Questions and Answers of Horngrens Cost Accounting

25. (Cost assignment; WA) CushionRide manufactures automobile springs. Its production equipment is fairly old, and one bad unit is typically produced for every 20 good units. The bad units cannot be
24. (EUP computation; normal and abnormal loss; cost per EUP; FIFO) CandleSticks uses a FIFO process costing system to account for its candle production process.Wax occasionally forms imperfectly in
23. (EUP computation; normal and abnormal loss; FIFO) Arkansas Foods manufactures corn meal in a continuous, mass-production process. Corn is added at the beginning of the process. Losses are few and
22. (EUP computations; normal and abnormal loss) The Atlanta Division of Southeastern Paint produces environmental paints in processes in which spoilage takes place on a continual basis. Management
21. (Normal vs. abnormal spoilage; WA) Jacksonville Plastics uses a weighted average process costing system for its production process in which all material is added at the beginning of production.
20. (Cost-benefit analysis) Alfred Carlson, plant manager at WEBOXALL Company, is investigating spoilage created by a machine that prints packing boxes for TVs and other large, fragile items. At the
19. (Terminology) Match the following lettered terms on the left with the appropriate numbered definition on the right.a. Abnormal loss 1. Allowing the production of spoiledb. Acceptable quality
18. Search the Internet for a company that has a zero tolerance for defects policy and report on the results of the company’s efforts to reach its goals.
17. How do statistical process control techniques contribute to the control of spoilage costs?
16. A company has an AQL for defects of 5 percent of units started during the period. Current period loss was 3 percent. Why should management attempt to measure the cost of this loss rather than
15. How are costs of reworking defective units treated if the defects are considered normal? Abnormal?
14. The Mixing Department of Leeward Company transferred 100,000 gallons of material to the Baking Department during July. The cost per gallon transferred out shown on Mixing’s cost of production
13. In a production process, what is accretion? How does it affect the cost of the units transferred in from a predecessor department?
12. In a job order costing system, spoilage may be incurred in general for all jobs or it may be related to a specific job. What differences do these circumstances make in the treatment of spoilage?
11. How does use of the method of neglect affect the cost of good production in a period?
10. What is meant by the term method of neglect ? When is this method used?
9. Why is the cost of an abnormal loss considered a period cost? How is its cost removed from Work in Process Inventory?
8. When does a discrete loss actually occur? When is it assumed to occur for accounting purposes? Why are these not necessarily at the same point?
7. How does a continuous loss differ from a discrete loss?
6. Why would abnormal losses be more likely to be preventable than some types of normal losses?
5. What is the difference between a normal and an abnormal loss?
4. List five examples (similar to the blackened redfish illustration in the text) in which a unit would be considered (a) defective and (b) spoiled.
3. What are some reasons a company would set a “tolerated” loss level? How might such a level be set?
2. Differentiate among shrinkage, spoilage, and defects.
1. Explain the meaning of an accepted quality level and discuss it in relation to a zero tolerance for defects or errors approach.
Maura Nobile & Company incurs spoilage continuously throughout the manufacturing process. All materials are added at the beginning of the process, and the inspection point is at the end of the
What is the cost of quality products?
How does accretion of units affect the EUP schedule and costs per unit?
How are losses treated in a job order costing system?
How are rework costs of defective units treated?
How are the costs of each type of loss assigned?
How do normal and abnormal losses of units differ and how is each treated in an EUP schedule?
Why do lost units occur in manufacturing processes?
What is an accepted quality level and how does it relate to zero tolerance for errors and defects?
(CVP single product—comprehensive) Speedy Mouse Inc. makes a special mouse for computers. Each mouse sells for $25 and annual production and sales are 120,000 units. Costs for each mouse are as
(Retail merchant CVP) Franklin Optical Shop has been in operation for several years. Analysis of the firm’s recent financial statements and records reveals the following:Average selling price per
(CVP decision alternatives) Norman Horn owns a small travel agency. His revenues are based on commissions earned as follows:Airline bookings 8% commission Rental car bookings 10% commission Hotel
(Income statements for 2 years, both methods) Edison Digital manufactures palmtop computers. The following data from the company are available for 2000 and 2001:In addition, selling and
(Comprehensive) Brookfield Fashions produces and sells cotton blouses. The firm uses variable costing for internal management purposes and absorption costing for external purposes. At the end of each
(Income statements, variance) Johnson Tools makes a unique workman’s tool.The company produces and sells approximately 500,000 units per year. The projected unit cost data for 2001 follows; the
(Convert variable to absorption) George Massat started a new business in 1999 to produce portable, climate-controlled shelters. The shelters have many applications in special events and sporting
(Appendix) Tom & Jerry Inc. had the following income statement for 2000.Sales (15,000 gallons @ $8) $120,000 Variable Costs Production (20,000 gallons @ $3) $60,000 Selling (20,000 gallons @ $0.50)
(CVP, multiproduct) Winnie Wholesalers sells baseball products. The Little League Division handles both bats and gloves. Historically, the firm has averaged three bats sold for each glove sold. Each
(Comprehensive; multiproduct) European Flooring makes three types of flooring products: tile, carpet, and parquet. Cost analysis reveals the following costs(expressed on a per-square-yard basis) are
(CVP, DOL, MS—two quarters, comprehensive) Presented below is information pertaining to the first and second quarters of 2001 operations of the Oak Company:QUARTER First Second Units:Production
(Multiproduct firm) Elegant Books produces and sells two book products: an encyclopedia set and a dictionary set. The company sells these book sets in a ratio of three encyclopedia sets to five
An article about the financial troubles of Air-India indicates that the airline plans to break even in 2000–2001:Air-India has arrived at a difficult point in its history. Held back from
Missouri Chemical Company’s new president has learned that, for the past four years, the company has been dumping its industrial waste into the local river and falsifying reports to authorities
A significant difference between absorption costing and variable costing centers around the debate of whether fixed manufacturing overhead is justified as a product cost. Because your professor is
A colleague of yours alleged to your company’s board of directors that CVP is a short-run-oriented model and is therefore of limited usefulness. Because you have used it many times in making
A group of prospective investors has asked your help in understanding the comparative advantages and disadvantages of building a company that is either labor intensive or, in contrast, one that uses
(CVP analysis) Reliable Airlines is a small local carrier in the Midwest. All seats are coach and the following data are available.Number of seats per plane 120 Average load factor (percentage of
(CVP analysis) Susan Katz owns the Holiday Litter Box, a luxury hotel for dogs and cats. The capacity is 40 pets: 20 dogs and 20 cats. Each pet has an airconditioned room with a window overlooking a
(Absorption costing versus variable costing) Virginia Company, a wholly owned subsidiary of Bluebeard, Inc., produces and sells three main product lines. The company employs a standard cost
(Absorption costing versus variable costing) Anderson Manufacturing builds engines for light airplane manufacturers. Company sales have increased yearly as the company gains a reputation for reliable
(Appendix) The Hattiesburg Chamber of Commerce (HCC) has provided you with the following monthly cost and fee information: monthly membership fee per member, $25; variable cost per member per month,
A significant trend in business today is increasing use of outsourcing. Go to the Internet and search Web sites with the objective of gaining an understanding for the vast array of outsourcing
(Operating leverage, margin of safety) One of the products produced by Orlando Citrus is Citrus Delight. The selling price per half-gallon is $4.50, and variable cost of production is $2.70. Total
(CVP, taxes) Joan Michaels has a small plant that makes playhouses. She sells them to local customers at $3,000 each. Her costs are as follows:Joan is in a 35 percent tax bracket.a. How many
What do external users of financial reports emphasize that is different from internal users?
Which product costing alternative, variable or absorption, is generally required for external reporting? Why?
What is meant by functionally classifying costs? What is meant by behaviorally classifying costs?
Andersen Company’s management is interested in seeing the company’s absorption costing income statements for 2000 and 2001 (the first two years of operation)recast using variable costing. The
(Appendix) How are break-even charts and profit-volume graphs constructed?
How are margin of safety and operating leverage concepts used in business?
How does CVP analysis differ between single-product and multiproduct firms?
How can cost-volume-profit (CVP) analysis be used by a company?
How do changes in sales and/or production levels affect net income as computed under absorption and variable costing?
What are the differences between absorption and variable costing?
On the Internet, find a discussion of a company that uses variable costing. State how the company uses variable costing and any advantages or disadvantages cited.
What is the break-even point? Why is calculating break-even point the starting point for cost-volume-profit analysis?
What are the cost accumulation and cost presentation approaches to product costing?
(Incremental sales) Brunswick Industries has annual sales of $2,500,000 with variable expenses of 60 percent of sales and fixed expenses per month of$40,000. By how much will annual sales have to
(Break-even point) Thompson Company has the following revenue and cost functions:Revenue $60 per unit Costs $241,750 $35 per unit What is the break-even point in units? In dollars?
(Cost and revenue behavior) The following financial data have been determined from analyzing the records of Jordan Appliances (a one-product firm):Contribution margin per unit $ 25 Variable costs per
(Standard costing; variable and absorption costing) Gramps’ Remedy manufactures athletes’ foot powder. The company uses a standard costing system.Following are data pertaining to the company’s
(Convert variable to absorption) James Walton, vice president of marketing for Charming Curios, has just received the April 2000 income statement, shown below, which was prepared on a variable
(Net income; absorption vs. variable costing) Skillful Scanners produces commercial scanners. Throughout 2000, unit variable cost remained constant and fixed overhead was applied at the rate of $5
(Production cost; absorption vs. variable costing) Bright Smile Mouthwash began business in 1999. Production for the year was 100,000 bottles of mouthwash, and sales were 98,000 bottles. Costs
(Absorption vs. variable costing) The following data were taken from records of the Kitchen Juicer Company. The company uses variable costing. The data relate to the company’s first year of
(Ending inventory valuation; absorption vs. variable costing) Harvard Hats Company produces baseball caps. In May 2000, the company manufactured 20,000 caps. May sales were 18,400 caps. The cost per
How are standards for material, labor, and overhead set?
What documents are associated with standard cost systems and what information do those documents provide?
How are material, labor, and overhead variances calculated and recorded?
What are the benefits organizations derive from standard costing and variance analysis?
How will standard costing be affected if a company uses a single conversion element rather than the traditional labor and overhead elements?
(Appendix) How do multiple material and labor categories affect variances?
1. What are the three primary uses of a standard cost system? In a business that routinely manufactures the same products or performs the same services, why would standards be helpful?
4. What is a standard cost card? What information is contained on it? How does it relate to a bill of materials and an operations flow document?
6. A total variance can be calculated for each cost component of a product. Into what variances can this total be separated and to what does each relate? (Discuss separately for material and labor.)
12. What is meant by the process of “management by exception”? How is a standard cost system helpful in such a process?
15. Why do managers care about the utilization of capacity? Are they controlling costs when they control utilization?
16. How are variances used by managers in their efforts to control costs?
21. How has automation affected standard costing? How has automation affected the computation of variances?
22. (Appendix) What variances can be computed for direct material and direct labor when some materials or labor inputs are substitutes for others? What information does each of these variances
23. (Direct material variances) Iron Eagle makes wrought iron table and chair sets.During April 2001, the purchasing agent bought 12,800 pounds of scrap iron at $0.89 per pound. Each set requires a
24. (Direct material variances) In August 2001, East Publishing Company’s costs and quantities of paper consumed in manufacturing its 2002 Executive Planner and Calendar were as follow:Actual unit
25. (Direct labor variances) Nelson Prefabricated Walls builds standard prefabricated wooden frames for apartment walls. The standard quantity of direct labor is 5 hours for each frame at an average
26. (Direct labor variances) In auditing the inventory account of a client, the accounting firm of Freeman and Associates set the following standard: 300 hours at an hourly rate of $45. The firm
27. (Direct material and direct labor variances) Lisa Scamponi Ltd. produces evening bags. In December 2001, Ms. Scamponi, president of the company, received the following information from Antonio

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