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Accounting 7th Edition Charles T. Horngren, Walter T. Harrison - Solutions
Review recent issues of business publications (e.g., BusinessWeek, The Wall Street Journal) for information about companies that have implemented activity based costing. Choose one company to research in detail.Required:Answer the following questions:1. Briefly describe the company, its products,
Existing businesses are often sold when the owner wants to retire, relocate, or simply change fields. Peruse your local newspaper or an online resource such as craigslist classifieds for businesses being offered for sale in your area and choose one that you would be interested in purchasing. Your
Restaurants such as Subway generally offer a limited number of food categories (subs, salads, wraps, etc.) that are similarly priced. On the other hand, a restaurant such as Applebee’s will have a broader menu in which each entre is individually priced. Consider the “behind the scenes”
Recently, Robert Kaplan and Steven Anderson have outlined a revised version of activity based costing known as Time Driven Activity Based Costing (TDABC). This updated method is intended to overcome some of the shortcomings of ABC and the problems companies often faced with
Read the article Yes, ABC Is for Small Business Too” by Douglas T. Hicks, Journal of Accountancy, August 1999. (http://www.journalofaccountancy.com/Issues/1999/Aug/hicks.htm)Required:1. According to Hicks, why have small companies avoided ABC?2. Explain Small Company’s costing system prior to
Why is it important to separate the fixed and variable components of a mixed cost? What might happen if that were not done?
What does the R square value mean?
Compare the full absorption and variable incomes when finished goods inventory increases and when it decreases.
Which of the following increases when activity level increases?a. Total variable cost.b. Total fixed cost.c. Total mixed cost.d. Both a and c.
Which of the following is not a method used to separate mixed costs?a. Regression analysis.b. Break-even analysis.c. High-low method.d. Visual fit method.
Consider the following information for a local concession stand’s first four weeks of operation:Using the high-low method, what is the equation for total operating cost for this concession stand?a. Operating Cost = \($1,750\) + (\($0.75\) × Number of drinks served).b. Operating Cost = \($1,000\)
Bombay Co. sells handmade rugs. Its variable cost per rug is \($30,\) and each rug sells for \($50.\) What are Bombay’s contribution margin per unit and contribution margin ratio?a. \($20\) and 40 percent.b. \($30\) and 60 percent.c. \($20\) and 60 percent.d. \($30\) and 40 percent.
Suppose you are given the following results from a least- squares regression performed on a local coffee shop’s weekly cost data.Which of the following statements is true?a. Total weekly variable cost is \($836.07.\) b. The coffee shop incurs \($1.69\) in variable costs for each customer
Total contribution margin isa. The difference between total variable cost and fixed cost.b. The difference between sales and cost of goods sold.c. The difference between sales and fixed cost.d. The difference between sales and variable cost.e. None of the above is true.
Which approach to analyzing mixed costs is most helpful in identifying data outliers?a. Least-squares regression.b. High-low method.c. Contribution margin income statement.d. Scattergraph.
Last year, Ritter Company sold 5,000 bird feeders for \($20\) each. Total fixed costs were \($42,000,\) and Ritter’s profit was \($30,000.\) What was its total variable cost last year?a. \($28,000.\)b. $58,000.c. $70,000.d. Cannot be determined.
Which of the following would be subtracted from total sales revenue when calculating contribution margin?a. Factory machinery depreciation.b. Direct materials used.c. Factory supervisor’s salary.d. Office machinery depreciation.
Hathaway Corp. manufactures garden hoses. Last month, its ending inventory level increased. In comparing absorption costing to variable costing,a. Both would show the same amount of profit.b. Variable costing would show more profit.c. Absorption costing would show more profit.d. Effect on income
Martha Trent is trying to prepare a personal budget and has identified the following list of monthly costs. Identify each cost as fixed, variable, or mixed. Indicate a possible cost driver for any variable or mixed cost.1. Rent.2. Utilities.3. Car payment.4. Cell phone bill.5. Gasoline.6. Cable
Steve’s Snow Cones is a small refreshment stand located near a football stadium. Its fixed expenses total \($300\) per week and the variable cost per snow cone is \($0.35.\) Complete the following table for the various levels. Number of snow cones Total fixed cost Fixed cost per snow cone Total
Taylor’s Tan-O-Rama is a local tanning salon. The following information reflects its number of appointments and total costs for the first half of the year:Prepare a scattergraph by plotting Taylor’s Tan-O-Rama’s data on a graph. Then draw a line that you believe best fits the data points.
Wendy’s Widgets builds the world’s best widgets. Information for the last eight months follows:Prepare a scattergraph by plotting Wendy’s data on a graph. Then draw a line that you believe best fits the data points. Using the graph and line you have drawn, estimate Wendy’s total fixed cost
Refer to the Wendy’s Widgets data in M5-7. Using the high-low method, calculate the total fixed cost per month and the variable cost per widget. How does the estimate of fixed cost compare to what you estimated in M5-7?Data from M5-7Wendy’s Widgets builds the world’s best widgets. Information
Refer to the Wendy’s Widgets data in M5-7. Suppose Wendy performed a least-squares regression and obtained the following results.Put Wendy’s results into a linear equation format (Y = A + BX) and explain what each component means. Compare the regression results to those obtained in M5-7 and
Refer to the data for Wendy’s Widgets in M5-7-M5-9. Suppose that Wendy’s expect to sell 3,200 widgets during the month of September and that each widget sells for $2.75. Using this information along with the regression results given in M5-9, prepare Wendy’s contribution margin income
Following is relevant information for Sunsplash Smoothie Shop, a small business that serves fruit drinks.During the month of June, Sunsplash sold 500 smoothies. Using the preceding information, prepare its contribution margin income statement for the month of June. Total fixed cost per month
Lezoli Enterprises sells handmade clocks. Its variable cost per clock is \($6,\) and each clock sells for \($15.\) Calculate Lezoli’s contribution margin per unit and contribution margin ratio. Suppose Lezoli sells 2,000 clocks this year. Calculate the total contribution margin.
Indicate whether each of the following companies is primarily a service, merchandise, or manufacturing business. If you are unfamiliar with the company, use the Internet to locate the company’s home page or use the finance Web site of Yahoo. 1. H&R Block 2. eBay Inc. 3. Wal-Mart Stores, Inc. 4.
Chalet Sports sells hunting and fishing equipment and provides guided hunting and fishing trips. Chalet Sports is owned and operated by Cliff Owen, a well-known sports enthusiast and hunter. Cliff's wife, Judy, owns and operates Joliet Boutique, a women's clothing store. Cliff and Judy have
Donna Ahern is the sole stockholder and operator of Omega, a motivational consult- ing business. At the end of its accounting period, December 31, 2009, Omega has assets of \($760,000\) and liabilities of \($240,000\). Using the accounting equation and considering each case independently, determine
a. A vacant lot acquired for \($150,000\) is sold for \($290,000\) in cash. What is the effect of the sale on the total amount of the seller's (1) assets, (2) liabilities, and (3) stock- holders' equity (retained earnings)?b. Assume that the seller owes \($80,000\) on a loan for the land. After
Indicate whether each of the following types of transactions will either (a) increase stockholders' equity or (b) decrease stockholders' equity: 1. expenses 2. revenues 3. stockholders' investments in exchange for capital stock 4. dividends
The following selected transactions were completed by Lindbergh Delivery Service during October: 1. Received cash from issuing capital stock, \($75,000\). 2. Paid rent for October, \($4,200\). 3. Paid advertising expense, \($4,000\). 4. Received cash for providing delivery services, \($39,750\). 5.
Murray Kiser operates his own catering service. Summary financial data for February are presented in equation form as follows. Each line designated by a number indicates the effect of a transaction on the equation. Each increase and decrease in stockholders' equity, except transaction (5), affects
The income statement of a corporation for the month of December indicates a net in- come of \($75,000\). During the same period, \($100,000\) in cash dividends were paid. Would it be correct to say that the business incurred a net loss of \($25,000\) during the month? Discuss.
Four different corporations, Jupiter, Mercury, Saturn, and Venus, show the same balance sheet data at the beginning and end of a year. These data, exclusive of the amount of stockholders' equity, are summarized as follows: Total Assets Total Liabilities Beginning of the year End of the year $
From the following list of selected items taken from the records of Hoosier Appliance Service as of a specific date, identify those that would appear on the balance sheet: 1. Accounts Payable 2. Capital Stock 3. Cash 4. Fees Earned 5. Land 6. Supplies 7. Supplies Expense 8. Utilities Expense 9.
Based on the data presented in Exercise 1-16, identify those items that would appear on the income statement.Exercise 1-16From the following list of selected items taken from the records of Hoosier Appliance Service as of a specific date, identify those that would appear on the balance sheet: 1.
Financial information related to Teflon Company, for the month ended April 30, 2010, is as follows:Prepare a retained earnings statement for the month ended April 30, 2010. Net income for April Dividends during April Retained earnings, April 1, 2010 $ 93,780 10,000 715,320
Relax Services was organized on May 1, 2010. A summary of the revenue and expense transactions for May follows:Prepare an income statement for the month ended May 31. Fees earned Wages expense $363,200 187,000 Rent expense 36,000 Supplies expense 11,500 Miscellaneous expense 12,100
Financial information related to Plexiglass Interiors for October and November 2010 is as follows:a. Prepare balance sheets for Plexiglass Interiors as of October 31 and as of November 30, 2010.b. Determine the amount of net income for November, assuming that no additional capital stock was issued
Each of the following items is shown in the financial statements of ExxonMobil Corporation. Identify the financial statement (balance sheet or income statement) in which each item would appear. a. Accounts payable b. Cash equivalents c. Crude oil inventory d. Equipment e. Exploration expenses f.
Indicate whether each of the following activities would be reported on the statement of cash flows as (a) an operating activity, (b) an investing activity, or (c) a financing activity: 1. Cash received from issuing capital stock 2. Cash paid for land 3. Cash received from fees earned 4. Cash paid
A summary of cash flows for Pickerel Consulting Group for the year ended March 31, 2010, is shown below.The cash balance as of April 1, 2009, was $30,800. Prepare a statement of cash flows for Pickerel Consulting Group for the year ended March 31, 2010. Cash receipts: Cash received from customers.
Driftwood Realty, organized July 1, 2010, is owned and operated by Steffy Owen. How many errors can you find in the following statements for Driftwood Realty, prepared after its second month of operations? Sales commissions. Expenses Office salaries expense. Rent expense...... Automobile expense
The Home Depot, Inc., is the world's largest home improvement retailer and one of the largest retailers in the United States based on net sales volume. The Home Depot operates over 2,000 Home Depot stores that sell a wide assortment of building mate- rials and home improvement and lawn and garden
Lowe's, a major competitor of The Home Depot in the home improvement business, operates over 1,300 stores. For the years ending February 2, 2007, and February 3, 2006, Lowe's reported the following balance sheet data (in millions):a. Determine the total stockholders' equity as of February 2, 2007,
Landau Company is considering a switch from its traditional costing system to an activity based system. It has compiled the following information regarding its product lines.Explain why the overhead costs could be so different between the two costing systems. Traditional Costing ABC Revenue
Zapex makes electronic components for handheld games and has identified several activities as components of manufacturing overhead: factory rent, factory utilities, quality inspections, mate¬ rial handling, machine setup, employee training, machine maintenance, inventory security costs, and
Bradshaw Corp. has identified three cost pools in its manufacturing process: equipment main¬ tenance, setups, and quality control. Total cost assigned to the three pools is \($143,000,\) \($78,000,\) and \($87,000,\) respectively. Cost driver estimates for the pools are 10,000 machine hours, 150
Newkirk Co. has identified one of its cost pools to be quality control and has assigned \($50,000\) to that pool. Number of inspections has been chosen as the cost driver for this pool; Newkirk performs 25,000 inspections annually. Suppose Newkirk manufactures two products that consume 10,000 and
Refer to the information presented in M4-5. Suppose that Newkirk manufacturers only the two products mentioned and they consume 100 percent of the company’s quality inspections. Using activity proportions, determine how much quality control cost will be assigned to each of Newkirk’s product
Martinez, Inc., manufactures four lines of gardening carts and uses activity based costing to calculate product cost. Compute the activity rates for each of the following activity cost pools: Activity Pool Estimated Total Cost Estimated Cost Driver Machining $326,000 13,000 machine hours Setup
Refer to the information presented in M4-7. Suppose the flower child gardening cart requires 2,500 machine hours, 300 inspections, and 100 batches. Using the activity rates calculated in M4-7, determine the amount of overhead assigned to the flower child product line.Data from M4-7Martinez, Inc.,
Refer to the information presented in M4-7. Suppose the rosey posey gardening cart requires 4,750 machine hours, 215 inspections and 65 batches. Using activity proportions, determine the amount of overhead assigned to the rosey posey product line.Data from M4-7Martinez, Inc., manufactures four
Offtrack Corp. has identified the following activities in its manufacturing process. Indicate whether each activity is value added or nonvalue added.Product design research Materials handling Machining Assembly of components Finished goods inventory storage Rework after a quality
One of the disadvantages of activity based costing is the amount of information it requires. To reliably calculate costs using an ABC system, a company must have information about total overhead costs and how those costs are divided into various categories. ABC also requires data about a variety of
Summer Company manufactures flowerpots in several different sizes and has identified the following activities in its manufacturing process.Storing inventoryCreating molds Pouring plaster Firing pots in kiln Sanding and finishing Painting Performing quality control Ordering
Francis Company uses three activity pools. Each pool has a cost driver where information follows:Required:1. Compute the activity rate for each activity. Round to three decimal places.2. Classify each activity as facility, product, customer, batch, or unit level. Activity Pool and Amount Machining
Refer to the information presented in E4-3. Suppose that Francis Company manufactures three products, A, B, and C. Information about these products follows:Required:1. Considering the information about these three products, comment on the likely complexity of the manufacturing process for each.2.
Refer to the information presented in E4-3. Suppose that Francis Company manufactures three products. Information about its three products follows:Required:1. Using activity proportions, determine the amount of overhead assigned to each product.2. Compare these results with those obtained using
Titan Corp. has identified the following information:Required:1. Calculate Titan’s activity rate for each cost pool.2. Determine the amount of overhead assigned to Titan’s products if they have the following requirements: Cost pools Machine maintenance Material handling Cost drivers Number of
Rawlings Corp. has two product lines, A and B. Rawlings has identified the following information about its overhead and potential cost drivers.Required:1. Suppose the Rawlings Corp. uses a traditional costing system with number of labor hours as the cost driver. Determine the amount of overhead
Refer to the information about Rawlings Corp. presented in E4-7. Rawlings has identified the following detailed information about its cost pools and cost drivers.Required:1. Calculate Rawlings’ activity rate for each cost pool.2. Determine the amount of overhead assigned to Rawlings’ products
Matson Company manufactures automobile floor mats. It currently has 2 product lines, the Standard and the Deluxe.Matson has a total of \($26,040\) in overhead. It currently used a traditional cost system with over- head applied to the product on the basis of either direct labor (DL) hours or
Refer to the information given in E4-9 regarding Matson Company. Suppose that Matson has conducted further research into its overhead and potential cost drivers. As a result, the company has compiled the following detailed information breaking total overhead into three cost poolsRequired:1.
Refer to your solutions obtained in E4-9 and E4-10.Required:1. Discuss the costs and benefits to Matson of moving from a traditional costing system to an ABC system.2. Compare the results of each potential traditional costing system to those obtained in the ABC approach.Data from E4-10Refer to the
Nixon makes two types of doghouse, plain and super. The company is currently using a traditional costing system with labor hours as the cost driver but is considering change to activity based costing. In preparation for the possible switch, Nixon has identified two cost pools: materials handling
Refer to E4-12.Required:1. Calculate the overhead assigned to the Super Doghouse line using the traditional costing system based on direct labor hours.2. Calculate the overhead assigned to the Super Doghouse line using an activity based costing system. (Round activity rates or activity proportions
Dunnstreet produces two types of calculator, standard and deluxe. The company is currently using a traditional costing system with machine hours as the cost driver but is considering a move to activity based costing. In preparing for the possible switch, Dunnstreet has identified two cost pools:
Radar Inc. has developed a new and improved widget. The company plans to sell the product through an existing Web site. Radar’s marketing department believes the product will sell for \($50.\) Radar’s goal is a 40 percent profit margin on the widget.Required:1. If current prototypes cost
Pawkins Company uses target costing to ensure that its products are profitable. Assume Pawkins is planning to introduce a new product with the following estimates:Required:1. Compute the target cost of this product.2. Compute the target cost if Pawkins wants a 35 percent return on sales.3. Compute
Larkspur Corp. manufactures bird feeders. It currently has two product lines, the standard and the deluxe. Larkspur has a total of $137,250 in overhead.The company has identified the following information about its overhead activity pools and the two product lines:Required:1. Suppose Larkspur used
Landon Company makes two models of children’s playhouses, the Castle and the Mansion.Basic production information follows:Landon has monthly overhead of $219,000, which is divided into the following cost pools:The company has also compiled the following information about the chosen cost
Gutierrez Company makes two models of portable camping stove, the Sportsman and the Expedition.Basic production information follows:Gutierrez has monthly overhead of $11,180, which is divided into the following cost pools:The company has also compiled the following information about the chosen cost
ProNet's total flexible budget cost for 75 connectors per month isa. \(\$ 8,130\)b. \(\$ 9,750\)c. \(\$ 13,000\)d. \(\$ 17,750\)ProNet Systems is a start-up company that makes connectors for high-speed Internet connections. The company has budgeted variable costs of \(\$ 130\) for each connector
ProNet's sales volume variance for total costs isa. \(\$ 5,250 \mathrm{~F}\)b. \(\$ 3,250 \mathrm{~F}\)c. \(\$ 3,250 \mathrm{U}\)d. \(\$ 5,250 \mathrm{U}\)ProNet Systems is a start-up company that makes connectors for high-speed Internet connections. The company has budgeted variable costs of \(\$
ProNet's flexible budget variance for total costs isa. \(\$ 5,250 \mathrm{U}\)b. \(\$ 5,250 \mathrm{~F}\)c. \(\$ 3,250 \mathrm{U}\)d. \(\$ 3,250 \mathrm{~F}\)ProNet Systems is a start-up company that makes connectors for high-speed Internet connections. The company has budgeted variable costs of
ProNet Systems' managers could set direct labor standards based on:a. Past actual performanceb. Continuous improvementc. Benchmarkingd. Time-and-motion studiese. Any of the above ProNet Systems is a start-up company that makes connectors for high-speed Internet connections. The company has
What is ProNet's direct labor price variance for August?a. \(\$ 37.50 \mathrm{U}\)b. \(\$ 112.50 \mathrm{U}\)c. \(\$ 105.00 \mathrm{U}\)d. \(\$ 120.00 \mathrm{U}\)ProNet Systems has budgeted 3 hours of direct labor per connector, at a standard cost of \(\$ 15\) per hour. During January, technicians
What is ProNet's direct labor efficiency variance for August?a. \(\$ 75.00 \mathrm{~F}\)b. \(\$ 232.50 \mathrm{~F}\)c. \(\$ 225.00 \mathrm{~F}\)d. \(\$ 1,350.00 \mathrm{~F}\)ProNet Systems has budgeted 3 hours of direct labor per connector, at a standard cost of \(\$ 15\) per hour. During January,
The journal entry to record ProNet's use of direct labor in August isa. Manufacturing WagesDirect Labor Efficiency VarianceWork in Process Inventoryb. Manufacturing WagesDirect Labor Efficiency VarianceWork in Process Inventoryc. Work in Process InventoryDirect Labor Efficiency
ProNet Systems allocates manufacturing overhead based on machine hours. Each connector should require 10 machine hours. According to the static budget, ProNet expected to incur: 1,000 machine hours per month ( 100 connectors \(\times 10\) machine hours per connector) \(\$ 8.000\) in fixed
The total manufacturing overhead variance is composed of:a. Flexible budget variance and production volume varianceb. Price variance and production volume variancec. Efficiency variance and production volume varianced. Price variance and efficiency variance
When Prover uses direct materials, the amount of the debit to W'ork in Process Inventory is based on:a. Standard quantity of the materials allowed for actual production \(\times\) Standard price per unit of the materialsb. Standard quantity of the materials allowed for actual production \(\times\)
What is the difference between a volume allocation measure and a nonvolume allocation measure?
Traditional (non-ABC) cost systems assign indirect (overhead) costs on the basis of:a. Nonvolume-based cost drivers.b. Unit- or volume-based cost drivers.c. Activity based cost driversd. Facility-level cost drivers.
Both traditional and ABC cost systems focus on the assignment of:a. Direct costs.b. Indirect costs.c. Manufacturing costs.d. Nonmanufacturing costs.
Which of the following is a volume-based allocation measure?a. Number of units produced.b. Number of direct labor hours.c. Number of machine hours.d. All of the above.
Number of setups is an example of:a. Unit-level activity.b. Batch-level activity.c. Product-level activity.d. Facility-level activity.
Which of the following is not a facility-level activity?a. Maintenance on the factory building.b. Factory utilities.c. Research and development for a new product.d. Manufacturing supervision.
What rate is currently used to apply manufacturing over¬ head to the two products?a. $100 per unit.b. $100 per direct labor hour.c. $50 per unit.d. $50 per direct labor hour.Hi-Def Video Company makes two types of digital DVD players, economy and deluxe, with the following per unit cost
Using the rate calculated in question 6, what is the full manufacturing cost per unit of the deluxe product?a. \($50.\)b. \($100.\)c. $175.d. $225.Hi-Def Video Company makes two types of digital DVD players, economy and deluxe, with the following per unit cost information:The company currently
What is the activity rate for the material handling activity cost pool?a. $ 2.50 per part.b. $ 4.00 per part.c. $ 8.00 per part.d. $10.50 per part.Hi-Def Video Company makes two types of digital DVD players, economy and deluxe, with the following per unit cost information:The company currently
Using the activity proportion method, how much of the quality control cost would be assigned to the economy model?a. 20% of $500,000 = $100,000.b. 40% of $500,000 = $200,000.c. 60% of $500,000 = $300,000.d. 80% of $500,000 = $400,000.Hi-Def Video Company makes two types of digital DVD players,
In comparing the results of ABC with the volume-based cost system (based on direct labor hours), which of the following statements is most likely to be true?a. The current cost system will overcost the deluxe model compared to ABC.b. The current cost system will undercost the economy model compared
Which of the following is the starting point of the master budget?a. The operating expenses budgetb. The inventory budgetc. The purchases and cost of goods sold budgetd. The sales budget
Compute Amazon's budgeted sales for the next (seven-day) week.a. \(\$ 52.5\) millionb. \(\$ 210\) millionc. \(\$ 220.5\) milliond. \(\$ 367.5\) million Suppose Amazon.com sells 1 million hardback books a day at an average price of \(\$ 30\). Assume that Amazon's purchase price for the books is
Determine Amazon's budgeted purchases for Amazon's first (seven-day) week.a. \(\$ 126\) millionb. \(\$ 180\) millionc. \(\$ 210\) milliond. \(\$ 54\) million Suppose Amazon.com sells 1 million hardback books a day at an average price of \(\$ 30\). Assume that Amazon's purchase price for the books
What is Amazon.com's budgeted operating income for a (seven-day) week?a. \(\$ 52.5\) millionb. \(\$ 56\) millionc. \(\$ 77\) milliond. \(\$ 147\) million Suppose Amazon.com sells 1 million hardback books a day at an average price of \(\$ 30\). Assume that Amazon's purchase price for the books is
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