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business
management accounting

Questions and Answers of Management Accounting

Why do most executives use both full-cost and variable-cost information for pricing decisions?
Give two reasons why full costs are far more widely used than variable costs for guiding pricing.
Describe two long-run effects that may lead to managers rejecting opportunities to cut prices and obtain increases in short-run profits.
List four popular markup formulas for pricing
Provide three examples of pricing decisions other than the special order.
"In target costing, prices determine costs rather than vice versa" Explain.
Why are customers one of the factors influencing price decisions?
Describe the major factors that influence pricing decisions
Compare and contrast marginal cost and variable cost.
Give four examples of limiting or scarce factors.
"Avoidable costs are variable costs." Do you agree? Explain.
"The key to deciding whether to delete a product or department is identifying avoidable costs." Do you agree? Explain.
"Increasing sales will decrease fixed costs because it spreads them over more units." Do you agree? Explain.
"In relevant-cost analysis, beware of unit costs." Explain
"There is a commonality of approach to various special decisions." Explain.
Describe the role of past or historical costs in the decision process. That is, how do these costs relate to the prediction method and the decision model?
"Any future cost is relevant." Do you agree? Explain.
"Any future cost is relevant." Do you agree? Explain.
Rick Green, President of Cambridge Quarrymen, has just received two requests for a price on two of Cambridge’s marble products. The first request was from a nearby city for 140,000 square metres,
Fill in the unknowns in physical or equivalent units:* Degree of completion of conversion costs at dates of inventory.Assume that all materials are added at the beginning of the process. Equivalent
For each of the following independent cases, fill in the blanks (in millions of dollars): 2 3 4 Direct materials inventory, Dec. 31, 2011 8 1?/td> Purchased 1?/td> 8 Used 1?/td> 7 3 Direct materials
Consider the following data for Oxford Printing Company (in thousands):Inventories, December 31, 2011Direct materials
April production resulted in the following activity in a key account of Cheung Casting Company (in thousands):WIP InventoryApril 1 balance .................................................12Direct
Eastern Townships University uses job cost records for various research projects. A major reason for such records is to justify requests for reimbursement of costs on projects sponsored by the
Form groups of three to five people. Search the Internet using the terms “job costing software” and either “construction” or “manufacturing.” Select three sites offering job-costing
Job-cost records for Ganz Construction contained the following data:Compute Ganz’s (1) WIP inventory at May 31, (2) finished-goods inventory at May 31, and (3) cost of goods sold for May. Dates
How does hybrid costing relate to job costing and process costing?
The Bruce Peninsula Construction Company (BPCC) constructs cottages on speculation. That is, the cottages are begun before any buyer is known. Even if the buyer agrees to purchase a cottage under
DeMond Chemicals has the following balances (in millions) on December 31, 2011:Factory overhead applied .............................$450Cost of goods sold
What types of source documents provide information for job cost records?
The Ramakrishnan Manufacturing Company has the following balances (in millions) as of December 31, 2011:WIP inventory ..............................................................................$
The following data (in thousands) summarize the factory operations of the Lewis Manufacturing Co. for the year 2011, its first year in business:a. Direct materials purchased for cash
Explain the role of the factory department overhead control account in a job-cost system.
Fill in the unknowns. Case A Case B Case C Budgeted factory overhead $3,400,000 $1,750,000 Budgeted cost drivers: Direct labour cost $2,000,000 Direct-labour-hours 450,000 Machine-hours 250,000
Fill in the unknowns. Case 1 Case 2 a. Budgeted factory overhead b. Cost driver, budgeted direct labour cost c. Budgeted factory overhead rate d. Direct labour cost incurred $750,000 $420,000 500,000
Identify four cost drivers that a manufacturing company might use to apply factory overhead costs to jobs.
Define normal costing.
State three examples of service industries that use the job costing approach.
“As data processing becomes more economical, more costs than just direct material and direct labour will be classified as direct costs wherever feasible. ?Give three examples of such costs.
Fill in the unknowns in physical units. Case Flow of Production Work-in-process, beginning inventory 1,500 4,000 Started Completed and transferred Work-in-process, ending inventory 6,500 ? 8,000
Consider the following data for 2011:
One department of Guelph Instruments Company manufactures basic handheld calculators. Several materials are added at various stages of the process. The outer front shell and the carrying case, which
A department of Gatineau Textiles produces cotton fabric. All direct materials are introduced at the start of the process. Conversion costs are incurred uniformly throughout the process.In April,
Process costing systems are used in all business sectors. For each example listed, indicate whether the company is in the manufacturing or service sector.1. Beverage bottling at Coca-Cola2. Delivery
“In operation costing or activity costing, average conversion costs are applied to products in a manner similar to the application of factory overhead in a job-cost system.” Do you agree? Explain.
Give three examples of industries that probably use operation costing.
Explain what happens in a backflush costing system when the amount of actual conversion cost in a period exceeds the amount applied to the products completed that period.
“Backflush costing systems only work for companies using a just-in-time production system.” Do you agree? Explain.
“FIFO process costing is helpful for planning and control even if it is not used for product costing.” Do you agree? Explain.
“Ordinarily, the differences in unit costs under FIFO and weighted-average methods are insignificant.” Do you agree? Explain.
“The total conversion costs are divided by the equivalent units for the work done to date.” Does this quotation describe the weighted-average method or does it describe FIFO?
Why is “work done in the current period only” a key measurement of equivalent units?
“The beginning inventory is regarded as if it were a batch of goods separate and distinct from the goods started and completed by a process during the current period.” What method of process
“Equivalent units are the work done to date.” What method of process costing is being described?
Suppose a university has 10,000 full-time students and 5,000 half-time students. Using the concept of equivalent units, compute the number of “full-time equivalent” students.
Identify the major distinction between the first two and the final three steps of the five major steps in accounting for process costs.
What is the central product-costing problem in process costing?
Give three examples of non-profit organizations where process-costing systems are probably used.
Give three examples of industries where process-costing systems are probably used.
Audio Components recently installed a backflush costing system. One department makes 10 cm speakers with a standard cost as follows:Materials ...................................$ 9.60Conversion costs
The Rainbow Paint Company uses a process-costing system. Materials are added at the beginning of a particular process, and conversion costs are incurred uniformly. Work-in-process at the beginning of
Hassan Company produces digital watches in large quantities. The manufacturing costs of the assembly department wereFor simplicity, assume that this is a two-department company, assembly and
Digital Controls makes electronic thermostats for homes and offices. The Regina Division makes one product, Autotherm, which has a standard cost of $36, consisting of $20 of materials and $16 of
The Magnatto Company manufactures electric drills. Material is introduced at the beginning of the process in the assembly department. Conversion costs are applied uniformly throughout the process. As
produces cellular phones in large quantities. For simplicity, assume that the company has two departments, assembly and testing. The manufacturing costs in the assembly department during February
Wayne Andrews, the president and major shareholder of Walnut Furniture Limited (Walnut), was reviewing the 2012 and 2013 comparative income statements (Exhibit 6A-1) and was wondering why, despite
The Matterhorn Instruments Co. in Geneva, Switzerland, has the following 2012 budget for its two departments in Swiss francs (CHF):In the past, the company has used a single plantwide overhead
Brampton Co. uses normal absorption costing. Factory overhead is applied to production at a budgeted rate based on direct labour cost. At the end of the period, there are two unfinished jobs.
Donald Aeronautics Co. uses a budgeted overhead rate in applying overhead to individual job orders on a machine-hour basis for Department A and on a direct-labour-hour basis for Department B. At the
You are asked to bring the following incomplete accounts of a printing plant acquired in a merger up to date through January 31, 2011. Also consider the data that appear following the
The managing partner of Brenda McCoy Accounting is considering the desirability of tracing more costs to jobs than just direct labour. In this way, the firm will be better able to justify billings to
Job-order costing is usually identified with manufacturing companies. However, service industries and non-profit organizations also use the method. Suppose a social service agency has a cost
The Scott Furniture Company has two departments. Data for 2010 opening balances for inventory include the following:Direct materials (30 types)
The following summarized data are available on three job-cost records of Weeks Company, a manufacturer of packaging equipment:The company’s fiscal year-end is May 31. Factory overhead is applied as
The Jasper Avenue Clinic computes costs of treating each patient. It allocates costs to departments and then applies departmental overhead costs to individual patients using a different budgeted
MacLachlan Manufacturing Company had overapplied overhead of $20,000 in 2010. Before adjusting for overapplied or underapplied overhead, the ending inventories for direct materials, WIP, and finished
Consider the following data for Oxford Printing Company (in thousands):Inventories, December 31, 2011Direct materials ...............................£ 18Work-in-process
Gloria Cosmetics uses a normal cost system and has the following balances at the end of its first year’s operations:Work-in-process inventory ....................$200,000Finished-goods inventory
A Paris manufacturer uses a job-order system. At the end of 2010 the following balances existed (in millions of euros):Cost of goods sold ........................?50Finished goods
Assume the following at the end of 2010 (in thousands):Cost of goods sold ..........................................$300Direct materials inventory .................................70Work-in-process
Wosepka Welding Company applied factory overhead at a rate of $8.50 per direct-labour-hour. Selected data for 2010 operations are as follows (in thousands):Compute for both cases:1. Factory overhead
Consider the following summarized data regarding 2010:Omit explanations for journal entries.1. Prepare a summary journal entry for the actual overhead incurred for 2010.2. Prepare summary journal
Link Engineering Consultants is a firm of professional civil engineers. It mostly does surveying jobs for the heavy construction industry throughout Western Canada. The firm obtains its jobs by
“ABC and JIT are alternative techniques for achieving competitiveness.” Do you agree?
Name four factors crucial to the success of just-in-time production systems.
Why do managers want to distinguish between value-added activities and non-value-added activities?
Why do organizations adopt activity-based costing systems?
Refer to the Pacific Power illustration. Which resource costs depicted in Exhibit 5-7 could have variable cost behaviour?Exhibit 5.7 Current Costing Based on One Overall Rate Total Indirect Cost:
Name four steps in the design and implementation of an activity-based costing system.
Refer to Exhibit 5-6. Suppose the appliance maker has two plants—the Salem plant and the Youngstown plant. The Youngstown plant produces only three appliances that are very similar in material and
“Activity-based costing is useful for product costing but not for planning and control.” Do you agree? Explain.
Give four examples of activities and related cost drivers that can be used in an ABC system to allocate costs to products, services, or customers.
Why is it especially difficult to allocate joint costs and byproduct costs?
How does the term cost application differ from cost allocation?
“The step-down method allocates more costs to the producing departments than does the direct method.” Do you agree? Explain.
How could national advertising costs be allocated to territories?
“A commonly misused basis for allocation is dollar sales.” Explain.
“We used a lump-sum allocation method for fixed costs a few years ago, but we gave it up because managers always predicted usage below what they actually used.” Is this a common problem? How
Why should budgeted-cost rates, rather than actual-cost rates, be used for assigning the variable costs of service departments?
What are the three types of allocations?

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