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29. (Payback period) Cimarron Manufacturing is considering the purchase of new production technology. The new technology would require an initial investment of 750,000 and have an expected life of 10 years. At the end of its life, the equipment would have no value. By installing the new equipment, the firm's annual labor and quality costs would decline by 150,000. a. Compute the payback period for this investment (ignore tax). b. Assume, now, that the annual cost savings would vary according to...

Demonstration Problem

BagsSoStrong Company had the following account balances as of August 1, 2001 During August, the company incurred the following factory costs Purchased 82,000 of raw materials on account. Issued 90,000 of raw materials, of which 67,000 were direct to the product. Factory payroll of 44,000 was accrued 31,000 was for direct labor and the rest was for supervisors. Utility costs were accrued at 3,500 of these costs, 800 were fixed. Property taxes on the factory were accrued in the amount of 1,000....

Exercises

34. (Cost management and strategy) Assume that you are a financial analyst and you have just been handed a 2000 financial report of Firm X, a large, global pharmaceutical firm. The company competes in both traditional pharmaceutical products and the evolving biotechnology products. Also assume that you have been given the following data on the pharmaceutical industry. Sales 5.0 billion 1.2 billion Net income 1.3 billion 0.12 billion Advertising 0.1 billion 0.2 billion Research and development...

Lifecycle Costing

Customers are concerned with obtaining a quality product or service for a perceived reasonable price. In making such a determination, the consumer views the product from a life-cycle perspective. When purchasing a car, one would investigate not only the original purchase price but also the cost of operation, cost of maintenance, length of warranty period, frequency and cost of repairs not covered by warranty, and projected obsolescence period. From a manufacturing standpoint, because product...

Target Costing The Marketing Department At Walters Production Company

Terminology Match the lettered terms on the left with the numbered descriptions on the right. A letter may be used more than once. 32. Terminology Match the lettered terms on the left with the numbered descriptions on the right. A letter may be used more than once. 1. Expected selling price less desired 6. The use of machines and robots to perform the production process 7. The broadening of worker involvement to include monitoring all machines in a manufacturing cell 8. Computer-to-computer...

Cpu

Rearrange the rows in descending order of magnitude based on the total dollars column and prepare a table using Pareto analysis with the following headings b. Which models account for almost 80 percent of all failure costs c. Focusing on the models identified in part b , prepare a table using Pareto analysis to identify the types of failure causing the majority of failure costs. Hint Rearrange the cost of failure types in descending order of magnitude. Use the following headings for your...

Revisiting

ABN AMRO sees itself as a prominent universal banking group with a strong international focus. Its strength lies on the one hand in its extensive, worldwide network of branches and subsidiaries with highly qualified staff and, on the other hand, in the integrated delivery of banking services to all customer segments through every available channel of distribution. Embedded in the organization is a corporate culture based on the four corporate values integrity, teamwork, respect, and...

Develop Standard Cost For The Direct-cost Components Of A 10-gallon Batch

Four-variance approach journal entries For 2001, Blankly Manufacturing has set 60,000 direct labor hours as the annual capacity measure for computing its predetermined variable overhead rate. At that level, budgeted variable overhead costs are 270,000. The company has decided to apply fixed overhead on the basis of machine hours. Total budgeted annual machine hours are 3,300 and annual budgeted fixed overhead is 118,800. Both machine hours and fixed overhead costs are expected to be...

Solution Strategies

Joint cost is allocated only to joint products however, joint cost can be reduced by the value of by-product scrap before the allocation process begins. For physical measure allocations Divide joint cost by the products' total physical measurements to obtain a cost per unit of physical measure. For monetary measure allocation 2. List the values that comprise the allocation base for each joint process. 4. Calculate the decimal fraction of value of the base to the total of all values in the base....

Discrete And Continuous Loss Spoilage

How do normal and abnormal losses of units differ and how is each treated in an EUP schedule machine malfunctions once every 100 production runs and improperly blends ingredients. The machine processes 50,000 runs each year and the ingredients in each run cost 10. Correcting the problem has been estimated to cost 20,000 per year. Spoilage cost is 5,000 per year 500 spoiled batches X 10 worth of ingredients plus a minimal amount of overhead costs. If company employees are aware of the...

Cvp Analysis In A Multiproduct Environment

Companies typically produce and sell a variety of products, some of which may be related such as dolls and doll clothes or sheets, towels, and bedspreads . To perform CVP analysis in a multiproduct company, one must assume either a constant product sales mix or an average contribution margin ratio. The constant mix assumption can be referred to as the bag or basket assumption. The analogy is that the sales mix represents a bag of products that are sold together. For example, whenever some of...

Problems

Identifying non-value-added activities Stacy Kroger is planning to build a concrete walkway for her home during her annual vacation. She has prepared the following schedule of how her time on the project will be allocated Obtain rental equipment 2 hours Remove sod and level site 10 hours Build forms for concrete 12 hours Mix and pour concrete into forms 5 hours Level concrete and smooth 2 hours Let dry 24 hours Remove forms from concrete 1 hour Return rental tools 1 hour Clean up 2 hours a....

Eup Calculations And Cost Assignments

One purpose of any costing system is to determine a product cost for use on financial statements. When goods are transferred from Work in Process Inventory to Finished Goods Inventory or another department , a cost must be assigned to those goods. In addition, at the end of any period, a value must be assigned to goods that are only partially complete and still remain in Work in Process Inventory. Exhibit 6-3 on page 226 outlines the steps necessary in a process costing system to determine the...

Cases

Information and cost management Consider the following excerpt about customer communication. Companies worldwide lose millions of dollars each year because they fail to communicate with customers and suppliers. These and other supply chain http www.kpmg inefficiencies are pointed out in the results of two surveys issued by KPMG Con- consulting.com sulting, a part of KPMG Peat Marwick LLP. Most companies think they're more efficient than they really are, said Thomas Wilde of KPMG. It's...

Introducing

Elly Borsheim started Lumina Candles amp Art, a JL jk.home-based business located in Cedar Creek, Texas, in the early 1990s. While working for a photo lab in college in the 1980s, Kelly had supplemented her income by selling fine art photography and shooting occasional wedding jobs. This led to an abiding interest in art, and she would later attend art school. A friend, Jamshid, gave Kelly a beeswax honeycomb candle that she still has. Kelly decided to find out what it took to make one. She...

Questions

Why must a company spend money to make money What do you predict would occur to a company's revenues if that company achieved its objective of incurring annual operating costs of 0 2. Why are so many companies presently redesigning their cost accounting systems 3. How can a company evaluate whether it is effectively managing its costs 4. Why is an effective management information system a key element of an effective management control system 5. What is a control system What purpose does a...

Compute The Percentage Change In The Two Quality Cost

Cost incurred for monitoring and j. Value compensating for mistakes 5. Graphical method of documenting when a process is in or out of control 6. One combination of different product or service characteristics included to satisfy different customer needs 7. Process of investigating how other firms conduct business 8. Effect of meeting or exceeding customer needs 9. Product or service characteristic relating to meeting the most customer needs at the lowest price...

Reality Check

Use the Internet to find four definitions of quality. a. Compare and contrast each of the four definitions, with specific emphasis on whether the definition is conformity or customer oriented. b. Assume that you are the manager of 1 a copy store and 2 a kitchen blender manufacturer. Prepare definitions of quality to distribute to your employees and discuss how you would measure service product adherence to those definitions. 52. Institutions of higher education have a variety of internal...

Chapter Summary

This chapter covers the accounting treatment for shrinkage, defective and spoiled units, and accretion of units in a process costing system. Management typically specifies a certain level of shrinkage defects spoilage that will be tolerated as normal if a loss of units is commonly anticipated. If lost units exceed that expectation, the excess is considered an abnormal loss. Normal losses are product costs, and abnormal losses are period costs. To account for the cost of lost units, the location...

Job Order Costing Illustration

Island Marine sets bid prices based on its costs. Over the long term, the company has a goal of realizing a gross profit equal to 25 percent of the bid price. This level of gross profit is sufficient to generate a reasonable profit after covering selling and administrative costs. In more competitive circumstances, such as when the company has too much unused capacity, bid prices may be set lower to increase the likelihood 7 Lawrence Barkowski, Intranets for Projects and Cost Management in...

Overhead. On February 28 The Company Had 400 Units In Process 70 Percent Complete

During February, Frankfurt Products started production of another 3,800 translators and incurred 85,380 for material, 23,560 for direct labor, and 65,720 for overhead. On February 28, the company had 400 units in process 70 percent complete as to material, 90 percent complete as to direct labor, and 80 percent complete as to overhead . a. Prepare a cost of production report for February using the weighted average method. b. Journalize the February transactions. c. Prepare T-accounts to...

Inventory Units Material Conversion

Prepare EUP schedules for both the cutting and pressure processes. Use the FIFO method. b. Determine the cost per equivalent unit for the cutting process assuming a FIFO method. c. Assign costs to goods transferred and to inventory in the cutting process on a FIFO basis. d. Transfer the FIFO costs to the pressure process. Determine cost per EUP on a modified FIFO basis. See footnote 8, page 233. e. Assign costs to goods transferred and to inventory in the pressure process on a modified FIFO...

Costing Systems

Absorption Costing

Job order and process costing are the two primary cost systems. A job order costing system is used by entities that make perform relatively small quantities or distinct batches of identifiable, unique products services . For example, job order costing is appropriate for a publishing company that produces educational textbooks, an accountant who prepares tax returns, an architectural firm that designs commercial buildings, and a research firm that performs product development studies. In each...

Accumulation And Allocation Of Overhead

Direct material and direct labor are easily traced to a product or service. Overhead, on the other hand, must be accumulated over a period and allocated to the products manufactured or services rendered during that time. Cost allocation refers to cost allocation the assignment of an indirect cost to one or more cost objects using some reasonable basis. This section of the chapter discusses underlying reasons for cost allocation, use of predetermined overhead rates, separation of mixed costs...

Cost Driver Analysis

Cost Classification

Companies engage in many activities that consume resources and, thus, cause costs to be incurred. All activities have cost drivers, defined in Chapter 3 as the factors having direct cause-effect relationships to a cost. Many cost drivers may be identified for an individual business unit. For example, cost drivers for factory insurance are number of employees value of property, plant, and equipment and number of accidents or claims during a specified time period. Cost drivers affecting the...

What Are The Direct Material Costs For Stainless Steel Knives

Using the high-low method, determine the cost formula for maintenance costs. b. What aspect of the estimated equation is bothersome Provide an explanation for this situation. c. Within the relevant range, can the formula be reliably used to predict maintenance costs Can the a and b values in the cost formula be interpreted as fixed and variable costs Why or why not 37. Predictors and cost drivers team activity Accountants often use factors that change in a consistent pattern with costs to...

Plantwide versus Departmental Overhead Application Rates

The Indianapolis Division of Alexander Polymers International is used to illustrate the calculation of a single, plantwide overhead application rate. This division contains two departments Cutting and Mounting, and Packaging . At the end of 2000, division management budgets its 2001 activity level at 75,000 machine hours and manufacturing overhead costs at 399,750. If a plantwide predetermined overhead application rate is calculated on per machine hour Total Budgeted OH Cost at a Specific...

Accounting Information That Discuss Time Delays And Price Increase

Terminology Match the following lettered items on the left with the appropriate numbered description on the right. An organization's intangible assets of skill, knowledge, and information A belief about moral and immoral behavior The long-term plan related to organizational goals and objectives The way in which authority and responsibility are distributed in an organization The basic assumptions about an organization, its goals, and its practices 6. A strategy based on differentiating...

Manufacturing Cycle Efficiency

Dividing value-added processing time by total cycle time provides a measure of efficiency referred to as manufacturing cycle efficiency MCE . A service com- manufacturing cycle pany would compute service cycle efficiency by dividing actual service time by total efficiency MCE cycle time. If a company's production time were 3 hours and its total cycle time were 24 hours, its manufacturing cycle efficiency would be 12.5 3 24 percent. Although the ultimate goal of 100 percent efficiency can never...