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horngrens cost accounting a managerial emphasis

Questions and Answers of Horngrens Cost Accounting A Managerial Emphasis

=+2-19 What are three common features of cost accounting and cost management?
=+2-18 ‘Gross margin is the same as contribution margin.’ Do you agree? Explain briefly.
=+2-17 Define product cost. Describe two different purposes for calculating product costs.
=+2-16 Describe the overtime premium and idle time categories of indirect labour.
=+2-15 Critics of absorption costing have increasingly emphasised its potential for leading to undesirable incentives for managers.Give an example.
=+2-14 Explain the main conceptual issue under variable costing and absorption costing regarding the timing for the release of fixed manufacturing overhead as expense.
=+2-13 Differences in operating profit between variable costing and absorption costing are due solely to accounting for fixed costs.Do you agree? Explain.
=+2-12 Distinguish between inventoriable costs and period costs. Do service sector companies have inventoriable costs? Explain.
=+2-11 Define the following: direct materials costs, direct manufacturing labour costs, manufacturing overhead costs, prime costs and conversion costs.
=+2-10 What are three different types of inventory that manufacturing companies hold?
=+2-9 Describe how manufacturing, retail and service sector companies differ from each other.
=+2-8 Explain why unit costs must often be interpreted with caution.
=+2-7 What is the relevant range? What role does the relevant range concept play in explaining how costs behave?
=+2-6 What is a cost driver? Give one example.
=+2-5 Define variable cost and fixed cost. Give an example of each.
=+2-4 Name three factors that will affect the classification of a cost as direct or indirect.
=+2-3 Why do managers consider direct costs to be more accurate than indirect costs?
=+2-2 Define direct costs and indirect costs.
=+2-1 Define a cost object and give three examples.
=+4 As a management consultant, explain concisely to the company president why the unit cost for direct materials did not change in requirements 2 and 3, but the unit cost for plant leasing costs did
=+3 Suppose Gumwood Ltd manufactures 1000000 units in the next year. Repeat the calculation in requirement 2 for direct materials and plant leasing costs. Assume the implied cost behaviour patterns
=+ Assume that the plant leasing cost is a fixed cost.
=+2 Suppose that both the direct materials costs and the plant leasing costs are for the production of 900000 units. What is the direct materials cost of each unit produced? What is the plant leasing
=+Gumwood Ltd is a metal- and woodcutting manufacturer, selling products to the home construction market. Consider the following data for 2014:Sandpaper $2 000 Materials handling costs 70 000
=+Why do managers assign different costs to the same cost object?
=+What are the effects on cost–volume–profit relationship (for a given level of fixed costs and a given contribution margin per unit)?
=+Differences are attributable to the timing of when fixed manufacturing costs are expensed
=+How do changes in unit inventory levels affect profit?b Production = sales Production > sales Production < sales Equal Lowerc Higher Equal Higherd Lower
=+Yes Seldom Absorption costing can be easily modified to obtain subclassifications for variable and fixed costs, if desired(e.g. see Figure 2-11, panel B)
=+Are classifications between variable and fixed costs routinely made?
=+No Yes Choice of denominator level affects measurement of operating profit under absorption costing only
=+No Yes Basic theoretical question of when these costs should be expensed Is there a production volume variance?a
=+Are fixed manufacturing costs inventoried?
=+How should costs be estimated?
=+How do managers decide whether a cost is a variable or fixed cost?
=+9 Describe a framework for cost accounting and cost management
=+8 Explain why product costs are calculated in different ways for different purposes
=+7 Describe the undesirable incentives for managers to build up inventory when a company uses absorption costing
=+6 Calculate income under absorption costing and variable costing, and explain the difference in income
=+5 Distinguish inventoriable costs from period costs
=+4 Interpret unit costs cautiously
=+3 Explain variable costs and fixed costs
=+2 Distinguish between direct costs and indirect costs
=+2 Explain the importance of causality in estimating cost functions
=+3 Describe various methods of cost estimation
=+4 Outline six steps in estimating a cost function using quantitative analysis
=+5 Describe three criteria used to evaluate and choose cost drivers
=+6 Explain non-linear cost functions, in particular those arising from learning curve effects
=+7 Explain data problems encountered in estimating cost functions
=+What is a non-linear cost function and in what ways do learning curves give rise to non-linearities?
=+The Helicopter Division of GLD Ltd is examining helicopter assembly costs at its Brisbane plant.It has received an initial order for eight of its new land-surveying helicopters. GLD can adopt one
=+bal ylbmessa t-ceriD our time for first helicopter our-hoursbal0002 our-hoursbal008 Learning curve for assembly labour time per helicopter 85% cumulative average timea 90% incremental unit timeb
=+a Using the formula for an 85% learning curve,
=+b Using the formula for a 90% learning curve, Labour-intensive assembly method Machine-intensive assembly method b = ln 0.85 ln 2 = –0.162 519 0.693 147= –0.234 465 b = ln 0.90 ln 2 = –0.105
=+2 What is the total cost of assembling the first eight helicopters under: (a) the labour-intensive method and (b) the machine-intensive method?
=+3-1 What two assumptions are frequently made when estimating a cost function?
=+3-2 Describe three alternative linear cost functions.
=+3-3 What is the difference between a linear and a non-linear cost function? Give an example of each type of cost function.
=+3-4 ‘High correlation between two variables means that one is the cause and the other is the effect.’ Do you agree? Explain.
=+3-5 Name four approaches to estimating a cost function.
=+3-6 Describe the conference method for estimating a cost function. What are two advantages of this method?
=+3-7 Describe the account analysis method for estimating a cost function.
=+3-8 List the six steps in estimating a cost function on the basis of an analysis of a past cost relationship. Which step is typically
=+the most difficult for the cost analyst?
=+3-10 Describe three criteria for evaluating cost functions and choosing cost drivers.
=+3-11 Define learning curve. Outline two models that can be used when incorporating learning into the estimation of cost functions.
=+3-12 Discuss four frequently encountered problems when collecting cost data on variables included in a cost function.
=+3-13 What are the four key assumptions examined in specification analysis in the case of simple regression?
=+3-14 ‘All the independent variables in a cost function estimated with regression analysis are cost drivers.’ Do you agree? Explain.
=+3-15 ‘Multicollinearity exists when the dependent variable and the independent variable are highly correlated.’ Do you agree?
=+Explain.
=+3-16 K Estimating a cost function OBJECTIVES 1, 3, 4 The management accountant of Island Ltd wants you to estimate a cost function from the following two observations in a general ledger account
=+2 Can the constant in the cost function be used as an estimate of fixed maintenance cost per month? Explain.
=+3-17 K Identifying variable, fixed and mixed cost functions OBJECTIVE 1 Pacific Ltd operates car rental agencies at various airports in Australia. Customers can choose from one of three contracts
=+M03_HORN3377_02_LT_C03.indd 112 2/09/13 3:20 PM Required 1 Plot separate graphs for each of the three contracts, with costs on the vertical axis and kilometres travelled on the horizontal axis.
=+2 Express each contract as a linear cost function of the form y = a + bX.3 Identify each contract as a variable, fixed or mixed cost function.
=+3-18 K Various cost behaviour patterns (CPA, adapted) OBJECTIVE 1 Select the graph that matches the numbered manufacturing cost data (requirements 1–9). Indicate by letter which graph best fits
=+2 Electricity bill—a flat fixed charge, plus a variable cost after a certain number of kilowatt-hours are used, in which the quantity of kilowatt-hours used varies proportionately with quantity
=+3 City water bill, which is calculated as follows:First 1 000 000 litres or less $1000 flat fee Next 10 000 litres $0.003 per litre used Next 10 000 litres $0.006 per litre used Next 10 000 litres
=+4 Cost of direct materials, where direct materials cost per unit produced decreases with each kilogram of material used (e.g. if 1 kilogram is used, the cost is $10; if 2 kilograms are used, the
=+5 Annual depreciation of equipment, where the amount is calculated by the straight-line method. When the depreciation schedule was prepared, it was anticipated that the obsolescence factor would be
=+6 Rent on a manufacturing plant donated by the local council, where the agreement calls for a fixed-fee payment unless 200000 labour-hours are worked, in which case no rent is paid.
=+7 Salaries of repair personnel, where one person is needed for every 1000 machine-hours or less (i.e. 0–1000 hours requires one person, 1001–2000 hours requires two people and so on).
=+8 Cost of direct materials used (assume no quantity discounts).
=+9 Rent on a manufacturing plant donated by the local council, where the agreement calls for rent of $100000 to be reduced by$1 for each direct manufacturing labour-hour worked in excess of 200000
=+3-19 KK Matching graphs with descriptions of cost and revenue behaviour (D. Green, adapted)OBJECTIVE 1 Given here are a number of graphs.1 2 3 4 5 6 7 8 9 10 11 12 Some other pattern The horizontal
=+b supervisors’s salaries for one shift and two shifts c mixed costs (e.g. car rental fixed charge plus a rate per kilometre driven)
=+d depreciation of plant, calculated on a straight-line basis
=+e data supporting the use of a variable cost rate (e.g. manufacturing labour cost of $14 per unit produced)f incentive bonus plan that pays managers $0.10 for every unit produced above some level
=+3-20 K Account analysis method OBJECTIVE 1 Matt operates a car wash. Incoming cars are put on an automatic conveyor belt which activates when a car is placed on it. Cars are washed as the conveyor
=+2 Suppose Matt expects to wash 90000 cars in 2015. Use the cost classification you developed in requirement 1 to estimate Matt’s total costs in 2015. Depreciation is computed on a straight-line
=+3-21 K Estimating a cost function, high-low method OBJECTIVES 1, 4 Pierre’s Restaurant wants to find an equation to estimate monthly utility costs. Pierre’s Restaurant has been in business for
=+2 Using the high–low method, determine the cost function for each cost.
=+3 Combine the information above to get a monthly utility cost function for Pierre’s.
=+4 Next month, Pierre’s Restaurant expects to use 2200 kilowatt-hours of electricity, make 1500 minutes of telephone calls and use 32000 litres of water. Estimate total cost of utilities for the
=+3-22 KK Account analysis method OBJECTIVES 1, 3 Bower Ltd, which manufactures recycled plastic products, reports the following manufacturing costs and account analysis classification for the year
=+b Under the terms of the labour contract, direct manufacturing labour wage rates are expected to increase by 10% in 2015
=+compared with 2014.
=+c Power rates and wage rates for supervision, materials handling and maintenance are not expected to change from 2014–2015.
=+d Depreciation costs are expected to increase by 5%, and rent, property taxes and administration costs are expected to increase by 7%.e Bower Ltd expects to manufacture and sell 80000 units in

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