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business
management and cost accounting

Questions and Answers of Management And Cost Accounting

Amex Company is considering the introduction of a new product which will be manufactured in an existing plant; however, new equipment costing \(\$ 150,000\) with a useful life of five years (no
The Morton Company is planning to invest \(\$ 10,000,000\) in an expansion program which is expected to increase earnings before interest and taxes by \(\$ 2,500,000\). The company currently is
Thorne Transit, Inc. has decided to inaugurate express bus service between its headquarters city and a nearby suburb (one-way fare of \(\$ .50\) ) and is considering the purchase of either 32- or
The Gercken Corporation sells computer services to its clients. The company completed a feasibility study and decided to acquire an additional computer on January 2, 20X5. Information regarding the
Purchase, Lease, or Build Equipment The Edwards Corporation is considering adding a new stapler to one of its product lines. More equipment will be required to produce the new stapler. There are
The following transactions occurred during the month of January, 20X5:{Required}Prepare the journal entries for January, 20X5. 1. Raw materials costing $40,000 were purchased on account. 2. Raw
The president of Beth Corporation, which manufactures tape decks and sells them to producers of sound reproduction systems, anticipates a \(10 \%\) wage increase on January 1 of next year to the
Breakeven Point and Sales Needed for a Desired Profit All-Day Candy Company is a wholesale distributor of candy. The company services grocery, convenience and drug stores in a large metropolitan
What are the advantages of standard costs over historical costs for planning and control?
Distinguish between three approaches to setting standards. Which approach is preferable for control?
Describe the role of the cost accountant in the process of setting material and labor standards.
How do standard costs aid in assigning responsibility for variances disclosed in a responsibility accounting system?
What is meant by "standard hours allowed?" How is it used?
Who in an organization may be held responsible for a labor rate variance? A materials price variance?
Who in an organization may be held responsible for a labor usage variance? A materials quantity variance?
What is the significance of mix and yield variances for purposes of control?
Why is a cost flow assumption for work-in-process inventories (weighted average or FIFO) not required in a standard costing system?
What are two ways of recording raw materials inventory costs in a standard costing system? Which method is preferable for purposes of control? Why?
Excessive direct labor wages resulting from overtime premiums will be disclosed in what type of variance?
What is the significance of a debit balance in a labor efficiency variance account?
Information on Westcott Company's direct labor costs is as follows: Standard direct labor rate. ..$3.75 Actual direct labor rate. .$3.50 Standard direct labor hours.......... .10,000 Actual direct
Matt Company uses a standard cost system. Information for raw materials for Product RBI for the month of October is as follows:Calculate the following:(a) Material quantity variance, (b) Material
Home Company manufactures tables with vinyl tops. The standard material cost for the vinyl user per Type-R table is \(\$ 7.80\) based on six square feet of vinyl at a cost of \(\$ 1.30\) per square
Lion Company's direct labor costs for the month of January 20XX were as follows:Compute the labor usage (efficiency) variance. Actual direct labor hours... Standard hours allowed......... Labor rate
Information on Kennedy Company's direct material costs is as follows:Compute the actual purchase price per unit. Standard unit price......... Actual quantity purchased... Standard quantity allowed
Lab Corp. uses a standard cost system. Direct labor information for Product CER for the month of October is as follows:9,000 units of Bevo which were \(100 \%\) complete as to items A and B, \(50
Data on Goodman Company's direct labor costs is given below: Standard hours allowed...... Actual direct labor hours... Labor usage variance, favorable.. Labor rate variance, favorable. Total payrol
Miraclean Corp. produces a chemical cleaner which is sold in one-gallon containers.It is manufactured from two ingredients, Material \(\mathrm{X}\) and Material Y. The materials standards for one
On May 1, 20XX, Bovar Company began the manufacture of a new mechanical device known as "Dandy." The company installed a standard cost system in accounting for manufacturing costs. The standard costs
Sure-Gro Company is a manufacturer of fertilizer which is sold in \(40 \mathrm{lb}\). bags. Its major product, Sure-Gro I, is composed of three active chemicals and an inert filler (which has no
Wurstenheimer Company is a small manufacturer of specialty meat products which utilizes a standard cost system. The following standards have been developed for one pound of smoked German sausage.(a)
Analyzing the Materials Quantity Variance Alternative Energies, Inc., a subsidiary of a large oil company, manufactures and distributes gasohol. Gasoline is purchased from the parent company at a
The Alton Company is going to expand its punch press department. It is about to purchase three new punch presses from Equipment Manufacturers, Inc. Equipment Manufacturers' engineers report that
The Molding Department of the Western Corp. produces molded brass belt buckles for later use in assembling leather belts. The buckles are produced in two sizes, small and large. Small Material
Tolbert Manufacturing Company uses a standard cost system in accounting for the cost of production of its only product, Product A. The standards for the production of one unit of Product
Hideaway Distillery manufactures a pleasant-tasting beverage known in its local vicinity as Georgia Mountain Nectar. Because its production facilities must be moved from time to time, its productive
Finley Foundry Corp. manufactures iron castings to order for other manufacturing companies. A standard costing system is used in which raw materials inventories are carried at actual costs. The
Wearight Shoe Corp. utilizes a standard process cost system in the manufacture of heavy duty work shoes. The production process is carried out in two processes. In the cutting department, leather is
Steel Slitting Company divides 24 " widths of rolled sheet steel into 2" and 4" widths. The 24 " widths are delivered to Steel Slitting Company by its customers and the new widths are picked up by
The Bayou Manufacturing Corporation produces only one product, Bevo, and accounts for the production of Bevo using a standard cost system.Following are the standards for the production of one unit of
Energy Products Company produces a gasoline additive, Gas Gain. This product increases engine efficiency and improves gasoline mileage by creating a more complete burn in the combustion
Maidwell Company manufactures washers and dryers on a single assembly line in its main factory. The market has deteriorated over the last five years and competition has made cost control very
Why is the control of factory overhead costs a particularly useful application for flexible budgets?
What are the assumptions underlying the flexible budget formula? Are these assumptions always valid when flexible budgets are used?
Describe the advantages of flexible budgets over static budgets for planning.
Describe the advantages of flexible budgets over static budgets for control.
What are the advantages of departmental factory overhead rates? the disadvantages?
At what level in an organization is a factory overhead volume variance controllable? Who should be held responsible for it?
Intuitively, what is the significance of the factory overhead budget variance? Why is it sometimes called the controllable variance?
How may the factory overhead efficiency variance be interpreted? Is it useful for control?
What are the sources of the factory overhead spending variance?
Describe the methods for disposing of standard cost variances at year-end. When is each method appropriate?
Distinguish between random and nonrandom variances or deviations.
Describe four possible sources of nonrandom variances or deviations.
Do you agree with the following statement: "When a process has a favorable variance, it requires no investigation"?
If a cost variance is not investigated, will the variance continue in the future?
Describe how control charts are set up and used in cost control.
Explain why both the \(\mathrm{X}\) chart and the \(\mathrm{R}\) chart are needed in the use of control charts for cost control.
What is the advantage and the disadvantage of using the control chart approach in cost control?
Describe how the cost-benefit approach can be used in determining whether or not to investigate a variance.
If a cost variance is investigated, will the cause of the variance always be found?
When would an out-of-control process be allowed to continue?
What are the major assumptions underlying the cost-benefit approach to the variance investigation decision?
The following relationships pertain to a year's budgeted activity for Smythe Company: Direct labor hours................. 300,000 400,000 Total costs................ ..$129,000 $154,000 What are the
Information on Fire Company's overhead costs is as follows: Actual variable overhead........ Actual fixed overhead............ $73,000 $17,000 Standard hours allowed for actual production.. Standard
Air, Inc. uses a standard cost system. Overhead cost information for Product CO for the month of October is as follows: Total actual overhead incurred... Fixed overhead budgeted............ Total
Information on Overhead Company's overhead costs is as follows: Standard applied overhead $80,000 Budgeted overhead based on standard direct labor hours allowed.......... $84,000 Budgeted overhead
Adams Corporation has developed the following flexible budget formula for annual indirect labor cost: Total cost $4,800+ $0.50 per machine hour. Operating budgets for the current month are based upon
Alden Company has a standard costing and flexible budgeting system and uses a two-way analysis of overhead variances. Selected data for the month of February's production activity is as follows:
The following information is available from the Tyro CompanyAssuming that Tyro uses a three-way analysis of overhead variances, what is:(a) overhead spending variance, (b) overhead efficiency
The data below relate to the month of April 20X1 for Marilyn, Inc., which uses a standard cost system:(a) Determine the total overhead variance for Marilyn, Inc. for April.(b) Analyze the total
Beth Company's budgeted fixed factory overhead costs are \(\$ 50,000\) per month plus a variable factory overhead rate of \(\$ 4\) per direct labor hour. The standard direct labor hours allowed for
The following information relates to a given department of Herman Company for the fourth quarter of \(20 \mathrm{X} 0\).The total overhead variance is divided into three variances: spending,
AB Company utilizes a standard cost system. The following static budget has been developed for Department \(\mathrm{X}\) for April, when expected production is 4,000 units.Analysis has shown that of
Strayer Company, which uses a fully integrated standard cost system, had budgeted the following sales and costs for 20X5:At the end of 20X5 Strayer Company reported production and sales of 19,200
Julia Jones, cost accountant for Clanton Corp., has developed the following budgetary information for the Production Department's monthly overhead expense. X represents the monthly production in
The Organet Stamping Company manufactures a variety of products made of plastic and aluminum components. During the winter months substantially all of the production capacity is devoted to the
Melody Corporation is a manufacturing company that produces a single product known as "Jupiter." Melody uses the first-in, first-out (FIFO) process costing method for both financial statement and
The Melcher Co. produces farm equipment at several plants. The business is seasonal and cyclical in nature. The company has attempted to use budgeting for planning and controlling activities, but the
The Groomer Company manufactures two products, Florimene and Glyoxide, used in the plastics industry. The company uses a flexible budget in its standard cost system to develop variances. Selected
The Butrico Manufacturing Corporation uses a standard cost system which records raw materials at actual cost, records materials price variance at the time that raw materials are issued to
Department A is one of 15 departments in the plant and is involved in the production of all of the six products manufactured. The department is highly mechanized and as a result its output is
The Justin Company has recently installed a standard cost system to simplify its factory bookkeeping and to aid in cost control. The company makes standard items for inventory, but because of the
The Bronson Company manufactures a fuel additive which has a stable selling price of \(\$ 40\) per drum. Since losing a government contract, the company has been producing and selling 80,000 drums
Wielson Company employs flexible budgeting techniques to evaluate the performance of several of its activities. The selling expense flexible budgets for three representative monthly activity levels
The controller of a company which manufactures home-permanent kits has just received the following final production reports and cost figures for the month of May:As early as the first week of May,
The Kalman Co., a subsidiary of the Camper Corporation, submits interim financial statements. Camper combines these statements with similar statements from other subsidiaries to prepare its quarterly
Assume \(X=100 ; R=10\); and the number of observations in each sample is 5.Required.Determine the 3-sigma control limits for the \(\mathrm{X}\) chart and the \(\mathrm{R}\) chart. (Use the 3-sigma
Using the Standard Error of the Sample Means to Calculate Control Limits}In order to establish 2 -sigma control limits on the time it takes to complete an operation, a manager took random samples of
Mr. Blue has been hired as a consultant by the Reds Company to establish statistical quality control for their production process. Mr. Blue has drawn fifteen samples with four observations in each
The manager of the Ace Motel wants to establish statistical control on the time it takes a maid to make up a room. The manager took random samples of 4 maids' performance every day for seven
Given the current period's operating results, the Show-Me Company has estimated that the probability of its process being in a controlled situation is \(90 \%\) and the probability of an
Given a \(\$ 1,000\) unfavorable labor efficiency variance for the month of May, the manager of the manufacturing department has estimated that the probability of his process being in control is \(85
For each of the following independent cases, find the probability of the process being in control, at which a manager would be indifferent to investigating the source of the variance. Cost of Cost of
Assume that an investigation of a process would cost approximately \(\$ 500\). If the process is out-of-control, the cost of correcting the condition would be \(\$ 1,000\). The present value of cost
Determing the Necessary Cost Savings for Investigation Assume that the cost of investigation is \(\$ 2,000\) and the cost of correction is \(\$ 500\) for positive and negative variances. The manager
Determing Expected Costs of Investigation and No Investigation} The manager of the Delta Company is always indifferent about conducting an investigation when there is a probability of \(80 \%\) that
Determing the Value of Additional Information}Assume the probability that a process is in control is \(80 \%\). The cost of investigation is \(\$ 100\). The cost of correction is \(\$ 500\). The
The accountant and production manager of the Merrick Company have agreed that the following values are applicable in the investigation of a certain process:{Required:}Assuming that the subjective
Briefly describe how budgets can be used for communication, coordination, and resource planning.

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