Questions and Answers of Cornerstones Cost Management

Listed below are a number of Scorecard measures. Classify each measure according to the following: perspective (e.g., customer or learning and growth), financial or nonfinancial, sub¬jective or
The theoretical cycle time for a product is 20 minutes per unit. The budgeted conversion costs for the manufacturing cell are $1,800,000 per year. The total labor minutes available are 400,000.
A manufacturing cell has the theoretical capability to produce 30,000 stereo speakers per quarter. The conversion cost per quarter is $60,000. There are 5,000 production hours avail¬able within the
At the end of 1999, Zheng Enterprises implemented a low-cost strategy to improve its com¬petitive position. Its objective was to become the low cost producer in its industry. To lower costs, Zheng
Danna Martin, president of Mays Electronics, was concerned about the end-of-the year mar¬keting report that she had just received. According to Larry Savage, marketing manager, a price decrease for
John Thomas, vice president of Mallett Company (a producer of a variety of plastic prod¬ucts), has been supervising the implementation of an activity-based cost management sys¬tem. One of John's
Medco Products has two plants that manufacture a line of wheelchairs. One is located in Denver and the other in Fresno. Each plant is set up as a profit center. During the past year, both plants sold
Billy Adams, controller for Westcott, Inc., prepared the following budget for manufacturing costs at two different levels of activity for 2001:During 2001, Westcott worked a total of 80,000 direct
A manufacturing cell has the theoretical capability to produce 60,000 space heaters per quar¬ter. The conversion cost per quarter is $600,000. There are 20,000 production hours available within the
A company makes a product that experiences the following activities (and times):Required:1. Compute the MCE for this product.2. Discuss how process value analysis can help improv'e this efficiency
Define quality, discuss the different approaches to quality, and describe the four types of quality costs.
Prepare a quality cost report and explain the difference between the conventional view of acceptable quality level and the view espoused by total quality control.
Explain why quality cost information is needed and how it is used.
Describe and prepare three different types of quality performance reports.
What is the difference between an AQL standard and a zero-defects standard?
Explain why activity-based management supports a zero-defects standard over an AQL standard.
Many quality experts maintain that quality is free. Do you agree? Why or why not?
If a firm's annual sales are $200 million, what per¬centage of sales should be spent on quality costs?Suppose that the firm is spending 18% ofsales on qual¬ity costs. What is the potential savings
Jennifer Paustenbaugh, president of a company that manufactures electronic components, has a number of questions concerning quality and quality costs. She has heard a few things about quality and has
Lankfort Company has decided to estimate its hidden external failure costs using the Taguchi loss function. After some study, it was determined that k = $800 and T = 40 inches in diameter. A sample
Classify the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs:1. Finished units discarded by company because they are defective and
Morrison Company had sales of $20,000,000 in 1994. In 2001, sales had increased to $25,000,000.A quality improvement program was implemented at the beginning of 1994. Overall confor¬mance quality
Javier Company has sales of $8 million and quality costs of $1,600,000. The company is embarking on a major quality improvement program. During the next three years, Javier intends to attack failure
In 2000, Tru-Delite Frozen Desserts, Inc., instituted a quality improvement program. At the end of 2001, the management of the corporation requested a report to show the amount s^les and actual
The controller of Willson Company has computed quality costs as a percentage of sales for the past five years (1998 was the first year the company implemented a quality improve¬ment program). This
Kathy Norton, president of Merica Products, was concerned with the trend in sales and profitability. The company had been losing customers at an alarming rate. Furthermore, the company was barely
Gudpert Company manufactures a component for laptop computers. Weight and durabil¬ity of the component are the two most important quality characteristics for the computer manufacturers. With respect
Barbara Buehler, the president of Wayne Company, recently returned from a conference on quality and productivity. At the conference, she was told that many American firms have quality costs totaling
Recently, Ulrich Company received a report from an external consulting group on its qual¬ity costs. The consultants reported that the company's quality costs total about 21% of its sales revenues.
In 2000, Danvers Company initiated a full-scale quality improvement program. At the end of the year, the president noted with some satisfaction that the defects per unit of product had dropped
Paper Products Division produces paper diapers, napkins, and paper towels. The divisional manager as decided that quality costs can be minimized by distributing quality costs evenly among the four
In 1997, Milton Thayne, president of Carbondale Electronics, received a report indicating that quality costs were 31% of sales. Faced with increasing pressures from imported goods, Milton resolved to
Iona Company, a large printing company, is in its fourth year of a 5-year quality improve¬ment program. The program began in 1997 with an internal study that revealed the quality costs being
Lindell Manufacturing embarked on an ambitious quality program that is centered around continual improvement. This improvement is operationalized by declining quality costs from year to year. Lindell
A close friend of yours is majoring in accounting and would like to work for a multinational corporation upon graduation. Your friend is unsure just what courses would help prepare for that goal and
Orecal, Inc., is considering opening a new warehouse to serve the Southwest region. Jerrell Moore, controller for Orecal, has been reading about the advantages of foreign trade zones.He wonders if
Anglophilia, Inc., is an export-import firm. On June 1, Anglophilia purchased goods from a British company costing £42,000. Payment is due in pounds on September 1. The spot rate on June 1 was 1.60
Refer to 11-3. If Anglophilia paid for the purchase using the September 1 spot rate, what was the exchange gain or loss?
The following are the exchange rates of various currencies for $1 on July 1 and on October 1.Required:1. Indicate whether the dollar has strengthened or weakened against the franc, the mark, and the
Kallard Company engages in many foreign currency transactions. Company policy is to hedge exposure to exchange gains and losses using forward contracts. On July 1, Kallard sold mer¬chandise to a
Suppose you are in the market for a Volvo and are considering going to Sweden to purchase it, drive it around Europe for a couple of weeks, and then ship it home. The car of your choice costs 320,000
Bianca Phillips, vice president for Electronics for Consolidated, Inc., was reviewing the lat¬est results for two divisions. The first, located in Baja California, Mexico, had posted net in¬come of
Carnover, Inc., manufactures a broad line of industrial and consumer products. One of its plants is located in Madrid, Spain, and another in Singapore. The Madrid plant is operat¬ing at 85%
Allied Manufacturing, Inc., has a division in the United States that produces locks and door knobs. The lever-style locking handle for exterior doors is transferred to a Manufacturing Division in
Louden, Inc., has a division in Canada that makes paint and another division in the United States that constructs subdivisions. The Paint Division incurs manufacturing costs of $4.60 for one gallon
Recall that Louden, Inc., has a division in Canada that makes paint. Louden has another U.S. division, the Retail Division, that operates a chain of home improvement stores. The Retail Division would
Latest Styles, Inc. (LSI), supplies a limited range of garments to several boutiques in New York. LSI produces these garments in a small factory owned and operated in Nuevo Laredo, Mexico. LSI has
Paladin Company manufactures plain-paper fax rhachines in a small factory in Minnesota.Sales have increased by 50% in each of the past three years, as Paladin has expanded its market from the United
Kalman Shutters, Inc., manufactures custom window shutters on a job-order basis. Kalman has invested heavily in precision woodworking equipment. As a result, the company has a reputation for
The U.S. division of MegaBig, Inc., has excess capacity. MegaBig's European division, lo¬cated in Lisbon, has offered to buy a component that would increase the U.S. division's uti¬lization of
Diamond Company manufactures riding lawn mowers at plants in Arkansas, Delaware, and Wyoming. It also has distribution centers in Brussels, Belgium, and Montreal, Quebec in Canada. The market price
Makenzie Gibson is the owner of Healthblend Nutritional Supplements. Makenzie feels that the time is ripe for expansion, and she would like to begin selling in Europe, Canada, and Mexico. Her major
Go to the U.S. State Department web site (http://travel.state.gov/travel_warnings.html) to find a list of countries that the U.S. government considers hazardous. Use the library to re¬search
Allocate the joint manufacturing costs to each grade, and calculate the cost per board foot (for each grade): (a) using the physical units method of allocation and (b) using the
Calculate the plantwide overhead rate for the fabric plant.
Calculate the amount of under- or overapplied^overhead for the fabric plant.
Using the weighted average method, calculate the cost per bolt for fabric FB70.
Assume that the weaving and pattern process is not a separate process for each fabric.Also assume that the yarn used for each fabric differs significantly in cost. In this case, would process costing
In the Bolting and Coloring Department, 400,000 ounces of other materials were used to produce the output of the period. Using the proposed standard cost sheet, calculate the following variances for
Assume that the standard hours allowed for the actual total output of the fabric plant are 115,000. Calculate the following variances:a. Fixed overhead spending varianceb. Fixed overhead volume
Suppose that the fabric plant has 500 bolts of FB70 in beginning finished goods inven¬tory. The current year plan is to have 1,000 bolts of FB70 in finished goods inventory at the end of the year.
Calculate the following overhead rates for the furniture plant: (1) plantwide rate, and (2) departmental rates. Use the direct method for assigning service costs to producing departments.
For each of the overhead rates computed in Requirement 9, calculate unit bid prices for Jobs A500 and B75. Assume that the company's aggressive bidding policy is unit cost plus 50%. Did departmental
Suppose that the fabric plant is set up as a profit center. Bolts of Fabric FB70 sell for$400 (or can be bought for $400 from outside suppliers). The fabric plant and the fur¬niture plant both have
Describe the limitations of functional-based cost systems.
Provide a detailed description of activity-based product costing.
Describe how homogeneous cost pools can be used to reduce the number of activity rates.
Describe an activity-based relational database.
What is a consumption ratio?
Explain how departmental overhead rates can produce product costs that are more distorted than those com¬puted using a plantwide rate.
Overhead costs are the source of product cost distor¬tions. Do you agree? Explain.
What is activity-based product costing?
What is a primary activity? Secondary activity?
What is a work distribution matrix? What is its role in activity-based costing?
How are the costs of secondary activities assigned to primary activities?
What is a homogeneous cost pool?
What is an activity? A homogeneous set of activities?
Explain how homogeneous sets of activities are pro¬duced. Why are they produced?
What are unit-level activities? Batch-level activities?Product-level activities? Facility-level activities?
What is an activity-based database?
One division had operating profits of $500,000, and a second division had operating profits of $3 million.Which divisional manager did the best job? Explain.
What are the three benefits of ROl? Explain how each can lead to improved profitability.
What are two disadvantages of ROl? Explain how each can lead to decreased profitability.
What is residual income? Explain how residual income overcomes one of ROl's disadvantages.
What disadvantage is shared by ROl and residual in¬come? What can be done to overcome this problem?
What is EVA? How does it differ from ROl and resid¬ual income?
What problems do owners face in encouraging goal congruence of managers?
Explain how transfer prices can impact performance measures, firmwide profits, and the decision to de¬centralize decision making.
Explain the opportunity cost approach to transfer pricing.
Two years of data are presented for the Consumer Products Division of Manners Company;Required:1. Compute the ROl for each year.2. Compute the margin and turnover ratios for each year.3. Explain why
Data are provided below for the Industrial Tools Division of Manners Company (see 10-1).Required:1. Compute the ROI for the Industrial Tools Division for each year.2. Compute the margin and turnover
The manager of a division that produces electronic audio products is considering the op¬portunity to invest in two independent projects. The first is a waterproof CD player for use in the shower or
Refer to the data given in 10-3.Required:1. Compute the residual income for each of the opportunities.2. Compute the divisional residual income for each of the following four alternatives:a. The CD
Brewster Company manufactures elderberry wine. Last year Brewster earned an operating profit of $210,000 after taxes. Capital employed equaled $2 million. Brewster is 50% equity and 50% ten-year
Charybdis, Inc., manufactures and sells whirlpool tubs through three divisions: Residential, Commercial, and International. Each division is evaluated as a profit center. Data for each division for
The Glass Division of Sonnet, Inc., manufactures a variety of glasses and vases for house¬ hold use. The vases can be sold externally or internally to Sonnet's Florist Division. Sales and cost data
A multinational corporation has a number of divisions, two of which are the Granite Divi¬sion and the Brick Division. Data on the two divisions are:Required:1. Compute residual income for each
Calculate the missing data for each of the four independent companies below A B C D Revenue $10,000 $30,000 $192,000 ? Expenses 8,000 ? 180,000 ? Net income 2,000 12,000 ? ? Assets 20,000 ? 96,000
Refer to 10-9. Assume that the cost of capital is 12% for each of the four firms.Required:Compute the residual income for each of the four firms
Adler Industries is a vertically integrated firm with several divisions that operate as decen¬tralized profit centers. Adler's Systems Division manufactures scientific instruments and uses the

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