019 had not been as successful as the previous years. The founder and CEO was very frustrated with the complex integrated computer system that dealt with all the logistics. The system is down most of the time; as a result money is lost through lost business and poor service delivery. The CEO is of the view that there is real fear that K Ltd may penalize the company or indeed engage another company in the place of DD. A lot of money is spent on computer consultants who practically live at DD’s offices and what is worse they do not appear to make any difference.Since the logistical system was linked to the general ledger, all the problems had been…arrow_forwardPanache Inc. is a small specialty automobile manufacturer. The company's long-time controller, Celia Brown, retired on January 10, 2016, at the age of eighty-eight years, and the president of the company, Andrew Cartwright, has hired you to be the company's new controller. Andrew would like to take Panache public in the near future, which will require audited financial statements. He has retained the public accounting firm of Booker and Helwig to audit the 2015 financial statements as a preliminary step. He knows that Celia was not always up to date on current issues, and he has asked you to review all of the company's accounting policies and procedures. Your first task is to identify problem areas and make any corrections needed before the audit begins. Andrew wants to be kept informed at all times, and when any problems are identified, he wants to be made aware of the problem as well as your solution. You've spent your first week on the job getting familiar with the company's…arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningBusiness Its Legal Ethical & Global EnvironmentAccountingISBN:9781305224414Author:JENNINGSPublisher:CengageAuditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
![Text book image](https://www.bartleby.com/isbn_cover_images/9781305970663/9781305970663_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337619455/9781337619455_smallCoverImage.gif)