Questions and Answers of Cornerstones Cost Management

Laird, Inc., has three salaried clerks to process purchase orders. Each clerk is paid a salary of $28,000 and is capable of processing as many as 6,000 purchase orders per year. Each clerk uses a PC
Six months ago, Kelly O'Connor purchased a fire-engine red, 1995 LeBaron convertible for$10,000. Kelly was looking forward to the feel of the sun on her shoulders and the wind whipping through her
Lucas, Inc., manufactures lamps and lighting fixtures. A national hotel chain recently sub¬mitted a special order for 4,000 desk lamps. Lucas was not operating at capacity and could use the extra
Graham Company is currently manufacturing Part 20B, producing 15,000 units amiually.The part is used in the production of several products made by Graham. The cost per unit for 20B is as follows:Of
Arapahoe Manufacturing, Inc., has just received an offer from a supplier to provide 10,000 units of a component used in its main product. The component is a gear that is currently produced
Wheatridge Machining is operating at 85% of capacity. An offer to produce 16,000 units of a specially designed tool has just been received. The offering price is $6 per unit. The prod¬uct normally
Lincoln Inc., produces two types of peanut butter: smooth and crunchy. Of the two, smooth is the more popular. Data concerning the two products follow;Annual overhead costs are listed below. These
A division of Rico Products has several meat-processing plants. One plant (in Omaha) deals exclusively with chickens. The plant produces three products from a common process: pack¬aged breasts,
Regional America Assurance Company provides both automobile and life insurance. The projected income statements for the two products are as follows:The president of the company is considering
Lancaster Company manufactures two types of hair conditioners, Creemy and Shiney, out of a joint process. The joint (common) costs incurred are $840,000 for a standard production run that generates
Emery Company, a manufacturer of motors for washing machines, has installed a JIT purchasing and manufacturing system. After several years of operation, Emery has suc¬ceeded in reducing inventories
Gray Dentistry Services is part of an HMO that operates in a large metropolitan area. Cur¬rently, Gray has its own dental laboratory to produce porcelain and gold crowns. The unit costs to produce
Barstow Corporation buys three chemicals that are processed to produce two popular in¬gredients for liquid cough syrups. The three chemicals are in liquid form. The purchased chemicals are blended
GianAuto Corporation manufactures automobiles, vans, and trucks. Among the various GianAuto plants around the United States is the Denver cover plant, where vinyl covers and upholstery fabric are
Morrill Company produces two different types of gauges: a density gauge and a thickness gauge. The segmented income statement for a typical quarter is given below.The density gauge uses a subassembly
Pamela McDonald, CMA and controller for Murray Manufacturing, Inc., was having lunch with Roger Branch, manager of the company's Power Department. Over the past six months, Pamela and Roger had
Discuss basic pricing concepts.
Calculate a markup on cost and a target cost.
Discuss the impact of the legal system and ethics on pricing.
Explain why firms measure profit, and calculate measures of profit using absorption and variable costing.
Determine the profitability of segments.
Calculate the sales price, price volume, contribution margin, contribution margin volume, sales mix, market share, and market size variances.
Discuss the variations in price, cost, and profit over the product life cycle.
Discuss some of the limitations of profit measurement.
Many times, small startup firms are advised to find"market niches." (A market niche is a narrow segment of customers with unique needs who are currently not being served by existing companies.)
Define monopoly. Why are most existing monopolies subject to government regulation? (Hint: What would happen if there were no legal regulation?)
What is predatory pricing? If two gas stations on op¬posite corners have a gas war, is that predatory pric¬ing? Why or why not?
Why do firms measure profit?
Why do regulated firms care about the level of profit?
Describe the product life cycle.
How do unit-level costs behave in relation to the prod¬uct life cycle? Batch-level costs? Product-level costs?Facility-level costs?
There is no point in measuring profit since numbers cannot tell the whole story. Discuss this statement; do you agree or disagree with it and why?
Montini Shipyards builds custom cruise liners. Each job requires a bid. Montini's bidding policy is to estimate the costs of materials, direct labor, and subcontractors' costs. These are totaled and
Many different businesses employ markup on cost to arrive at a price. For each of the fol¬lowing situations, explain what the markup covers and why it is the amount that it is.a. Department stores
Bellingham, Inc., has just completed its first year of operations. The unit costs on a normal costing basis are as follows:Actual fixed overhead was $12,000 less than budgeted fixed overhead.
During its first year of operations, Sugarsmooth, Inc., produced 55,000 jars of hand cream based on a formula containing 10% glycolic acid. Unit sales were 53,500 jars. Fixed over¬head was applied
Julie Ford operates a catering company in Glendell, Ohio. Julie provides food and servers for parties. She also rents tables, chairs, dinnerware, glassware, and linens. The children of Bob and
Marcus Fibers Inc., specializes in the manufacture of synthetic fibers that the company uses in many products such as blankets, coats, and uniforms for police and firefighters. Marcus has been in
Data for Maricopa Company are as follows:Required:1. Calculate the sales price variance.2. Calculate the price volume variance.3. Suppose that the product is at the end of the maturity stage of the
Peterson, Inc., manufactures and sells three products: A, B, and C. In January, Peterson, Inc., budgeted sales of the following.At the end of the year, actual sales for Product A and Product B were
Jared Foods manufactures and distributes frozen entrees. Annual production averages 48,000 cases. A large chain store purchases about 50% of Jared's production. Several thousand in¬dependent grocers
Pastorini Company produced 30,000 units during its first year of operations and sold 27,000 at $20 per unit. The company chose practical activity—at 30,000 units—to compute its pre¬determined
The following information pertains to Yellen, Inc., for last year:There are no work-in-process inventories. Normal activity is 50,000 units. Expected and actual overhead costs are the
Santiago Company had the following operating data for its first two years of operations:Santiago produced 20,000 rmits in the first year and sold 15,000. In the second year, it produced 15,000 units
Portland Optics Inc., specializes in manufacturing lenses for large telescopes and cameras used in space exploration. As the specifications for the lenses are determined by the customer and vary
Greenway Company provides two types of yard care services: mowing and complete care (fertilizer and herbicide applications). Each customer contracts for a full summer of either service and pays for
Singh, Inc., produces and sells elastic ankle supports. Singh's follows.Required:1. Calculate the contribution margin variance and the contribution margin volume variance.2. Calculate the market
Shannon, hic., has two divisions. One produces and sells paper party supplies (napkins, paper plates, invitations); the other produces and sells cookware. A segmented income statement for the most
Louise Bordner has just been appointed manager of Palmroy's Glass Products Division. She has two years to make the division profitable. If the division is still showing a loss after two years, it
Dorman, Inc., manufactures and sells water heaters through three divisions: Southwest, Mid¬west, and Northeast. Each division is evaluated as a profit center. Data for each division for last year
Porter Insurance Company has three lines of insurance: automobile, property, and life. The life insurance segment has been losing money for the past five quarters, and Leah Harper, Porter's
Refer to 20-25, original data. Fred Morton has just purchased a life insurance policy from Porter with premiums equal to $1,500 per year.Required:1. Assume Fred holds the policy for one year and then
Olin Company manufactures and distributes carpentry tools. Production of the tools is in the mature portion of the product life cycle. Olin has a sales force of 20. Salespeople are paid a commission
Shangri-La Videos is marketing a new line of wellness oriented videotapes. These video¬tapes emphasize proper nutrition, low-impact exercise, and stress reduction techniques.Shangri-La's marketing
Pittsburgh-Walsh Company (PWC) is a manufacturing company whose product line con¬sists of lighting fixtures and electronic timing devices. The Lighting Fixtures Division a.ssembles units for the
Explain what a capital investment decision is and distinguish between independent and mutually exclusive capital investment decisions.
Compute the payback period and accounting rate of return for a proposed investment, and explain their roles in capital investment decisions.
Use net present value analysis for capital investment decisions involving independent projects.
Use the internal rate of return to assess the acceptability of an independent project.
Explain why NPV is better than IRR for capital investment decisions involving mutually exclusive projects.
Convert gross cash flows to after-tax cash flows.
Describe capital investment for advanced technology and environmental impact settings.
What is the role that the required rate of return plays for the NPV model? For the IRR model?
What is the half-year convention? What is the effect of this convention on the length of time it actually takes to write off the cost of a depreciable asset?
Listed below are several possible input combinations for producing 1,000 units of a men's watch. Two of the input combinations are technically efficient.Required:1. Identify the technically efficient
Arequipa Sweaters Company produces alpaca sweaters that use two inputs, materials and labor. During the past quarter, 2,000 sweaters were produced, requiring 8,000 pounds of material and 4,000 hours
Harrison Company has begun a program of continuous improvement for its operations. One of its plants reported the following results for the base period and its most recent year of
Rework, a nonvalue-added activity, is part of Breinholt Manufacturing's assembly process.The products assembled contained a series of identical electrical components (purchased from suppliers—not
Diamante Company gathered the following data for the past two years:Required:1. Prepare a productivity profile for each year.2. Prepare income statements for each year. Calculate the total change in
Berry Company is considering the acquisition of a computerized manufacturing system.The new system has a built-in quality function that increases the control over product specifications. An alarm
Fowler Company produces handcrafted leather purses. Virtually all of the manufacturing cost consists of labor and materials. Over the past several years, profits have been declin¬ing because the
In 2000, Melrose Company used the following input combination to produce 10,000 units of output:In 2001, Melrose again planned to produce 10,000 units and was considering two different changes in
Wright Manufacturing has recently studied its order-filling process and initiated some changes that were expected to improve its efficiency. The changes involved such things as redesign of the plant
The Small Motors Division of Poison Company has recently engaged in a vigorous effort to reduce manufacturing costs by increasing productivity (through process innovation). Over the past several
Andy Confer, production-line manager, had arranged a visit with Will Keating, plant manager. He had some questions about the new operational measures that were being used.ANDY: Will, my questions are
Kathy Shorts, president of Carbon Industrial Cleaners, had just concluded a meeting with two of her plant managers. She had told each of them that one of their high-volume indus¬trial cleaners was
Go to the library and find two examples of ethical lapses (in an industrial setting) that have been described in the press or journals during the past three years. Write a short paper that addresses
Explain the importance of measuring environmental costs.
Explain how environmental costs are assigned to products and processes.
Describe the life cycle cost assessment model.
Describe activity-based and strategic-based environmental control.
Explain why firms have an increased interest in envi¬ronmental costing.
What are the six incentives or causes for ecoefficiency?
Explain how functional-based costing assigns envi¬ronmental costs to products. What are the problems with this approach?
Explain how activity-based costing assigns environ¬mental costs to products.
What are the environmentally important life cycle stages of a product?
Define the three steps of life cycle assessment.
Flow can life cycle costing improve life cycle analysis?
Why is minimizing the use of raw materials an envi¬ronmental issue?
What are some possible performance measures for the objective of minimizing the release of residues?
There are two views often expounded relative to the environment: (1) Greater production means greater pollution (economic and ecological considerations are incompatible); and (2)the state (federal
At the end of 2001, Fargo Chemicals began to implement an environmental quality man¬agement program. As a first step, it identified the following costs for the year just ended in its accounting
Billing Chemical produces a number of chemical products, two of which are a dyestuff inter¬mediate and an adhesive for rubber. The controller and environmental manager have identi¬fied the
Refer to the data in 17-4. Suppose that the CEO of Billing decides to launch an environ¬mental performance improvement program. First, efforts were made to reduce the amount of packaging. The demand
Loring Chemical Products Division produces surfactants, ingredients used in producing laundry detergents. (Surfactants are the components that help release soil from clothing.)It is possible to make
Derby Chips is an international producer of corn chips. At the end of 2000, Mary Hahn, president of Derby, appointed a task force to focus on the packaging and product use seg¬ments of its product's
At the beginning of 1998 Henderson Company, an international telecommunications com¬pany, embarked on an environmental improvement program. The company set a goal to have all its facilities ISO
Refer to 17-9. As part of its environmental cost reporting system, Henderson tracks its total environmental costs. Consider the cost and sales data given below:Required:1. Prepare a bar graph for
Refer to 17-11. In the environmental benefits section of the report, three types of benefits are listed: income, savings, and cost avoidance. Now consider the following data for selected items for a
Given below are the environmental cost reports for 1999, 2000, and 2001 for the Communi¬cations Products Division of Kartel, a telecommunications company. In 1999, Kartel com¬mitted itself to a

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