Professional Documents
Culture Documents
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
1-1
1-2
Exercise 1-18
Value chain and classification of costs Classify each of the cost
items (ah) as one of the business functions of the value chain
shown in Exhibit 1-2 (p. 7).
Burger King, a hamburger fast food restaurant, incurs the following
costs:
a. Cost of oil for the deep fryer
a. Production
b. Production
c. Distribution
d.
Marketing
1-3
e. Marketing
f. Production
h. Customer service
1-4
Exercise 1-21
Five-step decision-making process, manufacturing
Garnicki Foods makes frozen dinners that it sells through
grocery stores. Typical products include turkey dinners, pot
roast, fried chicken, and meat loaf.
The managers at Garnicki have recently introduced a line
of frozen chicken pies. They take the following actions with
regard to this decision.
Classify each action as a step in the five-step decisionmaking process (identify the problem and uncertainties,
obtain information, make predictions about the future,
choose among alternatives, implement the decision,
evaluate performance, and learn).
2009 Pearson Prentice Hall. All rights reserved.
1-5
1-6
Obtain information
2009 Pearson Prentice Hall. All rights reserved.
1-7
Problem 1-25
Strategic decisions and management
accounting A series of independent situations in
which a firm is about to make a strategic decision
follow.
1. For each decision, state whether the company is
following a low price or a differentiated product
strategy.
2. For each decision, discuss what information the
management accountant can provide about the
source of competitive advantage for these firms.
2009 Pearson Prentice Hall. All rights reserved.
1-8
1-9
1-10
1-11
1-12
1-13
Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
2 -14
2 -15
Exercise 2-17
Direct, indirect, fixed and variable costs Ceramica
Company manufactures three kinds of hand painted
ceramic figurines in a two-step process.
The first step is automated; in the Baking Department a
machine presses the clay figurines into molds and bakes
them. In the Painting Department the baked figurines are
carefully removed from their molds and hand painted. After
they dry, the figurines are packed and shipped to
customers.
Ceramicas two departments, Baking and Painting, are in a
single factory building. Packaging takes place in the
Painting Department.
2 -16
a. Direct, variable
b. Paint
b. Direct, variable
e. Rent on factory
e. Indirect, fixed
2 -17
More costs
f.
Indirect, fixed
g. Painters
g.
Direct, variable
h.
Indirect, fixed
i.
Indirect, fixed
j.
k. Custodian in factory
k.
Indirect, fixed
l.
Indirect, fixed
n.
o.
Indirect, variable
p.
f. Insurance on factory
2 -18
2 -19
Exercise 2-23
Variable costs, fixed costs, relevant range
Yumball Candies manufactures jaw-breaker
candies in a fully automated process. The machine
that produces candies was purchased recently and
can make 4,000 per month. The machine costs
$6,000 and is depreciated using straight line
depreciation over ten years assuming zero
residual value. Rent for the factory space and
warehouse, and other fixed manufacturing
overhead costs total $1,000 per month.
2009 Pearson Prentice Hall. All rights reserved.
2 -20
More information
Yumball currently makes and sells 3,000 jawbreakers per month. Yumball buys just enough
materials each month to make the jaw-breakers it
needs to sell. Materials cost 10 cents per
jawbreaker.
Next year Yumball expects demand to increase by
100%. At this volume of materials purchased, it will
get a 10% discount on price. Rent and other fixed
manufacturing overhead costs will remain the
same.
2009 Pearson Prentice Hall. All rights reserved.
2 -21
2 -22
2 -23
2 -24
2 -25
Exercise 2-27
Total and unit cost, decision making Grahams
Glassworks makes glass flanges for scientific use.
Materials cost $1 per flange, and the glass blowers
are paid a wage rate of $20 per hour. A glass
blower blows 10 flanges per hour. Fixed
manufacturing costs for flanges are $20,000 per
period. Period (non manufacturing) costs
associated with flanges are $10,000 per period,
and are fixed.
2 -26
60,000
Fixed Costs
50,000
40,000
Variable Costs
30,000
20,000
Total
Manufacturing
Costs
10,000
0
0
5,000
10,000
2 -27
2 -28
2 -29
2 -30
2 -31
Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
3-32
3-33
Exercise 3-19
CVP exercises The Super Donut owns and
operates six doughnut outlets in and around
Kansas City.
You are given the following corporate budget data
for next year:
Revenues $10,000,000
Fixed costs $ 1,800,000
Variable costs $ 8,000,000
Variable costs change with respect to the number
of doughnuts sold.
2009 Pearson Prentice Hall. All rights reserved.
3-34
3-35
3-36
3-37
3-38
Exercise 3-20
CVP exercises The Doral Company
manufactures and sells pens. Currently,
5,000,000 units are sold per year at $0.50
per unit. Fixed costs are $900,000 per year.
Variable costs are $0.30 per unit.
Consider each case separately.
3-39
3-40
3-41
3-42
3-43
Exercise 3-24
3-44
Fixed costs
3-45
3-46
3-47
3-48
Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
4-49
4-50
Exercise 4-16
Job costing, process costing In each of the following
situations, determine whether job costing or process
costing would be more appropriate.
a)
b)
c)
d)
e)
f)
g)
h)
A CPA firm
An oil refinery
A custom furniture
manufacturer
A tire manufacturer
A textbook publisher
A pharmaceutical company
An advertising agency
An apparel manufacturing
plant
Job costing
Process costing
Job costing
Process costing
Job costing
Process costing
Job costing
Job costing (some process)
4-51
A flour mill
A paint manufacturer
A medical care facility
A landscaping company
A cola-drink-concentrate producer
A movie studio
A law firm
A commercial aircraft manufacturer
A management consulting firm
A breakfast-cereal company
A catering service
A paper mill
An auto repair shop
Process costing
Process costing
Job costing
Job costing
Process costing
Job costing
Job costing
Job costing
Job costing
Process costing
Job costing
Process costing
Job costing
4-52
Exercise 4-17
Actual costing, normal costing, accounting for manufacturing
overhead. Actual costing, normal costing, accounting for
manufacturing overhead.
Destin Products uses a job-costing system with two directcost categories (direct materials and direct manufacturing
labor) and one manufacturing overhead cost pool. Destin
allocates manufacturing overhead costs using direct
manufacturing labor costs. Destin provides the following
information:
4-53
Actual Manufacturing
Overhead Rate
Budgeted Manufacturing
Overhead Costs
Budgeted Direct
Manufacturing Labor
$2,700,000
$1,500,000
= 1.80 or 180%
Actual Manufacturing
Overhead Costs
Actual Direct
Manufacturing Labor
$2,755,000
$1,450,000
2009 Pearson Prentice Hall. All rights reserved.
= 1.90 or 190%
4-54
57,000
$127,000
54,000
$124,000
4-55
Actual manufacturing
=
There
is no
underor costing
labor costs
allocated
under
normal
overallocated overhead under
actual costing because
overhead is allocated under
= $1,450,000
actual costing by multiplying
actual manufacturing labor
= $2,610,000
costs and the actual
manufacturing overhead rate.
=
Underallocated manufacturing
= Actual manufacturing
overhead costs
This, of course
equals the
overhead
actual manufacturing overhead
costs. All actual overhead costs
are allocated to products.
= $2,755,000
Hence, there is no under- or
over allocated overhead.
Budgeted
overhead rate
1.80
Manufacturing
overhead allocated
$2,610,000
= $145,000
4-56
Exercise 4-18
Job costing, normal and actual costing.
Anderson Construction assembles residential
houses. It uses a job-costing system with two
direct-cost categories (direct materials and direct
labor) and one indirect-cost pool (assembly
support).
Direct labor-hours is the allocation base for
assembly support costs. In December 2007,
Anderson budgets 2008 assembly-support costs
to be $8,000,000 and 2008 direct labor hours to
be 160,000.
4-57
4-58
These rate
rates differ
1. Compute the (a) budgeted indirect-cost
and
because both the
(b) actual indirect-cost rate. Why do they
differ?
numerator
and the
denominator in the
two calculations are
Budgeted Indirect
differentone based
Costs
on budgeted
Budgeted Direct numbers and the
Labor Hours
other based on
actual numbers.
$8,000,000
160,000 hours
Actual Indirect
Costs
Actual Direct
Labor Hours
$6,888,000
164,000 hours
4-59
4-60
4-61
4-62
Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
5-63
5-64
Exercise 5-17
ABC, cost hierarchy, service. Plymouth Test
Laboratories does heat testing (HT) and stress
testing (ST) on materials and operates at capacity.
Under its current simple costing system, Plymouth
aggregates all operating costs of $1,280,000 into a
single overhead cost pool.
Plymouth calculates a rate per test-hour of $16
($1,280,000 80,000 total test-hours). HT uses
50,000 test-hours, and ST uses 30,000 test-hours.
5-65
5-66
5-67
5-68
Batch-level costs
c. Setup costs, $385,000
These costs are batch-level costs because they are
incurred each time a batch of materials is set up for
either HT or ST, regardless of the number of hours for
which the tests are subsequently run.
Service-sustaining costs
d. Costs of designing tests, $252,000.
These costs are service-sustaining costs because they
are incurred to design the HT and ST tests, regardless of
the number of batches tested or the number of hours of
test time.
2009 Pearson Prentice Hall. All rights reserved.
5-69
At a2.
cost
per test-hourthe
of $16,
the per
simple
costing system
heat
Calculate
cost
test-hour
forundercosts
HT and ST.
testing ($17.96) and overcosts stress testing ($12.73). The reason is that heat
Explain briefly the reasons why these numbers
testing uses direct labor, setup, and design resources per hour more intensively
than
stress from
testing.the
Heat$16
tests are
complex, take
to set up, and are
differ
permore
test-hour
thatlonger
Plymouth
more difficult to design. The simple costing system assumes that testing costs
using
itstesting
simple
system.
percalculated
hour are the same
for heat
and costing
stress testing.
5-70
5-71
5-72
Problem 5-28
Job costing with single direct-cost category, single
indirect-cost pool, law firm. Wigan Associates is a
recently formed law partnership. Ellery Hanley, the
managing partner of Wigan Associates, has just finished
a tense phone call with Martin Offiah, president of
Widnes Coal. Offiah strongly complained about the price
Wigan charged for some legal work done for Widnes
Coal.
5-73
5-74
5-75
5-76
Problem 5-33
Choosing cost drivers, activity-based costing,
activity-based management. Annie Warbucks runs
a dance studio with childcare and adult fitness
classes. Annies budget for the upcoming year is as
follows:
5-77
Indirect Costs
Supplies, rent, maintenance,
Administration salaries, utilities,
Marketing expenses
5-78
5-79
5-80
5-81
5-82
Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
6-83
Exercises 6-16, 19
Problem 6-26
6-84
Exercise 6-16
Sales budget, service setting. In 2009, McGrath & Sons,
a small environmental-testing firm, performed 11,000 radon
tests for $250 each and 15,200 lead tests for $200 each.
Because newer homes are being built with lead-free pipes,
lead-testing volume is expected to decrease by 10% next
year.
However, awareness of radon-related health hazards is
expected to result in a 5% increase in radon-test volume
each year in the near future. Jim McGrath feels that if he
lowers his price for lead testing to $190 per test, he will
have to face only a 5% decline in lead-test sales in 2010.
6-85
6-86
6-87
Exercise 6-19
Budgeting material purchases. The Mahoney Company
has prepared a sales budget of 45,000 finished units for a
three-month period. The company has an inventory of
16,000 units of finished goods on hand at December 31
and has a target finished goods inventory of 18,000 units at
the end of the succeeding quarter.
6-88
6-89
Problem 6-26
Responsibility and controllability. For each of the
following independent situations: determine where (that is,
with whom) (a) responsibility and (b) controllability
lie. Suggest what might be done to solve the problem or to
improve the situation.
1. A very successful salesman at Amcorp Computers regularly
ignores the published sales catalog and offers lowered prices
to his customers in order to close sales. The VP of sales
notices that revenues are substantially lower than budgeted.
(a) Salesman (b) VP of Sales
Permit the salesman to offer a reasonable discount to
customers, but require that he clear bigger discounts
with the VP. Also, base his bonus/performance
evaluation not just on revenues generated, but also on
margins (or, ability to meet budget).
2009 Pearson Prentice Hall. All rights reserved.
6-90
6-91
6-92
6-93
6-94
6-95
6-96
Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
7-97
7-98
Exercise 7-17
Flexible budget Connor Companys budgeted
prices for direct materials, direct manufacturing
labor, and direct marketing (distribution) labor per
attach case are $40, $8, and $12, respectively.
7-99
Static Budget
$400,000
80,000
120,000
Actual output was 8,800 attach cases. Assume all three direct-cost items
above are variable costs.
7-100
Question:
Is the presidents pleasure justified?
Prepare a revised performance report that uses a
flexible budget and a static budget.
7-101
7-102
7-103
7-104
7-105
Exercise 7-18
7-106
15,000
$ 20
$8
$145,000
12,000
$ 21
$7
$150,000
7-107
7-108
7-109
7-110
7-111
Problem 7-35
Direct manufacturing labor and direct materials
variances, missing data
Morro Bay Surfboards manufactures fiberglass
surfboards. The standard cost of direct materials
and direct manufacturing labor is $100 per board.
This includes 20 pounds of direct materials, at the
budgeted price of $2 per pound, and five hours of
direct manufacturing labor, at the budgeted rate of
$12 per hour.
7-112
7-113
7-114
7-115
7-116
7-117
7-118
Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
8-119
8-120
Exercise 8-17
8-121
8-122
8-123
Exercise 8-19
Fixed manufacturing overhead variance
analysis The French Bread Company also
allocates fixed manufacturing overhead to
products on the basis of standard direct
manufacturing labor-hours.
For 2009, fixed manufacturing overhead was
budgeted at $4.00 per direct manufacturing laborhour.
Actual fixed manufacturing overhead incurred
during the year was $272,000.
2009 Pearson Prentice Hall. All rights reserved.
8-124
8-125
8-126
8-127
For example, monthly leasing rates for baguettemaking machines may have increased above those in
the budget for 2009.
2009 Pearson Prentice Hall. All rights reserved.
8-128
Exercise 8-21
4-variance analysis, fill in the blanks Pandom, Inc.
produces chemicals for large biotech companies. It has the
following data for manufacturing overhead costs during
August 2010:
8-129
Variable MOH
8-130
Fixed MOH
8-131
8-132
8-133
Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
9-134
9-135
Exercise 9-16
Variable and absorption costing, explaining operatingincome differences Nascar Motors assembles and sells
motor vehicles and uses standard costing. Actual data
relating to April and May 2008 are:
9-136
9-137
9-138
9-139
9-140
9-141
Exercise 9-18
Variable and absorption costing, explaining
operating-income differences BigScreen
Corporation manufactures and sells 50-inch
television sets and uses standard costing.
The selling price per unit is $2,500. The budgeted
level of production used to calculate the budgeted
fixed manufacturing cost per unit is 1,000 units.
There are no price, efficiency, or spending
variances.
Any production-volume variance is written off to
cost of goods sold in the month in which it occurs.
2009 Pearson Prentice Hall. All rights reserved.
9-142
9-143
9-144
9-145
9-146
9-147
Exercise 9-21
Absorption and variable costing
Osawa, Inc., planned and actually manufactured 200,000
units of its single product in 2009, its first year of operation.
Variable manufacturing cost was $20 per unit produced.
Variable operating (non-manufacturing) cost was $10 per
unit sold.
Planned and actual fixed manufacturing costs were
$600,000. Planned and actual fixed operating (nonmanufacturing) costs totaled $400,000.
9-148
9-149
Answer: (a)
9-150
(a) $800,000
(b) $440,000
(c) $200,000
(d) $600,000
(e) none of these
9-151
Answer: (c)
9-152
9-153
Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
10-154
10-155
Problem 10-17
Identifying variable-, fixed-, and mixed-cost
functions
The Pacific Corporation operates car
rental agencies at more than 20 airports.
Customers can choose from one of three contracts
for car rentals of one day or less:
Contract 1: $50 for the day
Contract 2: $30 for the day plus $0.20 per mile
traveled
Contract 3: $1 per mile traveled
2009 Pearson Prentice Hall. All rights reserved.
10-156
10-157
10-158
10-159
Exercise 10-18
Various cost-behavior patterns Select the graph
that matches the numbered manufacturing cost
data. Indicate by letter which graph best fits the
situation or item described.
The vertical axes of the graphs represent total cost, and the horizontal
axes represent units produced during a calendar year. In each case,
the zero point of dollars and production is at the intersection of the two
axes. The graphs may be used more than once.
10-160
1.
Annual depreciation of
equipment, where the
amount of depreciation
charged is computed by
the machine-hours method.
10-161
10-162
10-163
10-164
10-165
7. Salaries of repair
personnel, where one
person is needed for
every 1,000 machinehours or less (that is, 0 to
1,000 hours requires one
person, 1,001 to 2,000
hours requires two people,
and so on)
10-166
10-167
Exercise 10-19
Matching graphs with descriptions of cost
and revenue behavior
The horizontal axis represents the units
produced over the year and the vertical axis
represents total cost or revenues.
10-168
b. Supervisors salaries
for one shift and two
shifts
10-169
c. A cost-volume-profit
graph
d. Mixed costsfor
example, car rental fixed
charge plus a rate per
mile driven
10-170
e. Depreciation of plant,
computed on a straightline basis
10-171
h. Interest expense on $2
million borrowed at a
fixed rate of interest
10-172
10-173
Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
11-174
11-175
Exercise 11-21
Inventory decision, opportunity costs. Lawnox, a
manufacturer of lawn mowers, predicts that it will purchase
240,000 spark plugs next year. Lawnox estimates that
20,000 spark plugs will be required each month.
11-176
11-177
11-178
Column (3) indicates that purchasing 20,000 spark plugs at the beginning of
each month is preferred relative to purchasing 240,000 spark plugs at the
beginning of the year because the opportunity cost of holding larger inventory
exceeds the lower purchasing and ordering costs.
Exercise 11-23
Selection of most profitable product BodyBuilders, Inc., produces two basic types of
weightlifting equipment, Model 9 and Model 14.
11-180
Pertinent data
11-181
11-182
Problem 11-33
Product Mix, special order
Pandleton engineering operations. It makes
two types of tools: R3, a regular cutting tool,
and HP6, a high-precision cutting tool. R3 is
manufactured on a regular machine, but HP6
must be manufactured on both the regular
machine and a high-precision machine.
11-183
Selling Price
Variable Manufacturing Cost Per Unit
Variable Marketing Cost Per Unit
Budgeted Total Fixed Overhead Cost
Hours Required to Produce One Unit on the Regular Machine
R3
$
100
$
60
$
15
$350,000
1.0
HP6
$
150
$
100
$
35
$550,000
0.5
11-184
11-185
11-186
11-187
the extra
capacity
Pendletonbyshould
its entire
IfWith
capacity
of the
regularavailable
machinestoisit,increased
15,000use
machinecapacity
to produce
HP6. Using(50,000
all 65,000
hours of
capacity
to the net
hours
to 65,000
machine-hours
originally
+ 15,000
new),
producebenefit
HP6 rather
to produce
R3HP6
generates
additional
relevant
fromthan
producing
R3 and
is as follows:
contribution margin of $325,000 ($1,950,000 $1,625,000) which is
more than the additional cost of $300,000 to lease the high-precision
machine.
Pendleton should
therefore produce and sell
130,000 units of HP6
(65,000 hours 0.5 hours
per unit of HP6) and zero
units of R3.
11-188
11-189
11-190
11-191
11-192
Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
12-193
12-194
Exercise 12-17
Relevant-cost approach to short-run pricing decisions The San
Carlos Company is an electronics business with eight product lines.
Income data for one of the products (XT-107) for June 2009 are:
12-195
Additional information
Abrams, Inc., an instruments company, has a problem with
its preferred supplier of XT-107 components.
This supplier has had a three-week labor strike. Abrams
approaches the San Carlos sales representative, Sarah
Holtz, about providing 3,000 units of XT-107 at a price of
$75 per unit. Holtz informs the XT-107 product manager,
Jim McMahon, that she would accept a flat commission of
$8,000 rather than the usual 15% of revenues if this special
order were accepted.
San Carlos has the capacity to produce 300,000 units of
XT-107 each month, but demand has not exceeded
200,000 units in any month in the past year.
12-196
12-197
12-198
12-199
Pricing decisions
Whether McMahons decision to quote full price is correct
depends on many factors.
He is incorrect if the capacity would otherwise be idle and if his
objective is to increase operating income in the short run. If the
offer is rejected, San Carlos, in effect, is willing to invest $49,000
in immediate gains forgone (an opportunity cost) to preserve the
long-run selling-price structure.
McMahon is correct if he thinks future competition or future price
concessions to customers will hurt San Carloss operating
income by more than $49,000.
There is also the possibility that Abrams could become a longterm customer. In this case, is a price that covers only short-run
variable costs adequate?
Would Holtz be willing to accept a $8,000 sales commission (as
distinguished from her regular $33,750 = 15% $225,000) for
every Abrams order of this size if Abrams becomes a long-term
customer?
2009 Pearson Prentice Hall. All rights reserved.
12-200
Exercise 12-18
Short-run pricing, capacity constraints Vermont
Hills Dairy, maker of specialty cheeses, produces
a soft cheese from the milk of Holstein cows raised
on a special corn-based diet.
One kilogram of soft cheese, which has a
contribution margin of $8, requires 4 liters of milk.
A well-known gourmet restaurant has asked
Vermont Hills to produce 2,000 kilograms of a hard
cheese from the same milk of Holstein cows.
12-201
Additional information
The dairy has sufficient unused capacity. Elise
Princiotti, owner of Vermont Hills, calculates the
costs of making one kilogram of the desired hard
cheese:
12-202
12-203
12-204
12-205
Exercise 12-22
Target costs, effect of product-design changes on
product costs.
Medical Instruments uses a manufacturing costing system
with one direct-cost category (direct materials) and three
indirect-cost categories:
12-206
More information
Medical Instruments used value-engineering
techniques to reduce manufacturing costs.
Actual information for 2008 and 2009 is:
12-207
12-208
12-209
12-210
12-211
12-212
Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
13-213
13-214
Exercise 13-16
Balanced scorecard La Quinta Corporation
manufactures corrugated cardboard boxes. It
competes and plans to grow by selling high-quality
boxes at a low price and by delivering them to
customers quickly after receiving customers
orders. There are many other manufacturers who
produce similar boxes.
La Quinta believes that continuously improving its
manufacturing processes and having satisfied
employees are critical to implementing its strategy
in 2009.
2009 Pearson Prentice Hall. All rights reserved.
13-215
13-216
13-217
13-218
CUSTOMER
PERSEPCTIVE
Customer satisfaction
Productivity
INTERNALBUSINESSPROCESS
PERSEPCTIVE
LEARNING-ANDGROWTH
PERSEPCTIVE
On-time
delivery
Employeesatisfaction
ratings
Operating
income from
productivity
gain
Number of
new customers
Operating income
from growth
Market share in
corrugated boxes
market
Quality
Number of major
improvements in
manufacturing
process
Percentage of employees
trained in process
and quality management
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Customer Perspective
(1) Market share in corrugated boxes market
(2) New customers
(3) Customer satisfaction index
(4) Customer retention
(5) Time taken to fulfill customer orders.
The logic is that improvements in these customer measures are leading
indicators of whether La Quintas cost leadership strategy is succeeding with its
customers and helping it to achieve superior financial performance.
2009 Pearson Prentice Hall. All rights reserved.
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13-221
Exercise 13-18
Strategy, balanced scorecard,
merchandising operation
Oceano & Sons buys T-shirts in bulk,
applies its own trendsetting silk-screen
designs, and then sells the T-shirts to a
number of retailers. Oceano wants to be
known for its trendsetting designs, and it
wants every teenager to be seen in a
distinctive Oceano T-shirt.
2009 Pearson Prentice Hall. All rights reserved.
13-222
More information
Administrative costs depend on the number of
customers that Oceano has created capacity to
support, not on the actual number of customers
served. Oceano had 3,600 customers in 2008 and
3,500 customers in 2009.
At the start of each year, management uses its
discretion to determine the number of employees
on the design staff for the year. The design staff
and its costs have no direct relationship with the
number of T-shirts purchased and sold or the
number of customers to whom T-shirts are sold.
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More elements
Internal Business Process Perspective
(1)
Quality of silk-screening (number of colors, use of glitter,
durability of the design), (2) frequency of new designs, (3) time between
concept and delivery of design
Improvements in these measures are expected to result in more
distinctive and trendsetting designs delivered to its customers and in
turn, superior financial performance.
Learning and Growth Perspective
(1) Ability to attract and retain talented designers (2) improvements in
silk-screening processes, (3) continuous education and skill levels of
marketing and sales staff, (4) employee satisfaction.
Improvements in these measures are expected to improve Oceanos
capabilities to produce distinctive designs that have a cause-and-effect
relationship with improvements in internal business processes, which in
turn lead to customer satisfaction and financial performance.
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Problem 13-37
Partial productivity measurement Guble Company
manufactures wallets from fabric. In 2008, Guble made
2,500,000 wallets using 1,875,000 yards of fabric. In 2009,
Guble plans to make 2,650,000 wallets and wants to make
fabric use more efficient. At the same time, Guble wants to
reduce capacity; capacity in 2008 was 3,000,000 wallets at
a total cost of $9,000,000. Guble wants to reduce capacity
to 2,800,000 wallets, at a total cost of $8,680,000 in 2009.
Suppose that in 2009 Guble makes 2,650,000 wallets, uses
1,669,500 yards of fabric, and reduces capacity to
2,800,000 units and costs to $8,680,000.
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Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
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Exercise 14-16
Cost allocation in hospitals, alternative allocation
criteria Dave Meltzer vacationed at Lake Tahoe last winter.
Unfortunately, he broke his ankle while skiing and spent
two days at the Sierra University Hospital. Meltzers
insurance company received a $4,800 bill for his two-day
stay. One item that caught Meltzers attention was an
$11.52 charge for a roll of cotton. Meltzer is a salesman for
Johnson & Johnson and knows that the cost to the hospital
of the roll of cotton is in the $2.20 to $3.00 range.
Meltzer believes the overhead charge is obscene. He
comments, There was nothing I could do about it.
When they come in and dab your stitches, its not as if you
can say, Keep your cotton roll. I brought my own.
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$2.40
$9.12 ( $11.52 $2.40 )
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Exercise 14-18
14-240
More information
Partial income statement for 2008:
14-241
In Addition:
Total fixed overhead costs for 2008 was
$14,550,000.
You are told that you may choose to allocate
indirect costs based on one of the following:
direct costs, or square feet, or the number of
employees.
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Continued
The decision context should guide
(a)whether costs should be allocated, and
(b) the preferred cost allocation base
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Exercise 14-28
Cost allocation to divisions Forber Bakery makes baked
goods for grocery stores, and has three divisions: Bread,
Cake, and Doughnuts. Each division is run and evaluated
separately, but the main headquarters incurs costs that are
indirect costs for the divisions. Costs incurred in the main
headquarters are:
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Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
15-256
15-257
Exercise 15-18
Dual-rate method, budgeted versus actual costs, and
practical capacity versus actual quantities (continuation
of 15-17). Chocolat, Inc. decides to examine the effect of
using the dual-rate method for allocating truck costs to each
round-trip.
At the start of 2009, the budgeted costs were:
Variable cost per round-trip $ 1,500
Fixed costs
$40,000
The actual results for the 45 round-trips made in 2009 were:
Variable costs
$60,750
Fixed costs
$36,000
Total
$96,750
Assume all other information to be the same as in Exercise
15-17.
2009 Pearson Prentice Hall. All rights reserved.
15-258
15-259
When budgeted rates and actual trips are used for allocation (see
requirement 1.b. of problem 15-17), the Dark Chocolate Division is
assigned the same $24,000 for fixed costs as under the dual-rate
method because it made the same number of trips as budgeted.
However, note that the Milk Chocolate Division is allocated $16,000
in fixed trucking costs under the dual-rate system, compared to
$800 15 actual trips = $12,000 when actual trips are used for
allocation.
As such, the Dark Chocolate Division is not made to appear
disproportionately more expensive than the Milk Chocolate Division
simply because the latter did not make the number of trips it
budgeted at the start of the year.
2009 Pearson Prentice Hall. All rights reserved.
15-260
Exercise 15-19
Support-department cost allocation; direct and
step-down methods. Phoenix Partners provides
management consulting services to government
and corporate clients. Phoenix has two support
departmentsAdministrative Services (AS) and
Information Systems (IS)and two operating
departmentsGovernment Consulting (GOVT)
and Corporate Consulting (CORP).
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a. Direct method
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15-267
Exercise 15-22
Reciprocal cost allocation (continuation
of 15-21)
Consider E-books again. The controller of E-books
reads a widely used textbook that states that the
reciprocal method is conceptually the most
defensible. He seeks your assistance.
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Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
16-274
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Exercise 16-18
Net realizable value method Convad Company is one of
the worlds leading corn refiners. It produces two joint
productscorn syrup and corn starchusing a common
production process.
In July 2009, Convad reported the following production and
selling-price information:
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Exercise 16-19
Alternative joint-cost-allocation methods, furtherprocess decision.
The Wood Spirits Company produces two products
turpentine and methanol (wood alcohol)by a joint process.
Joint costs amount to $120,000 per batch of output. Each
batch totals 10,000 gallons: 25% methanol and 75%
turpentine. Both products are processed further without
gain or loss in volume.
Separable processing costs are methanol, $3 per gallon;
turpentine, $2 per gallon. Methanol sells for $21 per gallon.
Turpentine sells for $14 per gallon.
2009 Pearson Prentice Hall. All rights reserved.
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4.
The company has discovered an additional process by
which the methanol (wood alcohol) can be made into a
pleasant-tasting alcoholic beverage. The selling price of
this beverage would be $60 a gallon.
Additional processing would increase separable costs $9
per gallon (in addition to the $3 per gallon separable cost
required to yield methanol). The company would have to
pay excise taxes of 20% on the selling price of the
beverage.
Assuming no other changes in cost, what is the joint cost
applicable to the wood alcohol (using the NRV method)?
Should the company produce the alcoholic beverage?
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Problem 16-27
Alternative methods of joint-cost allocation, productmix decisions The Sunshine Oil Company buys crude
vegetable oil. Refining this oil results in four products at the
splitoff point: A, B, C, and D. Product C is fully processed
by the splitoff point. Products A, B, and D can individually
be further refined into Super A, Super B, and Super D. In
the most recent month (December), the output at the
splitoff point was:
Product A 300,000 gallons
Product B, 100,000 gallons
Product C, 50,000 gallons
Product D, 50,000 gallons
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Product A, $50,000
Product B, $30,000
Product C, $70,000
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b. Physical-measure
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c. NRV
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SOLUTION EXHIBIT
Revenues at Splitoff
and Separable Costs
Joint Costs
A, 300000 gallons
Revenue = $50000
B, 100000 gallons
Revenue = $30000
Processing
$100000
Processing
$200000
Super A
$300000
Processing
$80000
Super B
$100000
Processing
$90000
Super D
$120000
C, 50000 gallons
Revenue = $50000
D, 50000 gallons
Revenue = $70000
Splitoff
Point
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Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
17-295
Exercises 17-19, 20
Problem 17-21
17-296
Exercise 17-19
Weighted-average method, equivalent units. Consider the
following data for the Assembly Division of Fenton Watches, Inc.:
The Assembly Division uses the weighted-average method of
process costing.
17-297
in
Physical
Units
STEP 2:
Compute
Output in
Equivalent
Units
2009 Pearson Prentice Hall. All rights reserved.
17-298
Exercise 17-20
Weighted-average method, assigning costs (17-19 continued).
For the data in Exercise 17-19, summarize total costs to account
for, calculate cost per equivalent unit for direct materials and
conversion costs, and assign total costs to units completed
(and transferred out) and to units in ending work in process.
STEP 3:
Summariz
e Total
Costs to
STEP
4:
Account
Compute
For
STEPper
5:
Cost
Assign
Equivalen
Total Costs
t Unit
to
Units
Completed
and to
Units in
Ending
Work in
Process
2009 Pearson Prentice Hall. All rights reserved.
17-299
Exercise 17-21
FIFO method, equivalent units. Refer to 17-19. Suppose the
Assembly Division at Fenton Watches, Inc., uses the FIFO method
of process costing instead of the weighted-average method.
Compute equivalent units for direct materials and conversion
costs. Show physical units in the first column of your schedule.
STEP 1:
Summarize
Output in
Physical
Units
STEP 2:
Compute
Equivalent
Units done
in current
period
2009 Pearson Prentice Hall. All rights reserved.
17-300
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Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
18-302
18-303
Exercise 18-16
Normal and abnormal spoilage in units The
following data, in physical units, describe a
grinding process for January:
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12,000
6,600
5,400
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$ 54,000
66,000
$120,000
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Exercise 18-21
Weighted-average method, spoilage Appleton
Company makes wooden toys in its Forming
Department, and it uses the weighted-average
method of process costing. All direct materials are
added at the beginning of the process, and
conversion costs are added evenly during the
process.
Spoiled units are detected upon inspection at the
end of the process and are disposed of at zero net
disposal value.
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More information
Summary data for August 2009 are:
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Exercise 18-23
Recognition of loss from spoilage Arokia
Electronics manufactures cell phone models in its
Walnut Creek plant. Suppose the company
provides you with the following information
regarding operations for September 2009:
Total cell phones manufactured
10,000
Phones rejected as spoiled units
500
Total manufacturing cost
$209,000
Assume the spoiled units have no disposal value.
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$10,450
$10,450
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Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
20-319
20-320
Exercise 20-18
EOQ for a retailer The Cloth Center sells fabrics
to a wide range of industrial and consumer users.
One of the products it carries is denim cloth, used
in the manufacture of jeans and carrying bags. The
supplier for the denim cloth pays all incoming
freight. No incoming inspection of the denim is
necessary because the supplier has a track record
of delivering high-quality merchandise.
The purchasing lead time is 2 weeks. The Cloth
Center is open 250 days a year (50 weeks for 5
days a week).
2009 Pearson Prentice Hall. All rights reserved.
20-321
20,000 yards
$160
20% of purchase costs
Safety-stock requirements
Cost of denim cloth
None
$8 per yard
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Exercise 20-20
Sensitivity of EOQ to changes in relevant ordering and
carrying costs Alyia Companys annual demand for
Model X253 is 10,000 units. Alyia is unsure about the
relevant carrying cost per unit per year and the relevant
ordering cost per purchase order. This table presents six
possible combinations of carrying and ordering costs.
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Exercise 20-32
Supply chain effects on total relevant inventory
cost Cow Spot Computer Co. outsources the
production of motherboards for its computers.
It has narrowed down its choice of suppliers to two
companies: Maji and Induk. Maji is an older
company with a good reputation, while Induk is a
newer company with cheaper prices.
Given the difference in reputation, 5% of the
motherboards will be inspected if they are
purchased from Maji, but 25% of the motherboards
will be inspected if they are purchased from Induk.
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Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
21-334
21-335
Exercise 21-20
Capital budgeting with uneven cash flows, no income
taxes. Southern Cola is considering the purchase of a
special-purpose bottling machine for $23,000. It is
expected to have a useful life of 4 years with no terminal
disposal value. The plant manager estimates the following
savings in cash operating costs:
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Exercise 21-24
New equipment purchase, income taxes. Annas
Bakery plans to purchase a new oven for its store. The
oven has an estimated useful life of 4 years. The
estimated pretax cash flows for the oven are as shown in
the table that follows, with no anticipated change in
working capital. Annas Bakery has a 12% after-tax
required rate of return and a 40% income tax rate.
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Exercise 21-29
DCF, sensitivity analysis, no income taxes. (CMA, adapted)
Landom Corporation is an international manufacturer of
fragrances for women. Management at Landom is considering
expanding the product line to mens fragrances.
From the best estimates of the marketing and production
managers, annual sales (all for cash) for this new line is
1,000,000 units at $25 per unit; cash variable cost is $10 per
unit; cash fixed costs is $5,000,000 per year. The investment
project requires $30,000,000 of cash outflow and has a project
life of 5 years. At the end of the five-year useful life, there will be
no terminal disposal value.
Assume all cash flows occur at year-end except for initial
investment. Mens fragrance is a new market for Landom,
management is concerned about the reliability of estimates. The
controller has proposed applying sensitivity analysis to selected
factors. Ignore income taxes in your computations. Landoms
required rate of return on this project is 14%.
2009 Pearson Prentice Hall. All rights reserved.
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Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
22-352
22-353
Exercise 22-20
Transfer-pricing methods, goal congruence.
British Columbia Lumber has a Raw Lumber
Division and a Finished Lumber Division. The
variable costs are:
Raw Lumber Division: $100 per 100 board-feet
of raw lumber
Finished Lumber Division: $125 per 100 boardfeet of finished lumber
Assume that there is no board-feet loss in
processing raw lumber into finished lumber.
Raw lumber can be sold at $200 per 100 boardfeet. Finished lumber can be sold at $275 per 100
board-feet.
2009 Pearson Prentice Hall. All rights reserved.
22-354
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22-356
Since the Raw Lumber Division will be indifferent between selling the
3. Assume
internal
are made
at market
lumber
in raw orthat
finished
form, ittransfers
would be willing
to maximize
division
operating
by selling
raw lumber,
whichits
is operating-income
the action preferred by
prices.income
Will each
division
maximize
the company as a whole. The Finished Lumber Division will maximize
contribution by adopting the action that is in the best
division operating income by not further processing raw lumber and this is
interest
Columbia
as a at
whole?
preferred
byof
theBritish
company
as a whole.Lumber
Thus, transfer
market price will
result in division actions that are also in the best interest of the company as
Transfer price at market price = $200 per 100 board feet.
a whole.
22-357
Exercise 22-23
Multinational transfer pricing, global tax minimization.
The Mornay Company manufactures telecommunications
equipment at its plant in Toledo, Ohio. The company has
marketing divisions throughout the world. A Mornay
marketing division in Vienna, Austria, imports 1,000 units of
Product 4A36 from the United States. The following
information is available:
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Problem 22-35
Transfer pricing, goal congruence, ethics. Whengon
Manufacturing makes electronic hearing aids. Department A
manufactures 10,000 units of part HR-7 and Department B uses
this part to make the finished product.
HR-7 is a specific part for a patented product that cannot be
purchased or sold outside of Whengon, so there is no outside
demand for this part. Variable costs of making HR-7 are $12 per
unit. Fixed costs directly traced to HR-7 equal $30,000.
Upper management has asked the two departments to negotiate
a transfer price for HR-7. The manager of Department A, Henry
Lasker, is worried that Department B will insist on using variable
cost as the transfer price because Department A has excess
capacity. Lasker asks Joe Bedford, his management accountant,
to show more costs as variable costs and fewer costs as fixed
costs. Lasker says, There are gray areas when distinguishing
between fixed and variable costs. I think the variable cost of
making HR-7 is $14 per unit.
2009 Pearson Prentice Hall. All rights reserved.
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Cost Accounting
A Managerial Emphasis
thirteenth edition
Charles T. Horngren
Srikant M. Datar
George Foster
Madhav Rajan
Christopher Ittner
23-367
23-368
Exercise 23-21
Goal incongruence and ROI. Bleefl Corporation manufactures
furniture in several divisions, including the Patio Furniture
division. The manager of the Patio Furniture division plans to
retire in two years. The manager receives a bonus based on the
divisions ROI, which is currently 11%. One of the machines that
the Patio Furniture division uses to manufacture the furniture is
rather old, and the manager must decide whether to replace it.
The new machine would cost $30,000 and would last 10 years. It
would have no salvage value. The old machine is fully depreciated
and has no trade-in value. Bleefl uses straight-line depreciation
for all assets. The new machine, being new and more efficient,
would save the company $5,000 per year in cash operating costs.
The only difference between cash flow and net income is
depreciation. The internal rate of return of the project is
approximately 11%. Bleefl Corporations weighted average cost of
capital is 6%. Bleefl is not subject to any income taxes.
2009 Pearson Prentice Hall. All rights reserved.
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23-370
2. Assume that investment is defined as average net longterm assets after depreciation. Compute the projects ROI for
each of its first five years. If the Patio Furniture manager
wants to maximize his bonus, would he replace the machine
before he retires?
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Exercise 23-29
Evaluating managers, ROI, DuPont method,
value-chain analysis of cost structure. Peach
Computer Corporation is the largest personal
computer company in the world. The CEO of
Peach is retiring, and the board of directors is
considering external candidates to fill the
position. The boards top two choices are CEOs
Peter Diamond (current CEO of NetPro) and
Norma Provan (current CEO of On Point). As a
board member on the search committee, you
collect the following information (in millions):
2009 Pearson Prentice Hall. All rights reserved.
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Exercise 23-35
Ethics, managers performance evaluation. Hamilton
Semiconductors manufactures specialized chips that sell
for $20 each. Hamiltons manufacturing costs consist of
variable cost of $2 per chip and fixed costs of
$9,000,000. Hamilton also incurs $400,000 in fixed
marketing costs each year.
Hamilton calculates operating income using absorption
costingthat is, Hamilton calculates manufacturing cost
per unit by dividing total manufacturing costs by actual
production. Hamilton costs all units in inventory at this
rate and expenses the costs in the income statement at
the time when the units in inventory are sold. Next year,
2011, appears to be a difficult year for Hamilton. It
expects to sell only 500,000 units. The demand for these
chips fluctuates considerably, so Hamilton usually holds
minimal inventory.
2009 Pearson Prentice Hall. All rights reserved.
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