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Questions and Answers of
Management Accounting
Brian Catchpole is the manager of the rubber hose department of the BBR Company. His department manufactures hose of a single quality, although the lengths and specific nozzle attachments comply with
The Bailriggers Division specializes in manufacturing rigging for sailing dinghies and smaIl yachts - a growth industry. But the firm also has a sideline in wire products for garden use, including
The Carberg Corporation manufactures and seIls a single product. The cost system used by the company is a standard cost system. The standard cost per unit of product is shown below:The overhead cost
Pioneer Markets has three grocery stores in a metropolitan area.Central costs are allocated using sales as the cost driver. The following are budgeted and actual sales during November: SUNNYVILLE
Zenith Home Products has two producing departments, machining and assembly, and two service departments, personnel and custodial. The company’s budget for April 2006 isZenith allocates personnel
Lisbon Company’s production process for two of its solvents can be diagrammed as follows: Solvent A 20,000 litres Joint input 30,000 litres. Split-off point Solvent B=10,000 litres
A motorcycle manufacturer was concerned with declining market share because of foreign competition. To become more efficient, the company was considering changing to a just-in-time (JIT) production
The cordless phone manufacturing division of a consumer electronics company uses activity-based accounting. For simplicity, assume that its accountants have identified only the following three
Wheelock Controls Company has two producing departments, Mechanical Instruments and Electronic Instruments. In addition, there are two service departments, Building Services and Materials Receiving
Refer to the data in Problem 5-15.1. Allocate the costs of the service departments using the step-down method.2. Using the results of requirement 1, compute the cost per direct-labour hour in the
The Olympia Manufacturing Company has two producing departments, machining and assembly. Olympia recently automated the machining department. The installation of a computer-aided manufacturing (CAM)
The Glasgow Electronics Company produces three types of circuit boards: L, M, and N. The cost accounting system used by Glasgow until 2005 applied all costs except direct materials to the products
The National Railroad allocates all central corporate overhead costs to its divisions. Some costs, such as specified internal auditing and legal costs, are identified on the basis of time spent.
Chief Cleaning, Inc. provides cleaning services for a variety of clients. The company has two producing divisions, Residential and Commercial, and two service departments, Personnel and
Yamaguchi Company makes printed circuit boards in a suburb of Kyoto. The production process is automated with computer-controlled robotic machines assembling each circuit board from a supply of
Winnipeg Wholesaler Distributors uses an activity-based costing system to determine the cost of handling its products. One important activity is the receiving of shipments in the warehouse. Three
What types of source documents provide information for a job-cost record?
Suppose a company uses machine hours as a cost driver for factory overhead. How does the company compute a budgeted overhead application rate? How does it compute the amount of factory overhead
“Each department must choose one cost driver to be used for cost application.”Do you agree? Explain.
“There should be a strong relationship between the factory overhead incurred and the cost driver chosen for its application.” Why?
“Service firms trace only direct labour costs to jobs. All other costs are applied as a percentage of direct labour cost.” Do you agree? Explain.
Distinguish between job-order costing and process-costing systems.
Prepare summary journal entries for the typical transactions of a job-costing system.
Compute budgeted factory-overhead rates and apply them to production, using appropriate cost drivers.
Identify the meaning and purpose of normalized overhead rates.
Use an activity-based costing system in a job-order environment.
Show how job costing is used in service organizations.
September production resulted in the following activity in a key account of Colebury Costing Company (in thousands): WORK-IN-PROCESS INVENTORY $12 50 September 1 balance Direct material used Direct
Job-cost records for Naomi’s Remodelling Ltd. contained the following data:Compute Naomi’s (1) work-in-process inventory at May 31, (2) finished-goods inventory at May 31, and (3) cost of goods
The Cortez Construction Company constructs houses on speculation.That is, the houses are begun before any buyer is known. Even if the buyer agrees to purchase a house under construction, no sales are
The following data (in thousands) summarize the factory operations of the Lewis Manufacturing Co. for the year 2006, its first year in business:1. Prepare summary journal entries. Omit explanations.
Consider the following summarized data regarding 2007:Omit explanations for journal entries. Indirect labour Supplies Repairs BUDGET $ 290,000 35,000 80,000 ACTUAL $ 305,000 Utilities Factory rent
Wosepka Welding Company applied factory overhead at a rate of $8.50 per direct labour hour. Selected data for 2006 operations are (in thousands)Compute for both cases:1. Factory overhead applied.2.
Assume the following at the end of 2007 (in thousands): Cost of goods sold Direct materials inventory Work-in-process Finished goods $300 70 50 150 Factory department overhead control 60 cr. 1.
A Paris manufacturer uses a job-order system. At the end of 2007 the following balances exist (in millions of Euros [EUR]): Cost of goods sold EUR22.86 Finished goods 18.29 Work-in-process Factory
Gloria Cosmetics uses a normal cost system and has the following balances at the end of its first year’s operations:Prepare journal entries for two different ways to dispose of the year-end
Selected data concerning the past fiscal year’s operations of the Mistry Manufacturing Company are as follows (in thousands):Consider the following data for Words Printing Company (in thousands):
The Bellevue Clinic computes the cost of treating each patient. It allocates costs to departments and then applies.departmental overhead costs to individual patients using a different budgeted
The Decoste Furniture Company has two departments.Data for 2007 include the following: Direct materials (30 types) $65,000 Work-in-process (in assembly) 50,000 Finished goods 40,000 Manufacturing
Job-order costing is usually identified with manufacturing companies. However, service industries and not-for-profit organizations also use the method. Suppose a social service agency has a cost
Link Engineering Consultants is a firm of professional civil engineers. It mostly has surveying jobs for the heavy-construction industry throughout Western Canada. The firm obtains its jobs by giving
The managing partner of Singh Accounting is considering the desirability of tracing more costs to jobs than just direct labour. In this way, the firm will be better able to justify billings to
You are asked to bring the following incomplete accounts of a printing plant acquired in a merger up to date through January 31, 2006. Also consider the data that appear following the
Advanced Aeronautics Co. uses a budgeted overhead rate in applying overhead to individual job orders on a machinehour basis for Department A and on a direct-labour-hour basis for Department B.At the
Dell Computer Company’s manufacturing process consists of assembly, functional testing, and quality control of the company’s computer systems. The company’s build-to-order manufacturing
What are the limitations of all financial performance measures?Compare and contrast the relative advantages and dis advantages of RI and ROI. When would you consider the use of RI to be more
In many universities and polytechnics, student performance in a particular course is evaluated by means of regularly submitted course-work and a final examination. Assume that you participate and
A university teacher, active in teaching, administration and research, wishes to obtain further finance from a government research agency. The new research project will build on the findings of his
Jayhawker Enterprises has four divisions that produce toasters, washing machines, electric carving knives and tumble driers respectively. They share the same brand name, and the company's reputation
Mr T.G.R. Davies of the Grand SIam division has just submitted a budgeted ROI for the next year of 60%. Mr G. Wheel of the TripIe Crown division has submitted a 15% budgeted Rar. The company,
In many corporations, managers are asked not to pursue blindly their quantitative goals, but to 'do what's best for the company' in taking their decision. Is this a motivational contract? If not, why
In corporation A, a large, divisionalized firm, managers are motivated by different factors. A number of managers, particularly the younger ones, are most interested in improving their promotion
Many firms have found stock awards (e.g., stock options, restricted stock) to be effective in motivating managers. Such awards have the advantage of providing managerial rewards that are proportional
Assume as a division manager in a large corporation that you have been promised the choice of two incentive plans. The first plan will pay you an annual bonus of 30% of your salary if you achieve
Why do firms set lower performance cut-offs in their incentive compensation contracts? What is the danger in so doing?
Why do firms set upper performance cut-offs in their incentive compensation contracts? In what types of firm are these cut-offs most valuable? What is the danger in setting upper cut-offs?
What are the advantages and disadvantages of providing bonuses 'by formula', as opposed to assigning them subjectively?
If you were a division manager in a large firm, which of the following compensation packages would you prefer:(a) salary of f50000, with no bonus;(b) salary of BO 000, plus an annual bonus of 10% of
The accountant's response to inter-dependence between parts of an organization is to allocate costs or charge transfer prices. What properties do these treatments have in common, and when can they be
International and domestic transfer prices should always be calculated in the same way in order to avoid governmental and fiscal interference. Do you agree?
The Plantaganet Company is a large conglomerate that has 40 divisions. Division X wants to buy a component for its final product and receives bids from separate external suppliers of f500 and f550.
Peat, Ernst and Touche (PET) is a very large accounting firm. Its main activity and revenue earner,is undertaking audits of publicly owned companies' accounts. Increasingly, the audit teams have made
The Baron Company consists of 2 divisions that trade extensively with each other. The relevant revenue and cost functions for the final product are given below:where R is the unit revenue of the
Helman pIe is a diversified company having, among others, major interests in the mechanical, civil and structural engineering industries and in motor pump manufacturing.The motor pump division is a
The Earlswood Company is a multidivisional company which holds divisional managers responsible for their individual profits.The Squire Division produces, among other items, an electric motor which
Identify the stages of the capital budgeting process. Suggest ways in which top management could improve the accuracy and completeness of the information associated with capital project proposals.
Assume that you are part of the top-management team of a large, diversified company. You are aware of the incentives that divisional and lower-Ievel managers have to pre-select projects and provide
Compare the relative advantages and disadvantages of RI, ROI and the integrated contribution budget as measures of managerial performance. Comment on each measure's compatibility with the DCF
An integrated cash flow AIS does not encourage opportunistic behaviour such as the manipulation of actual results and the provision of biased estimates by divisional managers. Discuss.
HaI Edstrom is the divisional general manager of the Electrical Goods Division of Associated Engineering. The company has used a divisionalized control system for several years. The performance
The performance of the Tripie Crown Chemical Division of Industrial Chemicals Ltd is appraised by the residual income method, and the divisional manager, Dr Williams, has the power to dispose of
The Angler-Cost Company recently established two new plants for the manufacture of toy go-carts (plant X) and skate-boards (plant Y). The investment decisions were made on the following
A divisional manager is considering the following two machines, each of which has an initial cost of f800000 and an optimal use full if of four years, with an estimated scrap value of zero.The
Cathode plc has 2 divisions. The managing director has told the divisional managers that a bonus will be paid to the more profitable division. However, absolute profit as conventionally computed will
Oklahoma Chemicals Inc is contemplating changing the method of measuring divisional performance. At present, rate of return on investment (RO!) is used. Each division's return is calculated by
(a) Why do companies divisionalize?(b) What advantages, if any, does the multidivisional structure possess as opposed to the unitary or functional structure?(c) Peter James is an investment centre
Refer to Exhibit 4-4. Give the amounts of the following withrespect to the cost of goods available for sale: (1) Prime costs, (2) Conversion costs, (3) Factory overhead, and (4) Indirect
A company uses an absorption cost system. Prepare headings for two columns: (1) assembly department costs, and (2) products assembled.Fill in the two columns for each of the costs below. If a
Classify each of the following as direct or indirect(D or I) with respect to traceability to product and as variable or fixed (V or F)with respect to whether the cost fluctuates in total as activity
Review Exhibit 4-5. Assume that the Slider Company had no beginning inventories. The following transactions occurred in 2006 (in thousands):Prepare an analysis similar to Exhibit 4-5. What are the
Refer to the preceding problem. Suppose some goods were still in process that cost $100,000. Half the goods completed were sold. What are the balances of all the accounts in the ending balance sheet?
The Pierce Company had the following data (in thousands) for a given period:There were no beginning or ending inventories. Compute the (1) manufacturing cost of goods sold, (2) gross profit, (3)
Yoko Trucks Ltd. had the following data (in millions of yen) for a given period:There were no beginning or ending inventories. Compute the (1) variable manufacturing cost of goods sold, (2)
Anzola Company had the following data (in millions of dollars) for a recent period.Fill in the blanks. There were no beginning or ending inventories. $920 350 a. Sales b. Direct materials used c.
Raynard’s Jewellery had the following data (in thousands) for a given period. Assume there are no inventories. Fill in the blanks. ales Direct materials irect labour actory overhead Manufacturing
Marlinski had the following data (in thousands) for a given period. Assume there are no inventories.Compute the (1) variable manufacturing cost of goods sold, (2) variable selling and administrative
For each of the numbered items, choose the appropriate classifications for a manufacturing company.If in doubt about whether the cost behaviour is basically variable or fixed, decide on the basis of
The following information is taken from the records of the Kingland Company for the year ending December 31, 2006. There were no beginning or ending inventories. Sales Sales commissions Advertising
The Balakrishnan Corporation began business on January 1, 2005, to produce and sell a single product. Reported operating income figures under both absorption and variable costing for the first four
Chan Company data for 2006 are as follows: Sales: 12,000 units at $17 each Actual production Expected volume of production Manufacturing costs incurred: Variable 15,000 units 18,000 units $105,000
Osaka Manufacturing Company budgeted its 2006 variable overhead at ¥14,100,000 and its fixed overhead at ¥25,620,000.Expected 2006 volume was 6,100 units. Actual costs for production of 5,800 units
The Marple Company has built a massive water-desalting factory next to an ocean. The factory is completely automated. It has its own source of power, light, heat, and so on. The salt water costs
Assume the same facts as in the preceding problem. In addition, consider the following actual data for 2007: Direct materials $285,000 Direct labour 174,200 Variable factory overhead 36,000 Fixed
The Gumey Hosiery Company provides you with the following miscellaneous data regarding operations in 2006.There are no beginning or ending inventories.Compute the (1) variable selling and
Stephenson Corporation provides you with the following miscellaneous data regarding operations for 2006:There are no beginning or ending inventories.Compute the (1) fixed manufacturing overhead, (2)
U. Grant Company manufactured and sold 1,000 sabres during November. Selected data for November follow: Sales Direct materials used Direct labour Variable manufacturing overhead Fixed manufacturing
The following data have been condensed from Chateau Corporation’s report of 2006 operations (in millions of Euros [EUR]):Required Manufacturing cost of goods sold Selling and administrative
Form groups of three to five persons each. Each member of the group should pick one of the following industry types:Manufacturing Insurance Health care Government Service Each person should explore
Explain the major attributes of cost allocation and the relationship among activities, costs, and cost drivers.
Use recommended guidelines to charge the variable and fixed costs of service departments to other organizational units.
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