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business
cost accounting

Questions and Answers of Cost Accounting

(Cost classifications) Indicate whether each of the following items is a vari¬ able (V), fixed (F), or mixed (M) cost and whether it is a product or service (PT) cost or a period (PD) cost. If some
(Cost behavior) Self Company produces athletic logo caps. The company in¬ curred the following costs to produce 4,000 caps last month:a. What did each cap component cost on a per-unit basis?b. What
(Cost behavior) Thomason Company manufactures high-pressure basketballs. Costs are incurred in the production process for a rubber material used to make the balls, a steel mesh material used in the
(Cost behavior) Your social fraternity/sorority has the opportunity to have Beyonce perform for free at the school’s basketball arena on January 28, 2006, because one of the members won an Internet
(Total cost determination with mixed cost) Magarity Accounting Services pays $800 per month for a tax software license. In addition, variable charges av¬ erage $6 for every tax return the firm
(Predictors and cost drivers; team activity) The IZZO accounting firm often uses factors that change in a consistent pattern with costs to explain or pre¬ dict cost behavior.a. As a team of three or
(Cost drivers) Assume that Ellis Hospital performs the following activities in providing outpatient service:1. Verifying patient’s insurance coverage 2. Scheduling patient’s arrival date and time
(Financial statement classifications) Billy Donovan’s Airboats purchased a plastics extruding machine for $200,000 to make boat hulls. During its first operating year, the machine produced 10,000
(Product and period costs) T. Smith Company incurred the following costs in May 2006:• Paid a six-month premium for insurance of company headquarters, $24,000.• Paid three months of property
(Company type) Indicate whether each of the following terms is associated with a manufacturing (Mfg.), a retailing or merchandising (Mer.), or a service (Ser.) company. There can be more than one
(Degrees of conversion) Indicate whether each of the following types of or¬ ganizations is characterized by a high, low, or moderate degree of conversion.a. Bakery in a grocery storeb. Convenience
(Labor cost classification) Fisher Homes Inc. produces a variety of household products. The firm operates 24 hours per day with three daily work shifts. The first-shift workers receive “regular
(Essay on direct labor) A portion of the costs incurred by business organiza¬ tions is designated as direct labor cost. As used in practice, the term direct labor cost has a wide variety of
(Journal entries—service industry) Hopkins & Bruder CPAs incurred the fol¬ lowing costs in performing SEC audits during 2006. Prepare journal entries for each of the following transactions:a.
(CGM and CGS) Bea Knight Company had the following inventory balances at the beginning and end of August 2006:All raw material is direct to the production process. The following informa¬ tion is
(CGM and CGS) Boeheim Custom Clocks’ August 2006 cost of goods sold was $4,600,000. August 31 work in process was 40 percent of the August 1 work in process. Overhead was 225 percent of direct
(Cost of services rendered) The following information is related to the Cali- pari Veterinary Clinic for April 2006, the firm’s first month in operation:LO1. Veterinarian salaries for April
(Cost behavior: advanced) L. Olson Ink makes stationery sets of 100 percent rag content edged in 24 karat gold. In an average month, the firm produces 40,000 boxes of stationery; each box contains
(Cost behavior) Lute Olson Company’s cost structure can contain a number of different cost behavior patterns. Following are descriptions of several dif¬ ferent costs; match these to the
(Cost classifications) Rick Majerus is a house painter who incurred the fol¬ lowing costs during April 2006 when he painted four houses. He spent $1,200 on paint, $80 on mineral spirits, and $300 on
(Journal entries) Advanced T. Davis Rags makes evening dresses. The fol¬ lowing information has been gathered from the company records for 2006, the first year of company operations. Work in Process
(.Journal entries) The following transactions were incurred by O’Brien Com¬ pany during April 2006:1. Direct material issued to production, $350,000.2. Direct labor cost paid, 70,000 hours at $16
(CGM and CGS) Billy Tubbs Inc. began business in July 2006. The firm makes an exercise machine for home and gym use. Following are data taken from the firm’s accounting records that pertain to its
(Product and period costs; CGM and CGS) At the beginning of August 2006, Bob Hubble Corporation had the following account balances:During August, the following transactions took place.1. Raw material
(CGM and CGS) Billy Tubbs’ Collectibles produces collectible pieces of art. The company’s Raw Material Inventory account includes the costs of both direct and indirect materials. Account balances
(Missing data) Mike Montgomery Company suffered major losses in a fire on June 18, 2006. In addition to destroying several buildings, the blaze de¬ stroyed the company’s work in process for an
((lost management; ethics) An extremely important and expensive variable cost per employee is health care provided by the employer. This cost is ex¬ pected to rise each year as more and more
(Production cost management) A large percentage of U.S. companies out¬ source some part of their business processes, which include accounting, cus¬ tomer service, engineering, human resources,
WHY AND HOW ARE OVERHEAD COSTS ALLOCATED TO PRODUCTS AND SERVICES? LO.1
WHAT CAUSES UNDERAPPLIED OR OVERAPPLIED OVERHEAD, AND HOW IS IT TREATED AT THE END OF A PERIOD?LO.1
WHAT IMPACT DO DIFFERENT CAPACITY MEASURES HAVE ON SETTING PREDETERMINED OVERHEAD RATES?LO.1
HOW ARE THE HIGH-LOW METHOD AND LEAST SQUARES REGRESSION ANALYSIS USED IN ANALYZING MIXED COSTS?LO.1
HOW DO MANAGERS USE FLEXIBLE BUDGETS TO SET PREDETERMINED OVERHEAD RATES?LO.1
HOW DO ABSORPTION AND VARIABLE COSTING DIFFER?LO.1
HOW DO CHANGES IN SALES OR PRODUCTION LEVELS AFFECT NET INCOME COMPUTED UNDER ABSORPTION AND VARIABLE COSTING?LO.1
Overhead costs are allocated to products to • eliminate the problems caused by delays in ob¬ taining actual cost data.• make the overhead allocation process more ef¬ fective.• allocate a
Underapplied (actual is more than applied) or over¬ applied (actual is less than applied) overhead is• caused by a difference between budgeted and actual overhead costs and/or a difference be¬
Capacity measures affect the setting of predetermined overhead rates because the use of• expected capacity (the budgeted capacity for the upcoming year) will result in a predetermined overhead rate
Mixed costs can be separated into their variable and fixed components by using• the high-low method, which considers the change in cost between the highest and lowest activity levels in the data
Flexible budgets are used by managers to help set predetermined overhead rates by• allowing managers to understand what manu¬ facturing overhead costs are incurred and what the behaviors
Absorption and variable costing differ in that• absorption costing»- includes all manufacturing costs, both vari¬ able and fixed, as product costs.>- presents nonmanufacturing costs according to
Differences between sales and production volume re¬ sult in differences in income between absorption and variable costing because• absorption costing requires fixed costs are writ¬ ten off as a
What is the difference between a variable and a mixed cost, considering that each changes in total with changes in activity levels?LO1.
Discuss the reasons a company would use a predetermined overhead rate rather than apply actual overhead to products or services.LO1.
Why are departmental overhead rates more useful for managerial decision making than plantwide rates? What is the reason for using separate variable and fixed rates rather than total rates?LO1.
Why would regression analysis provide a more accurate cost formula for a mixed cost than the high-low method would?LO1.
How does absorption costing differ from variable costing in cost accumula¬ tion and income statement presentation?LO1.
What is meant by classifying costs (a) functionally and (b) behaviorally? Why would a company be concerned about functional and behavioral classifications?LO1.
Is variable or absorption costing generally required for external reporting? Why is this method required compared to the alternative?LO1.
Why does variable costing provide more useful information than absorption costing for making internal decisions?LO1.
What are the income relationships between absorption and variable costing when production differs from sales? What causes these relationships to occur?LO1.
(Predetermined OH rates) Warlaski Corp. prepared the following 2007 abbre¬ viated flexible budget for different levels of machine hours:c. All actual overhead costs are equal to expected overhead
Happlication) Use the information in Exercise 11 and assume that War¬ laski Corp. has decided to use units to apply overhead to production. In April 2007, the company produced 4,420 units and had
(Predetermined OH rate) Rachel Company has a monthly overhead cost for¬ mula of $42,900 + $6 per direct labor hour for 2007. The firm’s 2007 ex¬ pected annual capacity is 156,000 direct labor
(Predetermined Oil rates) Cairo Products applies overhead using a combined rate for fixed and variable overhead. The rate has been established at 175 percent of direct labor cost. During' the first
(U nder.ipplied or overapplied overhead) At the end of 2006, Westmeier Cor¬ poration's accounts showed a $66,000 credit balance in Manufacturing Over¬ head. In addition, the company had the
(Underapplied or overapplied overhead) At year-end 2006, Zwylia Co. has a $50,000 debit balance in its Manufacturing Overhead Control account. Rele¬ vant account balance information at year-end
(Predetermined OH rates; capacity measures) Stir’em makes blenders and uses a normal cost system that applies overhead based on machine hours. The following 2007 budgeted data are
(Product costing and pricing) Chaney Tool Company is bidding on a contract with the government of Manatuka. The cost-plus contract includes an add-on markup of 50 percent of production cost. Direct
(High-low method) Information about Larson Inc.’s utility cost for the last six months of 2006 follows. The high-low method will be used to develop a cost formula to predict 2007 utility charges,
(High-low method) Historic Abodes Corp. builds replicas of residences of fa¬ mous and infamous people. The company is highly automated, and the new accountant owner has decided to use machine hours
(Least squares) Huppernan Supply has gathered the following data on the number of shipments received and the cost of receiving reports for the first seven weeks of 2007.a. Using the least squares
(1,east squares) Wynona Products has complied the following data to analyze utility costs:Use the least squares method to develop a formula for budgeting utility cost.LO1. Month Machine Hours Utility
(Flexible budget; variances; cost control) The Birmingham plant of Katz Corp. prepared the following flexible overhead budget for three levels of ac¬ tivity within the plant’s relevant range.After
(High-low method; flexible budget) Denver Company has gathered the fol¬ lowing information on its utility costs for the past six months.a. Using the high-low method, determine the cost formula for
(Flexible budget) Cheryl’s Pet Salon provides dog grooming services. Analy¬ sis of monthly costs revealed the following cost formulas when direct labor hours are used as the basis of cost
( Ending inventory valuation; absorption vs. variable costing) Pena Royals Company produces baseball caps. In May 2006, the company manufactured 18,000 caps and sold 16,560 caps. The cost per unit
(Absorption vs. variable costing) The MAZZILLI Juicer Company uses variable costing. The following data relate to the company’s first year of operation when it produced 50,000 units and sold 46,000
(Production cost; absorption vs. variable costing) Torodova Ltd. began busi¬ ness in 2006, during which it produced 104,000 quarts of olive oil. In 2006 it sold 98,000 quarts. Costs incurred during
(Net income; absorption vs. variable costing) Francona Company produces softball bats. In 2007, fixed overhead was applied to products at the rate of $8 per unit. Variable cost per unit remained
(Convert variable to absorption) The April 2006 income statement for Kick’in Sportswear has just been received by Bobby Cox, vice president of marketing. The firm uses a variable costing system for
Variable and absorption costing) Defeet Remedy manufactures athletes’ foot powder. Data pertaining to the company’s 2007 operations follow:Fixed manufacturing overhead is assigned to units of
(Essay) Because your professor is scheduled to address a national profes¬ sional meeting at the time your class ordinarily meets, the class has been di¬ vided into teams to discuss selected issues.
Predetermined Oil rales: flexible luulg >a< Lightening Company bud¬ geted the following factory overhead costs for the upcoming year to help calculate variable and fixed predetermined overhead
(Plant vs. department.i! OH rates! Sutton Industries has two departments, Fabrication and Finishing. Three workers oversee the 25 machines in Fabri¬ cation. Finishing uses 35 crafters to hand polish
diant vs. departmental OH rates) Thompson Manufacturing makes a wide variety of products, all of which must be processed in the Cutting and the Assembly Departments. For the year 2007, Thompson has
(Under/Overapplied OH; OH disposition) Keller Co. budgeted the following variable and fixed overhead costs for 2007:The company has decided to allocate overhead to production using machine hours. For
Analyzing mixed costs Hendry Dairy determined that the total overhead rate for costing purposes is $13-40 per cow per day (referred to as an ani¬ mal day). Of this, $12.60 is the variable portion.
(Flexible budgets; predetermined OH rates) Cool Dip Enterprises makes large fiberglass swimming pools and uses machine hours and direct labor hours to apply overhead in the Production and
(High-low; least squares regression) LaSalle Company manufactures insulated windows. The firm’s repair and maintenance (R&M) cost is mixed and varies most directly with machine hours worked.
(Least squares) Gulf Coast Breezes provides charter cruises into the Gulf of Mexico from a base in south Texas. Emily Lantz, the owner, wants to understand how her labor costs change per month. She
(Convert variable to absorption) Salado Corp. produces small outdoor sheds. The company began operations in 2006, produced 1,750 sheds and sold 1,500. A variable costing income statement for 2006
(Income statements for two years, both methods) D-Tect manufactures radar detectors. Each unit contains product cost of $20 for direct material, $60 for direct labor, and $20 for variable overhead.
(Absorption costing versus variable costing) Riveting Manufacturing builds light aircraft engines and, since opening in 2005, has quickly gained a reputation for reliable and quality products.
(Comprehensive) Royals Fashions Company produces and sells cotton jerseys. The firm uses variable costing for internal purposes and absorption costing for external purposes. At year-end, financial
Flexibility is said to be the hallmark of modern management accounting, whereas standardization and consistency describe financial accounting. Ex¬ plain why the focus on these two accounting systems
Why would operating in a global (rather than a strictly domestic) market¬ place create a need for additional information for management? Discuss some of the additional information you think managers
Why is a mission statement important to an organization?LO1.
What is organizational strategy? Why would each organization have a unique strategy or set of strategies?LO1.
What is a core competency and how do core competencies impact the feasi¬ ble set of alternative organizational strategies?LO1.
What is the value chain of an organization, and how does it interface with strategy?LO1.
What is a balanced scorecard, and how is it more useful than ROI in imple¬ menting and monitoring strategy in a global economy?LO1.
Differentiate between authority and responsibility. Can you have one without the other? Explain.LO1.
What ethical issues might affect a U.S. or Canadian company considering opening a business in Russia?LO1.
(Accounting information You are a partner in a local accounting firm that does financial planning and prepares tax returns, payroll, and financial reports for medium-size companies. Business is good,
(Organizational accountants) Use library and Internet resources to find how the jobs of management accountants have changed in the last 10 years.a. Prepare a “then-versus-now” comparison.b. What
(Global operations) The 2000 annual report of Nestle (headquartered in Switzerland) was slightly nontraditional in that the annual financial state¬ ments and management report were in English and
(Strategic information) Go to the World Wide Web and select the financial reports of a multinational manufacturing company. Assume that you have just been offered a position as this company’s CEO.
(Strategy) You are the manager of the local Lowe’s home improvement store. What are the five factors that you believe to be most critical to the success of your organization? How would these

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