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business
managerial accounting

Questions and Answers of Managerial Accounting

Amoruso Parts Company sells vehicle parts to automotive companies. The Truck Division is organized as a cost center. The budget for the Truck Division for the month ended October 31, 2010, is as
Browning Transportation Co. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance, using income from operations as a percent of
A condensed income statement for the Snowboard Division of New Wave Rides Inc. for the year ended December 31, 2010, is as follows:Sales $1,200,000Cost of goods sold 826,000Gross profit $
The vice president of operations of Rucker-Putnam Bike Company is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for
Bay Area Scientific, Inc. manufactures electronic products, with two operating divisions, the Performance Materials and Communication Technologies divisions. Condensed divisional income statements,
The Northeast District of Vidovich Beverages, Inc., is organized as a cost center. The budget for the Northeast District of Vidovich Beverages, Inc., for the month ended May 31, 2010, is as
Tri-State Railroad Company organizes its three divisions, the Southeast (SE), East (E), and South (S) regions, as profit centers. The chief executive officer (CEO) evaluates divisional performance,
Performance Financial Services Inc. is a diversified investment company with three operating divisions organized as investment centers. Condensed data taken from the records of the three divisions
A condensed income statement for the Water Sports Division of South Mountain SportsInc. for the year ended January 31, 2010, is as follows:Sales $ 600,000Cost of goods sold 236,000Gross
The vice president of operations of Six Layer Computers Inc. is evaluating the performance of two divisions organized as investment centers. Invested assets and condensed income statement data for
Knopfler Industries, Inc. is a diversified aerospace company, including two operating divisions, Specialized Semiconductors and Navigational Systems divisions. Condensed divisional income statements,
Explain the meaning of (a) Differential revenue,(b) Differential cost, and (c) Differential income.
It was reported that Exabyte Corporation, a fast growing Colorado marketer of backup tape drives, has decided to purchase key components of its product from others. For example, Sony Corporation of
A company could sell a building for $250,000 or lease it for $2,500 per month. What would need to be considered in determining if the lease option would be preferred?
A company accepts incremental business at a special price that exceeds the variable cost. What other issues must the company consider in deciding whether to accept the business?
A company fabricates a component at a cost of $6.00. A supplier offers to supply the same component for $5.50. Under what circumstances is it reasonable to purchase from the supplier?
Many fast-food restaurant chains, such as McDonald’s, will occasionally discontinue restaurants in their system. What are some financial considerations in deciding to eliminate a store?
Why might the use of ideal standards in applying the cost-plus approach to product pricing lead to setting product prices that are too low?
How does the target cost concept differ from cost-plus approaches?
What is a production bottleneck?
Jefferson Company owns equipment with a cost of $95,000 and accumulated depreciation of $60,000 that can be sold for $40,000, less a 6% sales commission. Alternatively, the equipment can be leased by
Grey Company owns a machine with a cost of $320,000 and accumulated depreciation of $60,000 that can be sold for $250,000, less a 5% sales commission. Alternatively, the machine can be leased by Grey
Product L has revenue of $56,000, variable cost of goods sold of $29,000, variable selling expenses of $12,000, and fixed costs of $18,000, creating a loss from operations of $3,000.(a) Determine the
Product V has revenue of $204,000, variable cost of goods sold of $134,000, variable selling expenses of $74,000, and fixed costs of $14,000, creating a loss from operations of $18,000.(a) Determine
A company manufactures various sized plastic bottles for its medicinal product. The manufacturing cost for small bottles is $52 per unit (1,000 bottles), including fixed costs of $15 per unit. A
A restaurant bakes its own bread for $160 per unit (100 loaves), including fixed costs of $38 per unit. A proposal is offered to purchase bread from an outside source for $109 per unit, plus $8 per
A machine with a book value of $48,000 has an estimated five-year life. A proposal is offered to sell the old machine for $50,000 and replace it with a new machine at a cost of $62,000. The new
A machine with a book value of $250,000 has an estimated six-year life. A proposal is offered to sell the old machine for $243,000 and replace it with a new machine at a cost of $320,000. The new
Product T is produced for $3.20 per pound, including a $0.20 per pound fixed cost. Product T can be sold without additional processing for $4.10 per pound, or processed further into Product U at an
Product A is normally sold for $6.50 per unit. A special price of $5.60 is offered for the export market. The variable production cost is $4.50 per unit. An additional export tariff of 25% of revenue
Product R is normally sold for $55 per unit. A special price of $46 is offered for the export market. The variable production cost is $32 per unit. An additional export tariff of 15% of revenue must
Product K has a unit contribution margin of $240. Product L has a unit contribution margin of $200. Product K requires eight furnace hours, while Product L requires five furnace hours. Determine the
Product A has a unit contribution margin of $45. Product B has a unit contribution margin of $60. Product A requires three testing hours, while Product B requires five testing hours. Determine the
Inman Construction Company is considering selling excess machinery with a book value of $280,000 (original cost of $400,000 less accumulated depreciation of $120,000) for $292,000, less a 5%
A condensed income statement by product line for British Beverage Inc. indicated the following for Royal Cola for the past year: Sales
The Charles Schwab Corporation is one of the more innovative brokerage and financial service companies in the United States. The company recently provided information about its major business
On the basis of the following data, the general manager of Sole Mates Inc. decided to discontinue Children's Shoes because it reduced income from operations by $28,000. What is the flaw in this
Companion Computer Company has been purchasing carrying cases for its portable computers at a delivered cost of $68 per unit. The company, which is currently operating below full capacity, charges
The Theater Arts Guild of Chicago (TAG-C) employs five people in its Publication Department. These people lay out pages for pamphlets, brochures, and other publications for the TAG-C productions. The
A company is considering replacing an old piece of machinery, which cost $600,000 and has $350,000 of accumulated depreciation to date, with a new machine that costs $450,000. The old equipment could
Singapore Digital Components Company assembles circuit boards by using a manually operated machine to insert electronic components. The original cost of the machine is $60,000, the accumulated
Bunyon Lumber Company incurs a cost of $490 per hundred board feet in processing certain “rough-cut” lumber, which it sells for $635 per hundred board feet. An alternative is to produce a
Seattle Roast Coffee Company produces Columbian coffee in batches of 8,000 pounds. The standard quantity of materials required in the process is 8,000 pounds, which cost $5.00 per pound. Columbian
Down Home Jeans Co. has an annual plant capacity of 65,000 units, and current production is 45,000 units. Monthly fixed costs are $40,000, and variable costs are $22 per unit. The present selling
Power Serve Company expects to operate at 85% of productive capacity during April. The total manufacturing costs for April for the production of 30,000 batteries are budgeted as follows:
Roadworthy Tire and Rubber Company has capacity to produce 170,000 tires. Roadworthy presently produces and sells 130,000 tires for the North American market at a price of $90 per tire. Roadworthy is
MyPhone Inc. uses the total cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 5,000 units of cellular phones are as follows: MyPhone desires a
Based on the data presented in Exercise 25-15, assume that MyPhone Inc. uses the product cost concept of applying the cost-plus approach to product pricing.(a) Determine the total manufacturing costs
Based on the data presented in Exercise 25-15, assume that MyPhone Inc. uses the variable cost concept of applying the cost-plus approach to product pricing.(a) Determine the variable costs and the
Toyota Motor Corporation uses target costing. Assume that Toyota marketing personnel estimate that the competitive selling price for the Camry in the upcoming model year will need to be $22,000.
Laser Cast, Inc., manufactures color laser printers. Model A200 presently sells for $400 and has a total product cost of $320, as follows: Direct materials
Armstrong Alloys Inc. has three grades of metal product, Type 5, Type 10, and Type 20. Financial data for the three grades are as follows: Armstrong's operations require all three grades to be
Ohio Glass Company manufactures three types of safety plate glass: large, medium, and small. All three products have high demand. Thus, Ohio Glass is able to sell all the safety glass that it can
Based on the data presented in Exercise 25-21, assume that Ohio Glass wanted to price all products so that they produced the same profit potential as the highest profit product. Thus, determine the
Cardio Care Inc. manufactures stationary bicycles and rowing machines. The products are produced in the Fabrication and Assembly production departments. In addition to production activities, several
Titan Industries manufactures two types of electrical power units, custom and standard, which involve four overhead activities?production setup, procurement, quality control, and materials
On March 1, Midway Distribution Company is considering leasing a building and buying the necessary equipment to operate a public warehouse. Alternatively, the company could use the funds to invest in
Flint Tooling Company is considering replacing a machine that has been used in its factory for two years. Relevant data associated with the operations of the old machine and the new machine, neither
Glide Shoe Company is planning a one-month campaign for May to promote sales of one of its two shoe products. A total of $125,000 has been budgeted for advertising, contests, redeemable coupons, and
The management of Allegheny Valley Aluminum Co. is considering whether to process aluminum ingot further into rolled aluminum. Rolled aluminum can be sold for $1,600 per ton, and ingot can be sold
Night Watch Company recently began production of a new product, the halogen light, which required the investment of $500,000 in assets. The costs of producing and selling 12,000 halogen lights are
Delaware Bay Chemical Company produces three products: ethylene, butane, and ester. Each of these products has high demand in the market, and Delaware Bay Chemical is able to sell as much as it can
On November 1, Essence Stores Inc. is considering leasing a building and purchasing the necessary equipment to operate a retail store. Alternatively, the company could use the funds to invest in
Golden Printing Company is considering replacing a machine that has been used in its factory for four years. Relevant data associated with the operations of the old machine and the new machine,
Belle Cosmetics Company is planning a one-month campaign for June to promote sales of one of its two cosmetics products. A total of $120,000 has been budgeted for advertising, contests, redeemable
The management of Caribbean Sugar Company is considering whether to process further raw sugar into refined sugar. Refined sugar can be sold for $1.90 per pound, and raw sugar can be sold without
Gemini Steel Company produces three grades of steel: high, good, and regular grade. Each of these products (grades) has high demand in the market, and Gemini is able to sell as much as it can produce
(a) What is cost behavior analysis?(b) Why is cost behavior analysis important to management?
(a) Jenny Kent asks your help in understanding the term “activity index.” Explain the meaning and importance of this term for Jenny.(b) State the two ways that variable costs may be defined.
A. J. Hernandez claims that the relevant range concept is important only for variable costs.(a) Explain the relevant range concept.(b) Do you agree with A. J.’s claim? Explain.
“The relevant range is indispensable in cost behavior analysis.” Is this true? Why or why not?
Ryan Ricketts is confused. He does not understand why rent on his apartment is a fixed cost and rent on a Hertz rental truck is a mixed cost. Explain the difference toRyan.
At the high and low levels of activity during the month, direct labor hours are 90,000 and 40,000, respectively. The related costs are $160,000 and $100,000. What are the fixed and variable costs at
“Cost-volume-profit (CVP) analysis is based entirely on unit costs.” Do you agree? Explain.
Kosko Company’s Speedo calculator sells for $40. Variable costs per unit are estimated to be $28.What are the contribution margin per unit and the contribution margin ratio?
Nancy Tobias asks your help in constructing a CVP graph. Explain to Nancy(a) How the break-even point is plotted, and(b) How the level of activity and dollar sales at the break-even point are
Define the term “margin of safety.” If Peine Company expects to sell 1,250 units of its product at $12 per unit, and break-even sales for the product are $12,000, what is the margin of safety
Ortega Company’s break-even sales are $600,000. Assuming fixed costs are $180,000, what sales volume is needed to achieve a target net income of $60,000?
The traditional income statement for Mallon Company shows sales $900,000, cost of goods sold $500,000, and operating expenses $200,000. Assuming all costs and expenses are 70% variable and 30% fixed,
Distinguish between absorption costing and variable costing.
(a) What is the major rationale for the use of variable costing?(b) Discuss why variable costing may not be used for financial reporting purposes.
Monthly production costs in Pesavento Company for two levels of production are as follows. Indicate which costs are variable, fixed, and mixed, and give the reason for eachanswer.
For Loder Company, the relevant range of production is 40–80% of capacity. At 40% of capacity, a variable cost is $4,000 and a fixed cost is $6,000. Diagram the behavior of each cost within the
For Hunt Company, a mixed cost is $20,000 plus $16 per direct labor hour. Diagram the behavior of the cost using increments of 500 hours up to 2,500 hours on the horizontal axis and increments of
Deines Company accumulates the following data concerning a mixed cost, using miles as the activity level. Compute the variable and fixed cost elements using the high-low method.
Determine the missing amounts.
Hamby Company has a unit selling price of $400, variable costs per unit of $260, and fixed costs of $210,000. Compute the break-even point in units using(a) The mathematical equation and(b)
For Markowis Company, variable costs are 70% of sales, and fixed costs are $210,000. Management’s net income goal is $60,000. Compute the required sales needed to achieve management’s target net
For Briggs Company actual sales are $1,200,000 and break-even sales are $900,000.Compute(a) The margin of safety in dollars and(b) The margin of safety ratio.
Dilts Manufacturing Inc. had sales of $1,800,000 for the first quarter of 2010. In making the sales, the company incurred the following costs and expenses. Prepare a CVP income statement for the
Gore Company’s fixed overhead costs are $3 per unit, and its variable overhead costs are $8 per unit. In the first month of operations, 50,000 units are produced, and 47,000 units are sold. Write a
Montana Company reports the following total costs at two levels of production. Classify each cost as variable, fixed, or mixed.
Amanda Company accumulates the following data concerning a mixed cost, using units produced as the activity level. (a) Compute the variable and fixed cost elements using the high-low method.(b)
Vince Company has a unit selling price of $250, variable cost per unit of $160, and fixed costs of $135,000. Compute the breakeven point in units using(a) A mathematical equation and(b) Contribution
Queensland Company makes radios that sell for $30 each. For the coming year, management expects fixed costs to total $200,000 and variable costs to be $20 per unit.(a) Compute the break-even point in
Dye Company manufactures a single product. Annual production costs incurred in the manufacturing process are shown below for two levels of production. Instructions(a) Define the terms variable
The controller of Dugan Industries has collected the following monthly expense data for use in analyzing the cost behavior of maintenance costs. Instructions(a) Determine the fixed and variable
Black Brothers Furniture Corporation incurred the following costs.1. Wood used in the production of furniture.2. Fuel used in delivery trucks.3. Straight-line depreciation on factory building.4.
Jim Thome wants Thome Company to use CVP analysis to study the effects of changes in costs and volume on the company. Thome has heard that certain assumptions must be valid in order for CVP analysis
In the month of June, Barbara’s Beauty Salon gave 2,700 haircuts, shampoos, and permanents at an average price of $30. During the month, fixed costs were $18,000 and variable costs were 70% of

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