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horngrens cost accounting a managerial emphasis

Questions and Answers of Horngrens Cost Accounting A Managerial Emphasis

=+6-2 A given cost may be allocated for one or more purposes. List four purposes.
=+6-3 Which criteria might be used to guide cost-allocation decisions? Which are the main criteria?
=+6-4 ‘A company should not allocate all of its corporate costs to its divisions.’ Do you agree? Explain your answer.
=+6-5 Once a company has allocated corporate costs to divisions, these costs should not be reallocated to the indirect cost pools of these divisions.’ Do you agree? Explain your answer.
=+6-6 What is broad averaging? What effects may it have on the costs of cost objects (products and/or services)?
=+6-7 Why should managers worry about product overcosting or undercosting?
=+6-8 Describe costing system refinement and describe three guidelines for refinement.
=+6-9 Explain the difference between a simple and an activity-based costing system.
=+6-10 Describe four levels of a cost hierarchy.
=+6-11 What additional information is provided when costs are classified into a cost hierarchy?
=+6-12 What are the key reasons for product cost differences between simple costing systems and ABC systems?
=+6-13 Describe four decisions for which ABC information is useful.
=+6-14 ‘Department indirect cost rates are never activity cost rates.’ Do you agree? Explain.
=+6-15 Describe four signs that help indicate when ABC systems are likely to provide the most benefits.
=+6-16 What are the main costs and limitations of implementing ABC systems?
=+6-17 ‘ABC systems apply only to manufacturing companies.’ Do you agree? Explain your answer.
=+6-18 All companies should adopt ‘activity-based costing’. Do you agree? Explain your answer.
=+6-19 Increasing the number of indirect cost pools is guaranteed to increase the accuracy of product or service costs.’ Do you agree? Explain your answer.
=+6-20 You are the management accountant of a retail clothing company. The budget committee has just rejected your budget proposal for $80000 to implement an ABC system. The senior retailing
=+How does a customer benefit from our spending $80000 on a supposedly better accounting system?’ Respond to the retailing executive’s comment.
=+6-21 K Activity-based costing OBJECTIVES 3, 5, 7 The job costing system at Custom Framing has five indirect cost pools (purchasing, materials handling, machine maintenance, product inspection and
=+2 Calculate the total overhead allocated to each job under an activity-based costing system using the appropriate activity drivers.
=+3 Explain why Custom Framing might favour the ABC job-costing system over the simple job-costing system, especially in its bidding process.
=+6-22 KK Activity-based costing, manufacturing OBJECTIVES 3, 5, 7 Smart Doors Ltd produces two types of doors, interior and exterior. The company’s simple costing system has two direct cost
=+how an ABC system would affect their product costing decisions. After analysing the indirect cost pool for Smart Doors, six activities were identified as generating indirect costs: production
=+2 Calculate the cost of an interior door and an exterior door under an activity-based costing system.
=+3 Compare the costs of the doors in requirements 1 and 2. Why do the simple and activity-based costing systems differ in the cost of an interior and exterior door?
=+4 How might Smart Door Ltd use the new cost information from its activity-based costing system to address the declining market share for interior doors?
=+6-23 KK Allocating costs to divisions OBJECTIVE 2 Benderson Ltd manufactures appliances in four divisions: Vacuum cleaner, Stove, Dishwasher and Washing machine. Each division is located in a
=+2 Which cost-allocation base do you prefer? Why?
=+3 Should any of the divisions be dropped based on your calculations? Why or why not?
=+6-24 KK Cost allocation to divisions OBJECTIVE 2 Wilderness Hotel & Casino is situated near the beautiful Cradle Mountain in Tasmania. The complex includes a 300-room hotel, a casino and a
=+2 Allocate indirect costs to the three divisions using each of the three cost-allocation bases suggested. For each cost-allocation base, calculate division operating profit margins after
=+3 Discuss the results. How would you decide how to allocate indirect costs to the divisions? Why?
=+4 Would you recommend closing any of the three divisions (and possibly reallocating resources to other divisions) as a result of your analysis? If so, which division would you close and why?Chapter
=+6-25 KK Cost allocation to divisions OBJECTIVE 2 Tusk Ltd has three divisions: Pulp, Paper and Fibres. Tusk Ltd’s new management accountant, Shaun Peters, is reviewing the allocation of fixed
=+2 Allocate 2013 fixed costs using the cost-allocation bases suggested by Shaun Peters. What is each division’s operating margin percentage under the new cost-allocation scheme?
=+3 Compare and discuss the results of requirements 1 and 2. If division performance is linked to operating profit margin percentage, which division would be most receptive to the new cost-allocation
=+6-26 K Cost hierarchy OBJECTIVES 6, 7 Scope Ltd manufactures iPod speakers for several well-known companies. The speakers differ significantly in their complexity and their manufacturing batch
=+2 Consider two types of iPod speakers made by Scope Ltd. One type of speaker is complex to make and is produced in many batches. The other is simple to make and is produced in few batches. Suppose
=+3 How is the cost hierarchy helpful to Scope Ltd in managing its business?244 Chapter 6: Activity-based costing and activity-based management M06_HORN3377_02_LT_C06.indd 244 2/09/13 3:26 PM
=+6-27 KK Activity-based costing, cost hierarchy, service (CMA, adapted) OBJECTIVES 6, 7 Lode Test Laboratories (LTL) does heat testing and stress testing on materials and operates at capacity. Under
=+2 Calculate the cost per test-hour for heat testing and stress testing. Explain briefly the reasons why these numbers differ from the$20 per test-hour that LTL calculated using its simple costing
=+3 Comment on the accuracy of the product costs calculated using the simple costing system and the ABC system. How might LTL’s management use the cost hierarchy and ABC information to manage its
=+6-28 K Alternative cost-allocation bases for a professional services firm OBJECTIVE 2 The OnyxGroup (OG) provides tax advice to multinational firms. OG charges clients for: (a) direct professional
=+2 Suppose support services were billed at $50 per professional labour-hour (instead of 30% of professional labour costs).
=+How would this change affect the amounts OG billed to the two clients for May 2013? Comment on the differences between the amounts billed in requirements 1 and 2.
=+3 How would you determine whether professional labour costs or professional labour-hours is the more appropriate cost-allocation base for OG’s support services?
=+6-29 KKK Plant-wide, department and ABC indirect cost rates OBJECTIVES 2, 3, 5, 7 Motion Products (MP) designs and produces car parts. In 2013, actual variable manufacturing overhead is $308600.
=+2 Calculate the variable manufacturing overhead allocated to each customer in 2013 using department-based variable manufacturing overhead rates.
=+3 Comment on your answers in requirements 1 and 2. Which customer do you think was complaining about being overcharged in the simple system? If the new department-based rates are used to price
=+4 How else might MP use the information available from its department-by-department analysis of variable manufacturing overhead costs?
=+5 MP’s managers are wondering if they should further refine the department-by-department costing system into an ABC system by identifying different activities within each department. Under what
=+6-30 K Activity-based costing, process costing OBJECTIVE 5 Diget Ltd produces mathematical and financial calculators and operates at capacity. Data related to the two products are presented
=+2 Calculate the manufacturing cost per unit for each product.
=+6-31 KK Activity-based costing, service company OBJECTIVE 5 Prime Printers Ltd owns a small printing press that prints leaflets, brochures and advertising materials. Prime Printers classifies its
=+Demand for administrative resources increases with direct labour cost Cause-and-effect relationship between allocation base and activity cost Indirect costs of operating printing machines increase
=+2 Calculate the cost of a standard job and a special job under the activity-based costing system.
=+3 Compare the costs of a standard job and a special job in requirements 1 and 2. Why do the simple and activity-based costing systems differ in the cost of a standard job and a special job?
=+4 How might Prime Printers use the new cost information from its activity-based costing system to manage its business better?
=+6-32 KK Allocation of costs to activities, unused capacity OBJECTIVE 7 Rex College, a private school for boys, serves 500 students: 200 in primary school (years 1–6) and 300 in high school (years
=+2 Scott McLean is dismayed at the high cost of sports training. Further examination reveals that $300000 of those costs are for volleyball, a sport pursued by a total of 40 students. What would the
=+3 For the 2015 school year, Rex College charges an annual fee of $1000 for any student who wants to play volleyball. As a result, 10 of the less motivated students drop the sport. Assuming the
=+4 Consider the costs of the academic instruction activity and assume they are fixed in the short run. At these costs, Rex College could serve 600 students. What is the cost of the academic
=+6-33 KK Activity-based costing, retail product-line profitability OBJECTIVE 7 Ocean Supermarkets (OS) operates at capacity and decides to apply ABC analysis to three product lines: baked goods,
=+2 Use the ABC system to prepare another product-line profitability report for OS.
=+3 What new insights does the ABC system in requirement 2 provide to OS managers?
=+6-34 K Activity-based costing, wholesale, customer profitability OBJECTIVE 7 Erut Wholesalers operates at capacity and sells furniture items to four department store chains (customers). Mr Erut
=+6-35 KKK Activity-based costing, activity area cost-driver rates, product cross-subsidisation OBJECTIVES 3, 7 Perfect Spuds (PS) operates at capacity and processes potatoes into potato cuts at its
=+At the end of 2013, PS unsuccessfully bid for a large institutional contract. Its bid was reported to be 30% above the winning bid.This feedback came as a shock because PS included only a minimum
=+◗ Cleaning activity area. PS uses 1200000 kilograms of raw potatoes to yield 1000000 kilograms of potato cuts. The costallocation base is kilograms of raw potatoes cleaned. Costs in the cleaning
=+◗ Cutting activity area. PS processes raw potatoes for the retail market independently of those processed for the institutional market. The production line produces: (a) 250 kilograms of retail
=+◗ Packaging activity area. PS packages potato cuts for the retail market independently of those packaged for the institutional market. The packaging line packages: (a) 15 kilograms of retail
=+2 Calculate the cost rate per unit of the cost driver in: (a) cleaning, (b) cutting and (c) packaging activity areas.
=+3 Suppose PS uses information from its activity cost rates to calculate costs incurred on retail potato cuts and institutional potato cuts. Using the ABC system, what is the cost per kilogram of:
=+4 Comment on the cost differences between the two costing systems in 1 and 3. How might PS use the information in requirement 3 to make better decisions?
=+6-36 KK Activity-based costing, job-costing system OBJECTIVES 5, 7 The Keyed-In (KI) plant in Melbourne operates at capacity and assembles and tests printed-circuit (PC) boards. The job-costing
=+2 Fill in the blanks (noted by question marks) in the cost information provided to Amy Clark for job no. A82.
=+3 Why might manufacturing managers and marketing managers favour this ABC job-costing system over the simple costing system, which had the same two direct cost categories but only a single indirect
=+6-37 KK Activity-based costing, product costing at banks, cross-subsidisation OBJECTIVES 3, 5, 7 Primiere Bank of Australia (PBA) is examining the profitability of its Prime Account, a combined
=+The use of these services in 2013 by three customers is as follows:Activity-based cost per ‘transaction’Account usage Beeton Price Jones Deposit/withdrawal with teller $2.30 42 48 5
=+2 What evidence is there of cross-subsidisation between the three Prime Accounts? Why might PBA worry about this crosssubsidisation if the Prime Account product offering is profitable as a whole?
=+3 What changes would you recommend for PBA’s Prime Account?
=+6-38 KKK Allocation of corporate costs to divisions OBJECTIVES 2, 11 Bob Walsh, controller of Wells Oil Ltd, is preparing a presentation to senior executives about the performance of its four
=+Under the existing accounting system, costs incurred at corporate headquarters are collected in a single cost pool ($3228 million in the most recent year) and allocated to each division on the
=+2 Calculate the residual operating profit (after corporate cost allocation) of each division when all corporate costs are allocated based on revenues of each division.
=+3 Calculate the residual operating profit (after corporate cost allocation) of each division when all corporate costs are allocated using the four cost pools.
=+4 How do you think the new proposal will be received by the division managers? What are the strengths and weaknesses of Bob Walsh’s proposal relative to the existing single cost pool method?
=+6-39 KK Cost allocation to divisions OBJECTIVE 5 Delta Bakery makes baked goods for grocery stores and has three divisions: Bread, Cake and Doughnuts. Each division is run and evaluated separately,
=+2 Allocate headquarter costs to the individual divisions using the proposed cost-allocation bases. Calculate the division operating profit after allocation. Comment on the cost-allocation bases
=+3 Which division manager do you think suggested this new cost allocation? Explain briefly. Which cost allocation do you think is‘better’?
=+6-40 K Job costing with single direct cost category, single indirect cost pool, law firm OBJECTIVES 2, 5 Boyce & Strong is a recently formed law partnership. James Fox, the managing partner of
=+2 Calculate the costs of the Jade Publishing and Optical Solutions jobs using Boyce & Strong’s simple costing system.
=+6-41 KK Job costing with multiple direct cost categories, single indirect cost pool, law firm(continuation of 6-40) OBJECTIVE 5 James Fox asks his assistant to collect details on those costs
=+2 Calculate the costs of the Jade Publishing and Optical Solutions jobs if Boyce & Strong had used its refined costing system with multiple direct cost categories and one indirect cost pool.
=+3 Compare the costs of the Jade Publishing and Optical Solutions jobs in requirement 2 with those in requirement 2 of Problem 6-40. Comment on the results.
=+6-42 KK Job costing with multiple direct cost categories, multiple indirect cost pools, law firm(continuation of 6-40 and 6-41) OBJECTIVES 2, 5 Boyce & Strong has two classifications of
=+2 For what decisions might Boyce & Strong find it more useful to use this job-costing approach rather than the approaches in Problem 6-40 or 6-41?
=+6-43 KKK Plant-wide, department and activity cost rates OBJECTIVES 5, 7, 10 Ultimate Medals makes trophies, plaques and medallions, and operates at capacity. Ultimate Medals does large custom
=+2 Calculate the cost per unit of trophies, plaques and medallions based on departmental overhead rates, where Forming Department overhead costs are allocated based on direct labour costs of the

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