Questions and Answers of Cornerstones Cost Management

The reciprocal method of allocation is more accurate than either the direct or sequential methods. Do you agree? Explain.
Classify each of the following departments in a factory that produces teddy bears as a pro¬ducing department or a support department.a. Cuttingb. Personnelc. Cafeteriad. General Factorye.
Dr. Pred Poston, "Dermatologist to the Stars," has a practice in southern California. The practice includes three dermatologists, three medical assistants, an office manager, and a receptionist. The
Shauna and Raelynn are taking a ski trip to Breckenridge, Colorado, during spring break.They are driving Shauna's car and estimate that they will pay the following costs during the trip:They have
James Bodreau owns a strip mall in a suburb of Denver. Of the twelve store spaces in the mall, seven are rented by boutique owners and five are vacant. James has decided that of¬fering more services
Shambern, Inc., evaluates managers of producing departments on their ability to control costs. In addition to the costs directly traceable to their departments, each production man¬ager is held
Refer to the data in 6-7. When the capacity of the Power Department was originally estab¬lished, the normal usage expected for each department was 2,000 machine hours. This us¬age is also the
Amiens Company manufactures both semimoist and dry dog food, with each type of dog food produced in separate departments. Three support departments support the production departments: Maintenance,
Refer to the data in 6-9. The company has decided to use the sequential method of alloca¬tion instead of the direct method.Required:1. Allocate the overhead costs to the producing departments using
Refer to the data in 6-11. The company has decided to simplify its method of allocating sup¬port service costs by switching to the direct method.Required:1. Allocate the costs of the support
Refer to the data in 6-11.Required:1. Allocate the costs of the support departments using the sequential method.2. Using direct labor hours, compute departmental overhead rates.
Happy Housekeepers, Inc., has two offices in the Pacific Northwest, one in Portland and one in Spokane. The owner of Happy Housekeepers centralized the accounting function in the Portland office and
Refer to 6-14. Assume that during the year, the accounting support center incurred actual fixed costs of $43,000 and actual variable costs of $34,500. It delivered 2,300 hours of ac¬counting
Walters Company is a medium-sized advertising firm on the West Coast. Walters has three departments that specialize in advertising and public relations services for differ¬ent markets: Tangible
AirBome is a small airline operating out of Boise, Idaho. Its three flights travel to Salt Lake City, Reno, and Portland. The owner of the airline wants to assess the full cost of operating each
Paulos Trucking is divided into two operating divisions: Perishable Foods and Household Goods. The company allocates Personnel and Accounting Department costs to each operat¬ing division. Personnel
Kare Foods Company specializes in the production of frozen dinners. The first of the two operating departments cooks the food. The second is responsible for packaging and freez¬ing the dinners. The
Morsley Company operates three vehicle rental divisions: Budget, Luxury, and Trucks. The Budget Division specializes in renting compact and subcompact cars; the Luxury Division specializes in renting
Sonora Sam's is a chain of restaurants serving Sonora-style Mexican food in a family-type atmosphere. The chain has grown from one restaurant in 1995 to five restaurants located in west Texas and New
Bally Company is a conglomerate with multiple divisions manufacturing unrelated prod¬ucts. Bally has decided to set up a corporate Legal Department to handle all legal matters for Bally and certain
Identify the characteristics of the joint production process.
Allocate joint product costs according to the benefitsreceived approaches and the relative market value approaches.
Describe methods of accounting for by-products.
Explain why joint cost allocations may be misleading in management decision making.
Discuss why joint production is seldom found in service industries.
What is the joint costing problem?
What is a by-product?
Give two purposes for which joint costs are allocated to individual products.
The sales-value-at-split-off method is neutral and there¬fore .should be used to allocate joint costs to products.Do you agree or disagree with this statement? Why?
Explain how joint cost allocation may be misleading in managerial decision making.
Name three methods of allocating joint product costs.
If sales value methods are used to allocate joint prod¬uct costs, then those costs cannot be used in pricing decisions. Comment.
What two general methods can be used to account for by-products?
Unruh Company manufactures three products from a joint production process: hops, skips, and jumps. The joint costs for one batch are as follows:At the split-off point, a batch yields 30,000 hops,
Refer to 7-1 and allocate the joint costs using the sales-value-at-split-off method.
Onley, Inc., produces two products, pells and mells, in a single process. The joint costs of this process were $30,000, and 22,500 units of pells and 27,500 units of mells were produced.Separable
Refer to 7-3 and allocate the $30,000 of joint costs using the physical units method.
Refer to 7-3. Suppose that pells could be sold at the split-off point for $1.80 per unit. Should Onley sell pells at split-off or process them further? Show supporting computations.
Bellaris Company produces two products, sturm and drang, from a joint process. Last month, 2,000 units of sturm and 8,000 units of drang were produced at a joint cost of $40,000. Nei¬ther product is
Sharif Company produces a number of products from a joint process that costs $10,000 per batch. Information on the output of the batch by product is as follows:Required:Classify each product as a
LaTonya Washington, plant manager for Ultratech, Inc., was sitting at her desk, glumly re¬garding the latest financial statements relating to the manufacture of silicon chips. Ultrat¬ech was
The Killian Company manufactures two skin care lotions. Liquid Skin and Silken Skin, out of a joint process. The joint (common) costs incurred are $420,000 for a standard production run that
Godfrey Drug Corporation buys three chemicals that are processed to produce two popu¬ lar ingredients for over-the-counter drugs. The purchased chemicals are blended for two to three hours and then
Galtman Company produces three products from a common input: Galt-A, Galt-B, and Galt-C. The joint costs for a typical month are described below.The revenues from each product are as follows: Galt-A,
Goodson Pharmaceutical Company manufactures three main products from a joint process:Altox, Lorex, and Hycol. Data regarding these products for the fiscal year ended May 31, 2001, are shown below.The
Refer to 7-12. Assume that Goodson converts the Dorzine to a solvent, and the annual net revenue from the sale of Dorzine is $13,000. How could Goodson account for the by-prod¬uct on its financial
The Santa Luisa Museum of the Southwest is located in a lovely park-like setting on Lake Santa Luisa. The Museum houses several impressive permanent collections of early Taos art, Navajo weaving, and
Vicki Thalberg owns the Sunny Trails Nursery. While the nursery sells a wide variety of flowers, houseplants, trees, and shrubs, Vicki has a special interest in Chinese pistache trees.The Chinese
Princess Corporation grows, processes, packages, and sells three apple products—sliced apples that are used in frozen pies, applesauce, and apple juice. The outside skin of the apple, which is
Janus Company manufactures two products. Coming and Going, from a joint process. One production run costs $6,000 and results in 1,000 units of Coming and 4,000 units of Going.Neither product is
Jonathan Company manufactures products N, P, and R from a joint process. The following information is available:Joint product costs are allocated using the relative sales-value-at-split-off
Choose the best answer for each of the following multiple-choice questions.1. A company manufactures two joint products at a joint cost of $1,000. These products can be sold at the split-off point or
Define budgeting and discuss its role in planning, controlling, and decision making.
Prepare the operating budget, identify its major components, and explain the interrelationships of the various components.
Identify the components of the financial budget and prepare a cash budget.
Identify and discuss the key features that a budgetary system should have to encourage managers to engage in goal-congruent behavior.
Describe budgets for merchandising and service firms and zero-base budgeting.
How do the master budgets differ among manufac¬turing, merchandising, and service organizations?
Discuss the differences between static and flexible bud¬gets. Why are flexible budgets superior to static bud¬gets for performance reporting?
Identify performance measures other than budgets that can be used to discourage myopic behavior. Dis¬cuss how you would use these measures.
How important are the behavioral aspects of a bud¬getary control system? Explain.
Advocates of zero-base budgeting maintain that padding the budget is easier under an incremental system than under a zero-base system. Explain why padding is less likely for a zero-base budgeting
Williams Company produces handheld vacuums. The sales budget for the first four months of the year is presented below.Company policy requires that ending inventories for each month be 20 percent of
Bella Company produces shampoo and conditioner. Both products are sold in 8-ounce bot¬tles. Shampoo sells for $0.90 per bottle, and conditioner sells for $1.05 per bottle. Projected sales (in
Pastorini Company produces a number of pasta products, including egg noodles. Each 10-ounce package contains 3 ounces of pasteurized eggs, which costs $0.08 per ounce, and 9 ounces of semolina flour
Allen, Inc., manufactures 6 models of molded plastic waste containers. It is now early 2001, and Allen's budgeting team is finalizing the sales budget for 2001. Sales in units and dol¬ lars for 2000
ATs Auto Supply ("Everything you need for your car") carries a variety of auto parts in¬cluding oil filters. The sales budget for oil filters for the first six months of the year is pre¬sented
Kick Moreno owns The Steak Place in Orlando, Florida. The Steak Place is an affordable restaurant near International Drive—a tourist mecca. Rick accepts cash and checks. Checks are deposited
Refer to 8-6. Rick thinks that it may be time to refuse to accept checks and to start accept¬ing credit cards. He is negotiating with VISA/MasterCard and American Express, and he would start the new
Brickman Manufacturing, Inc., has developed the following flexible budget for overhead for the coming year. Activity level is measured in direct labor hours.Brickman produces two different styles of
Ed Brandon, the owner of a retail store that sells herbal remedies and nutritional supple¬ments, has requested a cash budget for June. After examining the records of the company, you find the
The controller for Shiny-Brite, a division of Idacal, Inc., has been instructed to develop a flexible budget for overhead costs. Shiny-Brite has two cleaning products, Glass-Clo and TileB-Clean that
Information pertaining to Noskey Corporation's sales revenue is presented belowManagement estimates that 5% of credit sales are uncollectible. Of the credit sales that are collectible, 60% are
Budgeted overhead costs for two different levels of activity are given below.Required:Prepare a flexible budget for an activity level of 1,800 direct labor hours. Direct Labor Hours 1,500 3,000
David Campbell's is a men's clothing store in Mesa, Arizona. David Campbell's has its own house charge accounts and has found from past experience that 20% of its sales are for cash.The remaining 80%
David Campbell's Men's Store purchases clothing evenly throughout the month. All pur¬chases are on account. On the first of every month, Moira Campbell, David's wife, pays for all of the previous
Leitner Manufacturing, Inc., produces control valves used in the production of oil field equipment. The control valves are sold to various gas and oil engineering companies throughout the United
Scott Weidner, the controller in the Division of Social Services for the state, recognizes the importance of the budgetary process for planning, control, and motivation. He believes that a properly
The controller of Gardner Company is gathering data to prepare the cash budget for April.She plans to develop the budget from the following information:a. Of all sales, 30% are cash sales.b. Of
Mary Dalid founded Molid Company three years ago. The company produces a modem for use with minicomputers and microcomputers. Business has expanded rapidly since the company's inception. Bob Wells,
Berwin, Inc., is a manufacturer of small Industrial tools with annual sales of approximately$3.5 million. Sales growth has been steady during the year, and there is no evidence of cycli¬cal demand.
Electra Company is a high-technology organization that produces a mass-storage system.The design of Electra's system is unique and represents a breakthrough in the industry. The units Electra
Denny Daniels is production manager of the Alumalloy Division of WRT, Inc. Alumalloy has limited contact with outside customers and no sales staff. Most of its customers are han¬dled by other
Five years ago. Jack Cadence and two colleagues left their positions with a large industrial firm to start up Advanced Technologies Co. (ATC), a software design company. Cadence, the major owner,
Norton Company, a manufacturer of infant furniture and carriages, is in the initial stages of preparing the annual budget for 2001. Scott Ford has recently joined Norton's account¬ing staff and is
Greenleaf Inc., manufactures power mowers that are sold throughout the United States and Canada. The company used a comprehensive budgeting process and compares actual re¬sults to budgeted amounts
Differentiate the cost accounting systems of service and manufacturing firms and of unique and standardized products.
Discuss the interrelationship of cost accumulation, cost measurement, and cost assignment.
Compute a predetermined overhead rate, and use the rate to assign overhead to production.
Explain the difference between job-order and process costing, and identify the source documents used in job-order costing.
Describe the cost flows associated with job-order costing, and prepare the journal entries.
Explain why multiple overhead rates may be preferred to a single, plantwide rate
Explain why an actual overhead rate is rarely used for product costing.
What are some differences between a manual joborder cost system and an automated job-order cost system?
Wlnat is an overhead variance? Explain the difference between an underapplied and an overapplied over¬head variance.
How are overhead variances disposed of at the end of the year? Which method of disposal is most common?Why?
What is the role of materials requisition forms in a joborder cost system? Time tickets? Predetermined over¬head rates?
Explain the role of activity drivers in assigning over¬head costs to products.
When computing a predetermined overhead rate, why are units of output not commonly used as a measure of production activity?
Randi Garner, of Garner Office Designs, designs and installs custom office furniture for busi¬ nesses throughout the state. Each job is different, and each requires different materials and labor for

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