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business
management cost accounting

Questions and Answers of Management Cost Accounting

In the graphs shown, assume that unit costs for Butcher Company are measured on the vertical axis while the horizontal axis measures production volume.Required:Indicate the graph that best describes
Smile, Inc., has provided the following actual cost data for your use in determining variable factory overhead costs and fixed factory overhead costs for budgeting purposes:Required:a. Determine an
During your examination of the financial statements of Imperial Company, you wish to analyze selected aspects of the company’s operations. Machine-hours and maintenance costs for the first four
Phoenix, Inc., plans to produce 10,000 motors each month. Time and motion studies reveal it takes five machine-hours per motor. The established monthly manufacturing overhead budget iS:Required:a.
Sand, Inc., has experienced difficulty in estimating its costs at various levels of occupancy for its hotel. Management believes that this difficulty is part of the reason that they are not
A Canadian bank has many branch offices. To help prepare budgets for its branch offices, the bank hired the services of a consulting firm. The consulting firm studied the past behavior of different
The controller of the Connecticut Electronics Company believes that identification of the variable and fixed components of the firm’s costs will enable the firm to make better planning and control
Plywood Plastics Manufacturing Company was formed as a partnership 25 years ago by Buell Edmonds and Harold Douglass after Edmonds, a successful business executive in the floor-covering business,
A cost accountant estimates that next year’s normal capacity for the Susan Douglass Company will be 40,000 machine-hours. At this level, managers estimate fixed costs at $140,000 with variable
The details pertaining to the Utilities Department of Sun, Inc., are as follows:During the month of May the expense of operating the Utilities Department amounted to $17,400; of this amount $6,000
Regarding the allocation of overhead,a. Discuss the theoretical merit of three different methods of allocating service department costs to production departments.b. Distinguish between direct and
Brown Company’s budget formula is $93,000 fixed overhead plus a variable rate of $5 per machine-hour, yielding a total application rate of $8. Actual machine-hours for the period were 31,800;
Overhead budgets for the production and service departments of Lynn Company are as follows:Accountants use the following factory statistics in determining the percentage of service received from each
Jasper, Inc., uses machine-hours to apply factory overhead with an operating range between 1,000 and 6,000 hours per month. A normal capacity of 4,000 hours will be used for applying factory
Because you are a CPA with an excellent reputation in the city, Hammermill Company asks your advice concerning the assignment of overhead in its production process. The company manufactures a line of
Satterfield Manufacturing Company is undecided whether to adopt departmental factory overhead application rates for its Sewing and Treating departments or whether a plantwide rate would be adequate.
Stal Company prepared the following information for 19X1 representing two different volumes:Factory overhead was applied based on the 85 percent capacity level; however, 28,000 machinehours were used
Burton Company presents you with the following monthly factory overhead budgets that were prepared at the beginning of the year.At the end of the month, analysis of the cost records reveal that the
Danden Manufacturing Company provides the following data concerning its operations for the year ended December 31, 19X1:Required:a. Compute the amount of overhead applied during the year and prepare
Memorial Hospital consists of several revenue and nonrevenue centers. In determining the cost of each revenue center, accountants use the step method to allocate the direct cost of nonrevenue
The producing departments at Lisa Lewis Company are Parts Fabrication and Assembly. The three service departments are Building, Administration, and Engineering. Building maintains the plant
Princeton Company has prepared overhead budgets for the production and service departments(before allocation) as follows:Accountants use the following data to determine the percentage of service
Olive Branch Manufacturing Company produces a ball valve used in water systems. The company has selected normal capacity for estimating costs and for establishing the factory overhead application
The Brian Wilson Company is engaged in production of machinery; its accountant has applied factory overhead to its product on the basis of an average rate of 80 percent of direct labor cost. At the
Billy Long Company has departmentalized its operations into two service departments, General Factory Office and Employee Relations, and three production departments, Mixing, Fabricating, and
The president of Oliphant Company has approached you for assistance in developing factory overhead application rates. Oliphant Company has been distributing actual factory overhead at the end of each
Direct and indirect departmental overhead budgets for the production and service departments of John Company are as follows:The following factory statistics are necessary to determine the percentage
Distinguish between production and service departments and give examples of each type.
Contrast idle capacity and excess capacity.
a. What is the normal criteria for selecting the fair basis of cost allocation?b. If the criteria or relationship you indicated cannot be identified, how should cost elements be allocated?
If a company uses cost-plus contracts extensively in a business that is seasonal or cyclical, what capacity level would be most appropriate? Why is it necessary to specify the activity level at which
What factors would you consider in determining whether to adopt department rates for applying factory overhead rather than using a single plantwide rate?
In interviewing several manufacturing firms operating in the same industry, you find that Company A’s factory overhead application rate is $2 per direct labor-hour while Company B’s rate is $2.50
Distinguish between spending and volume variances. How is each computed?
What factors could cause a company to have both unfavorable spending and volume variances?
During interviews you determine that Company C has a favorable volume variance, while Company D, which is of like size and operations, has an unfavorable volume variance. In stating the cause of the
How do the inventory accounts of service organizations, merchandisers, and manufacturers differ? What type of costs do typical production inventory accounts contain?
Why do many companies use applied rates for factory overhead as opposed to actual factory overhead rates?
Explain the difference between direct and indirect material and direct and indirect labor in terms that a nonaccountant could understand. Is it feasible to trace down every item of material that goes
Outline the basic component parts of an inventory cost flow. (Hint: You may find a model helpful.)
What cost component do prime costs and conversion costs share? What cost components differ between the two?
Indicate whether the following costs are production, marketing, or administrative costs.Advertising.Factory rent.Insurance on factory machinery.Warehousing and handling costs.Property taxes on
Under which conditions would it be appropriate to use direct material costs as an application base?
Which of the following are examples of period rather than product costs for a manufacturing company?Advertising campaign.Insurance on factory machines.Depreciation of factory building.Wages of
When would it be most appropriate to use the direct labor cost basis for applying factory overhead?
Define the primary production cost elements.
Write a memo to the production manager that discusses the criteria that an activity measure should meet, whether it is units of production, direct labor costs, direct labor-hours, machine-hours, or
The following account balances were on the books of Clayton Company on May 1 and May 31:Direct materials of $31,000 were purchased during the month while 5,000 hours of direct labor were incurred in
Assume that a company has a large underapplied factory overhead balance and top management encourages the accountant to treat the balance as a period cost. Write a memo to the president explaining
Butcher Company provides the following data for its year ended July 31, 19X2:Factory overhead is applied at the rate of 40 percent of direct labor dollars. Selected inventory accounts have these
Fourth Company provides you with the following estimated data for the next period for preparing factory overhead application rates:Required:Because the company is undecided about which basis to use,
The top management team of Uddin Company has recently become aware of a tactic that has become widespread throughout its organization. They describe this tactic as “Don’t trust anyone—I must
A review of Liberty Company’s cost of goods manufactured statement for the fiscal year ended July 31, 19X2, discloses the following information and relationships concerning its single product.A.
Data from the records of Douglass Company show the following:There were 1,300 units completed and transferred to the finished goods storeroom during the year. Finished goods inventory on January |
These data are from Rasher Manufacturing Company’s books on October 31, 19X2:Required:Prepare a combined statement of cost of goods manufactured and income statement through the calculation of
The following data are from the records of the AYO Company:Required:Prepare a cost of goods manufactured statement and an income statement for the AYO Company.(HINT: You must work backwards to find
Sallie Company applies factory overhead on the basis of a rate per direct labor-hour. The company provides you with the following data for the month of May 19X1. Selected inventories have the
Management of Boston Company expects to sell 60,000 units of the only product that it manufactures.The firm forecasts the sales price to be $150 per unit. There are 8,500 units remaining in finished
Cleopatra Company manufactures special motors for industrial use. A computerized costing system accumulates production costs. At the beginning of June, assembly line operations have been changed due
Peasant Company produces and sells only one product. For the next year ending May 31, 19X2, management expects to sell 96,000 units at an $80 sales price per unit. There are 7,000 units remaining in
Amy Wells Company, Inc., gives you the following information concerning their August monthly operations. Before the year began, management decided to apply factory overhead on machine-hours.
When Ann Watts returned to the business environment as a cost accountant after taking off five years to raise her family, she vowed that she would not listen to office gossip. Her philosophy was that
Jan Brown can remember discussing the Standards of Ethical Conduct for Management Accountants in detail as a student. From these discussions, Brown remembers professors stating that many events in
There will always be a trade-off in data gathering between the cost of acquiring additional data and the benefit of these data. A system becomes too expensive when it produces more reports than
Support or disclaim this statement: “Cost accounting fills a need generated by the financial reporting process for inventory valuation.”
Define cost accounting. How does it differ from financial accounting?
Support your agreement or disagreement with the statement: “Different costs should be used for different purposes.”
Explain why the accounting system that is most valuable to management is one that raises questions, not answers questions.
Compare and contrast the duties of the controller, treasurer, and cost accountant.
Who should be involved in designing a cost accounting system so that it meets management’s needs?
Define the term feedback. What role does cost accounting play in providing feedback to management?
Discuss the relationship of the cost accountant and other departments within the company.
Explain why cost accounting professionals should support and encourage senior executives to approach problems by asking, “What can we do about it?” rather than“What happened?” What impact
After much investigation, the Crews Company decided to use its own employees in adding another floor to their present building. A $400,000 budget was approved. Managers estimated that the project
Recently you were hired as a cost accountant for the Elliott Manufacturing Company. On your first day at work, the controller gave you a schedule for preparing cost reports; it appears rather tight.
You have accepted a job as budget director for the Ace Manufacturing Company. As part of your orientation program, you receive the following organization chart:The treasurer calls you into his office
Before the purchasing department of the Scott Company accepts a requisition, they require a series of signatures. Normally, the requisition moves through intracompany mail to each person whose
Henderson County Hospital is a 700-bed hospital employing 18 pharmacists. Most of the drugs they dispense are prepacked; however, they do compound and prepare baby formula and intravenous solutions.
You are a partner in the consulting firm of Ernest, Inc. One of your clients has asked your assistance in explaining the term cost as used in accounting. The client relates the following incidents
Traditionally, accountants used control techniques to meet the goals established by a few people at the top of the organization. Usually top management’s principal objective was profit
Having had experience in metal handling, John Douglass decided to invest a part of his savings, form his own company, and be his own boss. He realizes that his company will have to be small,
Even though the volume of revenues has been steadily rising at the Treadwell Advertising Agency, its costs have been increasing at a faster rate. Thus, the ratio of profit to net revenue has
Two engineers, an accountant, and an attorney organized the Hammond Company. The principal business activity is the manufacture and assembly of factory machinery. In addition, the company performs
Accountants communicate through a variety of channels; written messages and verbal exchanges appear as the most obvious. However, they also exhibit communication by their facial expressions, tone of
(a) Describe the role of the cost accountant in a manufacturing organization. (8 marks)(b) Explain whether you agree with each of the following statements:(i) 'All direct costs are variable.'(ii)
You are required to:(a) Explain what is meant by 'idle time' and state the accounting entries which ought to be made in respect of idle time relating to direct production personnel.(b) Draft, for the
(a) Identify and explain the essential elements of an effective cost control system.(b) Outline possible problems which may be encountered as a result of the introduction of a system of cost control
Wye Chemicals pic manufactures a range of products in a variety of processes and the data given below relate to Process 3 for the month of April.You are required to prepare:(a) A statement showing
AB Chemicals Limited produces a compound by mixing certain ingredients within two separate processes. For a particular week the recorded costs were:Discarded materials have scrap values of £0.30 per
A chemical product manufacturer, Bramley pic, operates three manufacturing departments. Raw material processed in Department 1 yields two joint products, A and B. Normally 1 litre of input into that
The data below relate to a company which product.You are required to:(a) Present comparative profit statements for each month using:(i) absorption costing (ii) marginal costing (b) Comment on the
Emcee pic manufactures three products, standard data for which are given below:You are required to:(a) Present one graph that shows the profit of the company as a whole and the contribution earned by
Carad pic manufactures a high quality car radio which sells for£100. Its head office is located in the south and it operates three factories in the north, east and west, results for which are shown
A manufacturing company with a single product has the following sales and production results over three financial periods:The selling price per unit has remained at £10, and direct material and
For LP Limited the following data are relevant to its products L and P:In the present environment, it is not possible to engage any more employees.You are required to:(a) Show mathematically the
(a) Discuss the importance of the cash budget to a manufacturing company.(b) Outline the information required, and explain how you would use that information, to reconcile a manufacturing company's
The marketing director of W Limited is dissatisfied with the variances reported to him on the basis of actual costs being compared with a fixed budget for the costs attributed to the marketing
(a) What are the differences between a fixed budget and a flexible budget? In what ways are fixed budgets and flexible budgets useful for planning and control?(b) In its budgets for the period ahead,
The assistant management accountant of your company has been preparing the profit and loss statement for the week ended 31 October. Unfortunately, he has had a traffic accident and is now in
(a) A company manufactures a food product, data for which for one week have been analysed as follows:It can be assumed that the production and sales achieved resulted in no changes of stock.You are

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