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horngrens cost accounting a managerial emphasis

Questions and Answers of Horngrens Cost Accounting A Managerial Emphasis

=+7-25 KK Target rate of return on investment, activity-based costing OBJECTIVE 1 Top Sport (TS) distributes video games to retail stores and video game venues. It has a simple business model: order
=+2 The current crop of game systems is maturing and prices for games are beginning to decline. TS anticipates that, from May onwards, it will be able to sell 12000 game disks each month for an
=+3 TS’s small workforce gathers as a team and considers process improvements. They recommend ‘firing’ the marginal vendors—those who need a lot of ‘hand holding’ but whose titles are not
=+Chapter 7: Cost management, capacity costing and capacity management 291 M07_HORN3377_02_LT_C07.indd 291 2/09/13 3:41 PM At a selling price of $18 and a cost of $12 per disk, how many game disks
=+7-26 KKK Target prices, target costs, value engineering, cost incurrence, locked-in costs, activitybased costing OBJECTIVES 1, 3, 4 Sounds Ltd makes a radio-CD player, CP99, which has 80
=+2 Testing costs Testing components and final product(each unit of CP99 is tested individually)Testing-hours $2 per testing-hour 3 Rework costs Correcting and fixing errors and defects Units of CP99
=+4 Ordering costs Ordering of components Number of orders $21 per order 5 Engineering costs Designing and managing of products and processes Engineering-hour capacity $35 per engineering-hour
=+b 10% of the CP99s manufactured are reworked.c Sounds places two orders with each component supplier each month. Each component is supplied by a different supplier.d It currently takes 1 hour to
=+a Direct materials cost for the New CP99 is expected to be lower by $2.20 per unit.b Direct manufacturing labour cost for the New CP99 is expected to be lower by $0.50 per unit.c Machining time
=+d Time required for testing the New CP99 is expected to be lower by 20%.e Rework is expected to decline to 4% of New CP99s manufactured.
=+f Engineering-hours capacity will remain the same.Assume that the cost per unit of each cost driver for CP99 continues to apply to New CP99.Required 1 Calculate Sounds’ manufacturing cost per
=+2 Will the new design achieve the per-unit cost reduction targets that have been set for the manufacturing costs of New CP99?Show your calculations.
=+3 The problem describes two strategies to reduce costs: (a) improving manufacturing efficiency and (b) modifying product design.Which strategy has more impact on Sounds’s costs? Why? Explain
=+7-27 KK Life-cycle costing OBJECTIVE 5 Top Notch Ltd (TNL) has been manufacturing home furniture for over 40 years. Charles Strong, the owner, has decided he would like to manufacture an executive
=+2 Suppose TNL is wrong about the demand for these executive desks and after the first 36 months it stops making them altogether.It sells 16000 desks for $400 each with the costs described for
=+3 Will your answer to requirement 2 change if TNL must nevertheless incur the estimated fixed production costs for the whole period to month 52, even if TNL stops making executive desks at the end
=+7-28 KK Capacity concepts, effect on operating profit OBJECTIVE 6 Lucky Lager has just purchased the Austin Brewery. The brewery is two years old and uses absorption costing. It will ‘sell’ its
=+2 In 2015, the Austin Brewery reported these production results:12 13 14 15 16 A B Beginning inventory in barrels, 1-1-2015 slerrab ni noitcudorP 0000062 Ending inventory in barrels, 31-12-2015
=+(b) practical capacity and (c) normal capacity utilisation.
=+7-29 K Motivational considerations in capacity concept selection (continuation of 7-28) OBJECTIVE 7 1 If the plant manager of the Austin Brewery gets a bonus based on operating profit, which
=+2 What denominator-level capacity concept would Lucky Lager prefer to use to report to the Australian Taxation Office? Explain.
=+7-30 KK Capacity concept choices, changes in inventory levels, effect on operating profit OBJECTIVE 7 Yuki Ltd is a manufacturer of computer accessories. It uses absorption costing and reports the
=+2 Prepare absorption-costing-based income statements for Yuki Ltd using theoretical capacity, practical capacity and normal capacity utilisation as the denominator levels.
=+3 Why is the operating profit under normal capacity utilisation lower than the other two scenarios?
=+4 Reconcile the difference in operating profit based on theoretical capacity and practical capacity with the difference in fixed manufacturing overhead included in inventory.
=+7-31 K Downward demand spiral OBJECTIVE 8 Link Ltd is a large manufacturer of optical storage systems based in Geelong. Its practical annual capacity is 7500 units and, for the past few years, its
=+2 Recent competition from abroad has caused a drop in budgeted production and sales volume to 6000 units per year, and analysts are predicting further declines. If Link Ltd continues to use
=+3 Comment on the effect that changes in budgeted production have on selling price. Suggest another denominator level that Link Ltd might use for its pricing decision. Justify your choice.
=+4 Link Ltd has received an offer to buy identical storage units for $400 each instead of manufacturing the units in-house. Shutting down the manufacturing plant would reduce fixed costs to $450000
=+7-32 KK Cost allocation, downward demand spiral OBJECTIVE 8 Orchid Homes Ltd operates a chain of 10 nursing homes in the greater Sydney metropolitan area. Its central food-catering facility,
=+2 Using the same approach to calculating budgeted fixed cost per meal and pricing as in 2014, how much would nursing homes be charged for each Freshfoods meal in 2015? What would their reaction be?
=+3 Suggest an alternative cost-based price per meal that Josh Ahrens might propose and that might be more acceptable to the nursing homes. What can Freshfoods and Josh Ahrens do to make this price
=+7-33 K Cost allocation, responsibility accounting, ethics (continuation of 7-32) OBJECTIVE 7 In 2015, only 760500 Freshfoods meals were produced and sold to the nursing homes. Josh Ahrens suspects
=+2 Why might nursing home management accountants deliberately overestimate their future meal counts?
=+3 What other evidence should Orchid’s management accountant seek to investigate Josh Ahrens’s concerns?
=+4 Suggest two specific steps that Josh might take to reduce the incentives of the management accountants of the nursing homes to inflate their estimated meal counts.
=+7-34 K Life-cycle costing OBJECTIVE 5 New Life Metal Recycling has just been given the opportunity to salvage scrap metal and other materials from an old industrial site.The current owners of the
=+2 Suppose New Life can sell the metal for $150 per tonne and wants to earn a profit (before taxes) of $40 per tonne. At what price must New Life sell the land at the end of the project to achieve
=+3 Now suppose New Life can only sell the metal for $140 per tonne and the land at $100000 less than what you calculated in requirement 2. If New Life wanted to maintain the same mark-up percentage
=+7-35 KK Target pricing, target cost and value engineering OBJECTIVES 1, 2, 3 Systematic Ltd manufactures component parts. One product, G16, has annual sales of 50000 units. Systematic Ltd sells G16
=+2 What is the mark-up percentage on the full cost per unit of G16?
=+3 The sales manager thinks that Systematic Ltd can sell 10000 more units at the $40.60 price if it spends $200000 on marketing by putting advertisements in trade magazines. Systematic Ltd will not
=+4 If Systematic Ltd spends an extra $200000 on marketing but uses the same mark-up percentage on the full cost per unit as in requirement 2, calculate the new selling price.
=+7-36 KK Value engineering, target pricing and locked-in costs OBJECTIVES 3, 4 Pacific Décor Pty Ltd, designs, manufactures and sells contemporary wood furniture. Ling Li is a furniture designer
=+1 Jose thinks that Pacific can successfully market the table for $2000. The company’s target operating income is 10% of revenue.Calculate the target full cost of producing the 200 tables. Does
=+2 Jose discovers that Li has designed the table five centimetres wider than the standard size of wood normally used by Pacific.Reducing the table’s size by five centimetres will lower the cost of
=+3 Li insists that the five centimetres are an absolute necessity in terms of the table’s design. She believes that spending an additional$7000 on better marketing will allow Pacific to sell the
=+4 Compare the total operating income on the 200 tables for requirements 2 and 3. What do you recommend Pacific do, based solely on your calculations? Explain briefly.
=+3 At what cost of the new equipment would Bob Marsden be willing to purchase it? Explain.
=+2 What are the relevant factors in the decision? Which alternative is in the best interest of the company over the next two years?Show your calculations.
=+1 Assume that Bob Marsden’s priority is to receive the promotion, and he makes the equipment replacement decision based on next year’s accrual-based net operating income. Which alternative
=+◗ The new equipment will reduce electricity costs by $35000 per year and will reduce direct manufacturing labour costs by$30000 per year.For simplicity, ignore income taxes and the time value of
=+◗ The new equipment will cost $180000. It will have a two-year useful life and a $0 salvage value. George uses straight-line depreciation on all equipment.
=+◗ The historic cost of the old machine is $300000. It has a current carrying amount of $120000, two remaining years of useful life and a market value of $72000. Annual depreciation expense is
=+8-43 KK Equipment replacement decisions and performance evaluation OBJECTIVES 2, 7, 8 Bob Marsden manages the Victorian plant of George Manufacturing. He has been approached by a representative of
=+4 What should Lynn do in response to John Porter’s inputs and comments?
=+3 What other factors should Lynn examine before recommending whether Paibec Ltd should manufacture or buy MTR-2000?
=+2 On the basis of Lynn Hart’s own independent estimates, should she recommend that MTR-2000 be produced or purchased? Show your calculations.
=+◗ The equipment lease can be terminated by paying only $6000.Lynn shows John Porter her analysis. He argues that she is ignoring the amazing continuous improvement that is occurring at the plant
=+◗ The plant-rental contract can, in fact, be terminated by paying $20000. Paibec Ltd will not have any need for this space if MTR-2000 is outsourced.
=+◗ Direct manufacturing labour rates are likely to be higher by 5% in 2014 compared to 2013.
=+◗ Prices of direct materials are likely to be higher by 8% in 2014 compared to 2013.
=+◗ Paibec Ltd’s just-in-time policy means that inventory is negligible.Lynn is aware that cost studies can be threatening to current employees because the findings may lead to reorganisations
=+◗ 40% of the other manufacturing overhead is variable, proportional to the direct manufacturing labour costs. The fixed component of other manufacturing overhead is expected to remain the same
=+◗ Plant rental and equipment lease are annual contracts that are going to be expensive to get out of. Porter estimates it will cost$20000 to terminate the plant rental contract and $10000 to
=+◗ Variable costs per unit in 2014 will be the same as variable costs per unit in 2013.
=+8-42 KK Make versus buy, ethics (CMA, adapted) OBJECTIVE 2 Lynn Hart is a management accountant at Paibec Ltd. Paibec Ltd is under intense cost competition. Lynn has been asked to evaluate whether
=+2 Calculate the optimal number of batches of each type of biscuit that Della Simpson Ltd should make and sell each day to maximise operating profit.
=+8-41 KKK Optimal product mix (Appendix 8-1) (CMA adapted) OBJECTIVES 2, 5 Della Simpson Ltd sells two popular brands of biscuits: Della’s Delight and Bonny’s Bourbon. Della’s Delight goes
=+2 What is the maximum amount Westford Ltd would be willing to pay for another 1000 kilograms of Bistide?Chapter 8: Decision making and relevant information 339 M08_HORN3377_02_LT_C08.indd 339
=+8-40 KK Product mix, constrained resource OBJECTIVES 2, 5 Westford Ltd produces three products, A110, B382 and C657. Unit data for the three products follows:Product A110 B382 C657 Selling price
=+3 What other factors should the top management of Astrid Ltd consider before making a decision?
=+2 Calculate the increase or decrease in operating profit if Astrid closes division B.
=+8-39 KK Closing down divisions OBJECTIVES 2, 6 Astrid Ltd has four operating divisions. The budgeted revenues and expenses for each division for 2014 follow:Division A B C D Sales $630 000 $632 000
=+7 A proposal is received from an outside supplier who will make and ship the stylish pens directly to Class Ltd’s customers as sales orders are forwarded from Class Ltd’s sales staff. Class
=+6 The company has an inventory of 1000 units of pens that must be sold immediately at reduced prices. Otherwise the inventory will become worthless. The unit cost that is relevant for establishing
=+5 The company wants to enter a foreign market in which price competition is keen. The company seeks a one-time-only special order for 10000 units on a minimum-unit-price basis. It expects that
=+4 Assume the same data with respect to the government contract as in requirement 3 except that the two alternatives to be compared are:338 Chapter 8: Decision making and relevant information
=+3 A contract with the government for 5000 units of the pens calls for the reimbursement of all manufacturing costs plus a fixed fee of $1000. No variable marketing costs are incurred on the
=+d increase unit sales to 264000 units, which at the $5.80 price would give total revenues of $1531200 and lead to costs of$5.90 per unit for 264000 units, which would equal $1557600, and result in
=+b decrease operating profit by $0.20 per unit ($48000) but increase operating profit by 10% of revenues ($144000), for a net increase of $96000 c decrease fixed cost per unit by 10%, or $0.14, per
=+2 The pen is usually produced and sold at the rate of 240000 units per year (an average of 20000 per month). The selling price is $6 per unit, which yields total annual revenues of $1440000. Total
=+8-38 KKK Multiple choice, comprehensive problem on relevant costs OBJECTIVE 2 The following are Class Ltd’s unit costs of manufacturing and marketing a stylish pen at an output level of 20000
=+4 What other factors should Scoot Ltd consider when making this decision?
=+3 The sales manager is concerned that the estimate of 5000 units may be high and believes that only 3200 units will be sold.Production will be cut back, freeing up work space. This space can be
=+2 If Scoot Ltd takes up Motor Mania’s offer, the facility where the motors are currently manufactured will be used to add a light and horn to the motorised scooter. This upgrade means that the
=+8-37 KK Make versus buy, activity-based costing, opportunity costs OBJECTIVES 2, 4 Scoot Ltd manufactures motorised scooters. Currently, the company produces 5000 units. Scoot Ltd makes the motor
=+3 The sales manager at Ace Ltd is concerned that the estimate of 20000 units may be high and believes that only 16000 units will be sold. Production will be cut back, freeing up work space. This
=+2 For this question, assume that, if the chains are purchased outside, the facilities where the chains are currently made will be used to upgrade the bicycles by adding mud flaps and reflectors. As
=+b Ace Ltd rents the machine used to make the chains. If Ace Ltd buys all of its chains from the outside vendor, it does not need to pay rent on this machine.Required 1 Assume that if Ace Ltd
=+8-36 KK Make versus buy, activity-based costing, opportunity costs (N. Melumad and S. Reichelstein, adapted) OBJECTIVES 2, 4 Ace Ltd produces bicycles. This year’s expected production is 20000
=+2 How, if at all, would your response to requirement 1 change if the company could use the vacated plant space for storage and, in so doing, avoid $50000 of outside storage charges currently
=+8-35 KKK Make or buy, unknown level of volume (A. Atkinson) OBJECTIVE 2 Oxford Engineering manufactures small engines. The engines are sold to manufacturers who install them in such products as
=+4 Suppose Grossman Ltd has the opportunity to open another division, the North Division, whose revenues and costs are expected to be identical to the Southern Division’s revenues and costs
=+3 Given Southern Division’s expected operating loss of $110000, should Grossman Ltd shut it down? Assume that shutting down the Southern Division will have no effect on corporate office costs but
=+2 What would be the effect on Southern Division’s operating profit if it were to sell 4000 more tables? Assume that to do so the division would have to acquire additional equipment costing $42000
=+c Fixed general administration costs of the division and corporate office costs will not change if sales of individual product lines are increased or decreased or if product lines are added or
=+b Fixed marketing and distribution costs of a product line can be avoided if the line is discontinued.
=+8-34 KKK Dropping a product line, selling more units OBJECTIVES 2, 5 The Southern Division of Grossman Ltd makes and sells tables and beds. The following estimated revenue and cost information from
=+3 Suppose that the capacity of the regular machines has been increased to 65000 hours. Pendleton Engineering has been approached by Carter Ltd to supply 20000 units of another cutting tool, S3, for

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