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business
cost accounting

Questions and Answers of Cost Accounting

How does a product’s life-cycle stage influence the nature of information re¬ quired to successfully manage costs of that product? LO.1
In the present highly competitive environment, why has cost management risen to such a high level of concern while price management has declined in importance? LO.1
(Appendix) What was CAM-I, and why was it organized? LO.1
(Cost management and strategy) As a financial analyst, you have just been handed a 2006 financial report of Firm Z, a large, global pharmaceutical company. Firm Z competes in both traditional
(Cost management and strategy) Following are descriptions of three busi¬ nesses. For each, assume that you are the CEO. Identify the most critical in¬ formation you would need to manage the
Organizational form) Write a paper that compares and contrasts the corpo¬ rate, general partnership, limited partnership, LLP, and LLC forms of busi¬ ness. At a minimum, discuss issues related to
(Cost management and organizational culture) Use Internet resources to gather information on any two firms in the same industry. The following ex¬ amples are possible pairs to compare.• Delta Air
(Cost management and technology) Many finns now engage in some form of B2B Internet-based commerce. A specific type is B2B buy-side, which is In¬ ternet technology that allows firms to solicit bids
(Organizational strategy) Lise Internet resources to find a company (regard¬ less of where it is domiciled) whose managers have chosen to (a) avoid competition through differentiation, (b) avoid
(Cost management and organizational objectives) Prepare an oral presentation discussing how accounting information can (a) help and (b) hinder an orga¬ nization’s progress toward its mission and
Organizational culture) Write a paper describing the organizational culture at a job you have held or at the college or university that you attend. Be sure to include a discussion of the value system
(Cost management and strategy) You are the product manager at a silicone chip manufacturer. One of your products is a commodity chip that the elec¬ tronics industry widely uses in cell phones,
(Information and cost management) The price of a product or service is a function of the total costs of producing that product or service. In turn, the total cost of producing a product or service is
(Alternative cost management strategies) In 1993, Procter & Gamble (P&G) management tried to control costs by eliminating many of its brands’ coupons while increasing print advertising. Only a
(Cost management and customer service) Companies sometimes experience difficult financial times, sometimes so drastic that they declare bankruptcy. If a firm either does not conduct sufficient R&D or
(Cost management: short term vs. long term) Northwest Metals Co. produces steel products for a variety of customers. One division of the company is Residential Products Division, created in the late
(Cost management and profitability) After graduating last year from an Ivy League university, Jill Young was hired as a stock analyst. Wanting to make her mark on the industry, Young issued a
(Cost management; product life cycle) In May 2004, Krispy Kreme Dough¬ nuts issued a profit warning to investors. In the warning, the company indi¬ cated full-year earnings would be 10 percent
(Stakeholders; cost management) Laura Thompson, newly appointed con¬ troller of Allied Networking Services Inc. (ANSI), a rapidly growing com¬ pany, has just been asked to serve as lead facilitator
(CMS; MIS; ethics in reporting) The value of an oil and gas company is tied to two fundamental circumstances. The first is the amount of oil and gas the company is presently producing. This amount,
(Cost management; social responsibility) Through its three sets of elements (motivational, informational, and reporting), a CMS focuses the attention of a given decision maker on the data and
WHICH ORGANIZATIONAL CHARACTERISTICS DETERMINE WHETHER A FIRM SHOULD BE DECENTRALIZED OR CENTRALIZED? LO.1
HOW ARE DECENTRALIZATION AND RESPONSIBILITY ACCOUNTING RELATED? LO.1
WHAT ARE THE DIFFERENCES AMONG THE FOUR PRIMARY TYPES OF RESPONSIBILITY CENTERS? LO.1
WHY AND HOW ARE SERVICE DEPARTMENT COSTS ALLOCATED TO REVENUE-PRODUCING DEPARTMENTS? LO.1
WHAT TYPES OF TRANSFER PRICES ARE USED IN ORGANIZATIONS, AND WHY ARE SUCH PRICES USED? LO.1
WHAT DIFFICULTIES CAN BE ENCOUNTERED BY MULTINATIONAL COMPANIES USING TRANSFER PRICES? LO.1
Decentralization is generally appropriate for compa¬ nies that• are mature.• are large.• are in a growth stage of product development.• are expanding operations rapidly.• can financially
Decentralization and responsibility accounting are re¬ lated in that decentralization• is made to work effectively though the use of re¬ sponsibility accounting which provides informa¬ tion
The four primary types of responsibility centers and the characteristics of each are• cost centers in which managers are primarily re¬ sponsible for controlling costs.• revenue centers in which
Service department costs are allocated to producing departments• to meet the objectives of full cost computation, managerial motivation, or managerial decision making.• by using the direct, step,
Transfer prices, or intracompany charges for goods or services bought and sold between segments of a decentralized company, are• typically cost based, market based, or negotiated; a dual pricing
Multinational companies using transfer prices en¬ counter difficulties including• differences in tax systems, customs duties, freight and insurance costs, import/export regulations, and
Bill Barnes is the president and chief operating officer of Barnes Electronics. He founded the company and has led it to its prominent place in the elec¬ tronics field. He has manufacturing plants
Why are responsibility reports prepared? Is it appropriate for a single re¬ sponsibility report to be prepared for a division of a major company? Why or why not? LO.1
What is suboptimization, and what factors contribute to it in a decentralized firm? LO.1
Why are service department costs often allocated to revenue-producing de¬ partments? Is such an allocation process always useful from a decision-making standpoint? How might service department cost
“The four criteria for selecting an allocation base for service department costs should be applied equally.” Discuss the merits of this statement. LO.1
Compare and contrast the direct, step, and algebraic methods of allocating service department costs. What are the advantages and disadvantages of each method? LO.1
When the algebraic method of allocating service department costs is used, to¬ tal costs for each service department increase from what they were prior to the allocation. Why does this occur, and how
What are transfer prices, and why do companies use them? How could the use of transfer prices improve or impair goal congruence? LO.1
Would transfer prices be used in each of the following responsibility centers: cost, revenue, profit, and investment? If so, how would they be used? LO.1
What problems might be encountered when attempting to implement a cost- based transfer pricing system? A market-based transfer price system? LO.1
What is dual pricing? What is the intended effect of dual pricing on the per¬ formance of each division affected by the dual price? LO.1
How can service departments use transfer prices, and what advantages do transfer prices have over cost allocation methods? LO.1
Explain why the determination of transfer prices could be more complex in a multinational setting than in a domestic setting. LO.1
(Centralization versus decentralization) Indicate whether a firm exhibiting each of the following characteristics would more likely be centralized (C) or decentralized (D).a. Two years oldb. Growth
(Decentralization advantages and disadvantages) Indicate whether each of the following is a potential advantage (A) or disadvantage (D) of decentraliza¬ tion. If an item is neither an advantage nor
(Decentralization; Internet) Search the Internet to identify three decentralized companies. Based on the information you find on each, either determine di¬ rectly or infer from the information given
Profit centers and allocations) Multiple-doctor medical practices are often structured with each doctor acting as a profit center.a. Discuss why such an organizational structure would be useful.b. Go
(Direct method) Adelaide Corporation uses the direct method to allocate ser¬ vice department costs to production departments (Fabricating and Finishing). Information for June 2006 follows:a. What
(Direct method) Imbornone Bank has three service areas (administration, personnel, and accounting) and three revenue-generating areas (checking ac¬ counts, savings accounts, and loans). Monthly
(Step method) Use the information in Exercise 20 to compute total cost for each revenue-generating area if the bank allocates costs under the step method of cost allocation. LO.1
(Step method) Rapp Company has three service departments (human re¬ sources, administration, and maintenance) and two revenue-generating de¬ partments (assembly and finishing). It uses the step
(Algebraic method) Use the information for Imbornone Bank in Exercise 20 to compute the total cost for each revenue-generating area using the alge¬ braic method. LO.1
(Algebraic method) The following chart indicates the percentage of service department services used by other departments. Service departments are des¬ ignated SI, S2, and S3; revenue-producing
(Transfer pricing in service departments) Indicate whether each of the fol¬ lowing statements constitutes a potential advantage (A), disadvantage (D), or neither (N) of using transfer prices for
(Transfer pricing) Irmela Division, a subsidiary of Siberia Ltd., manufactures computer chips with the following costs:Some of the chips are sold externally for $108.75; others are transferred in¬
Transfer pricing) Electronics and Appliances are two investment centers of At-Home Company. Electronics produces a microprocessor used by Appli¬ ances to manufacture several of its products; the
Transfer pricing) Lafayette Co., a profit center of Creole Enterprises, manu¬ factures brake pads to sell internally to other company divisions and exter¬ nally. A set of Lafayette brake pads
(Transfer pricing and management motivation) Yummy’s Food Stores operates 20 large supermarkets in the Midwest. Each store is evaluated as a profit cen¬ ter, and store managers have complete
(Transfer pricing for sen ices) Walsdorf Company’s information technology department is developing a service department transfer price based on min¬ utes of computer time. For 2006, its expected
(Web research) Use the Internet to identify a multinational company encoun¬ tering tax problems related to transfer pricing between its organizational units in different countries. Prepare a brief
(Decentralization; ethics) A large U.S. corporation participates in a highly competitive industry. Company management has decided that decentraliza¬ tion will best allow the company to meet the
(Profit center performance) Mitchell Hardy, head of the accounting depart¬ ment at Hill Country College, has felt increasing pressure to raise external funds to compensate for dwindling state
Responsibility accounting reports) Hendrix Inc. manufactures industrial tools and has annual sales of approximately $3.5 million with no evidence of cyclical demand. R&D is very important to
(Responsibility reports) To respond to increased competition and a reduction in profitability, a nationwide law firm, U.S. Law, recently instituted a respon¬ sibility accounting system. One of the
(Evaluating performance) On January 1, 2006, fast-tracker Michael Malicon was promoted to production manager of Salmon Company. The firm purchases raw fish, cooks and processes it, and then cans it
(Responsibility centers; research) According to Cutting Edge Information, Inc. (“Managing Financial Services Call Centers,” August 2003, http://www. mindbranch.com.), call center spending went
(Direct method) Management of Dekalb Community Hospital has decided to allocate the budgeted costs of its three service departments (administration, public relations, and maintenance) to its three
(Step method) Rodderick Properties classifies its operations into three depart¬ ments: commercial sales, residential sales, and property management. The owner, Sandy Rodderick, wants to know the
(Algebraic method) Leyh Press has two service departments (administration and editorial) and two revenue-producing divisions (college textbooks and professional publications). Following are the
(Comprehensive service department allocations) Yolanda Company’s annual budget for its three service departments (administration, legal/accounting, and maintenance/engineering) and its two
(Comprehensive service department allocations) As the controller for Reed Newspapers, you have been asked to allocate the costs of the paper’s two service departments, administration and human
Transfer prices) In each of the following cases, the Speaker Division can sell all of its production of audio speakers externally or some internally to the Sound System Division and the remainder to
(Transfer price) Miranda Company comprises the Engine Division and the Mobile Systems Division. The Engine Division produces engines used by both the Mobile Systems Division and a variety of external
(journal entries) Corporate Travel Division makes top-of-the-line computer bags and sells them to external buyers and to the Travel America Division in luggage sets sold. During the month just ended,
(Interna! versus externai Providence Products Inc. consists of three de¬ centralized divisions: Park, Quayside, and Ricigetop. The president of Provi¬ dence Products has given the managers of the
(Transfer prices) Green & Marshand LLC has three revenue departments: liti¬ gation (Lit.), family practice (FP), and legal consulting (LC). In addition, the company has two support departments,
(Inicrdivisional transfers; deciding on alternatives) Amy Keeler, a manage¬ ment accountant, has recently been employed as controller in the Fashions Division of Deluxe Products, Inc. The company is
(Transfer prices; discussion) Biloxi Products Inc. is a decentralized company. Each division has its own sales force and production facilities and is oper¬ ated as an investment center. Top
(Effect of service department allocations on reporting and evaluation) Kendra Corporation is a diversified manufacturing company with corporate head¬ quarters in Eagan, Minnesota. The three
(Transfer prices) Schmidt Industries consists of eight divisions that are evalu¬ ated as profit centers. All transfers between divisions are made at market price. Precision Regulator is a division
(Transfer prices; research) Go to the Ernst & Young Web site or to the Jour¬ nal of International Taxation (April, May, and June 2004) to find informa¬ tion on the E&Y 2003 Global Survey on
What information is provided by a variable costing income statement that is useful in computing the break-even point? Is this information on an absorp¬ tion costing income statement? Explain your
How is the break-even point defined? What are the differences among the formula, graph, and income statement approaches for computing breakeven?LO.1
What is the contribution margin ratio? How is it used to calculate the break¬ even point?LO.1
Why is CVP analysis generally used as a short-run tool? Would CVP ever be appropriate as a long-run model?LO.1
What does the “bag” assumption mean, and why is it necessary in a multi¬ product firm? What additional assumption must be made in multiproduct CVP analysis that doesn’t pertain to a
Define and explain the relationship between margin of safety and operating leverage.LO.1
(Variable costing income statement) Gatorsip Beverages began business in 2006 selling bottles of a thirst-quenching drink. Production for the first year was 52,000 bottles of Gatorsip, and sales were
(Variable costing income statement) AEC manufactures automotive distributor caps. The following information is available for 2006, the company’s first year in business when it produced 75,000 caps.
(Cost and revenue behavior) The following financial data have been deter¬ mined from analyzing the records of Red Sox Gloves (a one-product firm):How does each of the following measures change when
(Break-even point) Braves Company has the following revenue and cost functions:LO.1 Revenue = $60 per unit Costs = $120,875 + $35 per unit a. What is the break-even point in units? b. What is the
(Break-even point) HST makes and sells class rings for local schools. Operat¬ ing information follows:a. What is HST’s break-even point in rings?b. What is HST’s break-even point in sales
(Sales price computation) Sportswear Inc. has designed a new athletic suit. The company plans to produce and sell 60,000 units of the new product in the com¬ ing year. Annual fixed costs are
(CVP) HG Industries makes children’s playhouses that sell for $3,000 each. Costs are as follows:a. How many playhouses must HG Industries sell to break even?b. If HG Industries’ management wants
(CVP: taxes) Use the information for HG Industries in Exercise 14 and as¬ sume a tax rate for the company of 35 percent.a. If HG Industries’ management wants to earn an after-tax profit of
(CVP) Houston Corp. sells a product for $180 per unit. The company’s vari¬ able costs per unit are $30 for direct material, $25 per unit for direct labor, and $17 per unit for overhead. Annual
(CVP; taxes) Use the information for Houston Corp. in Exercise 16 and as¬ sume a tax rate for the company of 30 percent.a. If Houston Corp. wants to earn an after-tax profit of $67,900, how many

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