The questions in this exercise are based on Toll Brothers, Inc., one of the largest home builders in the United States. To answer the questions, you will need to download Toll Brothers’ 2004 annual report (www.tollbrothers.com/homesearch/servlet/HomeSearch?app=IRannual) and its Form 10-K for the Fiscal year ended October 31, 2004. To access the 10-K report, go to www.sec.gov/edgar/searchedgar/comoanysearch.html. Input CIK code 794170 and hit enter. In the gray box on the right-hand side of your computer screen define the scope of your search by inputting 10-K and then pressing enter. Select the 10-K with a filing date of January 13, 2005. You do not need to print these documents to answer the questions.

Required:

1. What is Toll Brothers’ strategy for success in the marketplace? Does the company rely primarily on a customer intimacy, operational excellence, or product leadership customer value proposition? What evidence supports your conclusion?

2. What business risks does Toll Brothers face that may threaten the company’s ability to satisfy stockholder expectations? What are some examples of control activities that the company could use to reduce these risks?

3. Would Toll Brothers be more likely to use process costing or job-order costing? Why?

4. What are some examples of Toll Brothers’ direct material costs? Would you expect the bill of materials for each of Toll Brothers’ homes to be the same or different? Why?

5. Describe the types of direct labor costs incurred by Toll Brothers. Would Toll Brothers use employee time tickets at their home sites under construction? Why or why not?

6.What are some examples of overhead costs that are incurred by Toll Brothers?

7. Some companies establish prices for their products by marking up their full manufacturing cost (i.e., the sum of direct materials, direct labor, and manufacturing overhead costs). For example, a company may set prices at 150% of each product’s full manufacturing cost. Does Toll Brothers price its houses using this approach?

8. How does Toll Brothers assign manufacturing overhead costs to cost objects? From a financial reporting standpoint, why does the company need to assign manufacturing overhead costs to cost objects?