Deck 1: B: Basic Cost Management Concepts

Question 1

Why has time become such an important factor in competition?

Answer 1

Reducing the time that it takes to act means that companies are able to respond to customers and suppliers more quickly.It fosters adaptability and the ability to respond to changing demands.Reducing time is accomplished by reducing waste and non-value-added activities.Reducing activities and waste lowers cost and builds competitive advantage.

Question 2

Describe a cost management information system,its objectives,and major subsystems.

Answer 2

The cost management information system is an accounting information subsystem that is primarily concerned with producing outputs for internal users using inputs and processes needed to satisfy management objectives.The objectives are as follows: 1. To provide information for costing aut services, products, and ather objects of interest to management.
2. To provide information for planning and control.
3. Ta provide information for decision maloing. The major subsystems of a cost management information system are the cost accounting information system and the operational control information system.

Question 3

In choosing a cost management system,the controller must balance the total costs of implementing such systems.What costs must be balanced to determine total cost? How do functional-based and activity-based cost systems balance the trade-offs?

Answer 3

Error costs and measurement costs must be considered in choosing a cost management system.Activity-based cost management has greater measurement costs due to analyzing many activities but has greater accuracy and fewer error costs.Functional-based cost systems have lower measurement costs but higher error costs.Controllers must assess the need for accuracy in costing,pricing,and managing profitability.

Question 4

Contrast the role of the financial vice president,the controller,and the treasurer.

Question 5

What is the role of the controller in an organization? Describe some of the activities over which he or she has control.

Question 6

Describe the connection between planning,controlling,and feedback.

Question 7

Explain the differences between direct tracing,driver tracing,and allocation.

Question 8

Identify and discuss the factors that are affecting the way cost accounting is practised.

Question 9

Discuss four factors that are changing the way we manufacture.

Question 10

Give some examples of reporting feedback that will assist in continuous improvement of a dry cleaning company.

Question 11

Define activity-based management.In your answer,present the activity-based management model in good form.

Question 12

What are the two major subsystems of the cost management system and why are they important?

Question 13

Briefly discuss the relationship between cost accounting,management accounting,and cost management.

Question 14

What is the difference between a staff position and a line position?

Question 15

Discuss the advances of information technology and how these advances might affect the university education supply chain.

Question 16

What is customer orientation? Why is it important in a global environment? What role does cost management play in serving customers?

Question 17

Explain the relationship between the financial accounting system and the cost management system.

Question 18

Information from the records of the Fisher Enterprises for the month of March is as follows:
$\begin{array}{lr}\text { Purchases of direct materials } & \$ 54,000 \\\text { Indirect labour } & 15,000 \\\text { Direct labour } & 31,200 \\\text { Depreciation on machinery } & 9,000 \\\text { Sales } & 165,900 \\\text { Selling and administrative expenses } & 18,900 \\\text { Rent on factory building } & 21,000\end{array}$ $$\begin{array} { l r r } && \underline { \text { Irventaries } } \\ &\underline { \text { March } 1 }& \underline {\text { March } 31} \\\text { Direct materials } &\$24,000&\$26,100\\\text { Wark in pracess } & 6,300 & 9,600 \\\text { Finished goods } & 15,000 & 17,100\end{array}$$
a.Prepare a statement of cost of goods manufactured for the month of March.
b.Prepare an income statement for the month of March.
c.Determine prime and conversion costs.

Question 19

How has the nature of accounting systems shifted in response to technology?

Question 20

Big Foot Athletics designs and manufactures running shoes.A new model of shoes,Fast Track,has been developed and is ready for production.
Which costs will the production manager collect from the value chain,and how would these costs be used in different decisions?
a.traditional product costs
b.operating product costs
c.value-chain product costs

Question 21

Describe several of the major differences between a functional-based cost management system and an activity-based cost management system.

Question 22

Explain what is meant by confidentiality and why it is important.

Question 23

Home Designs Company designs decks,gazebos,and play equipment for residential homes.The following was provided for the year ended June 30:
$\begin{array}{llr} \text { Direct labour } &\$600,000\\ \text { Direct material purchases } &40,000\\ \text { Administrative} &130,000\\ \text {Overhead. } &75,000\\ \text { Selling } &265,000\\ \text { Beginning direct materials inventory } &20,000\\ \text { Beginning designs in process } &14,000\\ \text { Ending direct materials inventory} &10,000\\ \text { Ending designs in process } &39,000\\\end{array}$
The average design fee is $700.There were 2,000 designs processed during the year.
a.Prepare a statement of cost of services sold.
b.Prepare an income statement.
c.Discuss three differences between services and tangible products.

Question 24

Discuss how the goal of profit maximization is affected by ethical considerations.What incentives are there for managers to manipulate accounting data in unethical ways in order to increase profits?

Question 25

You are a management accountant for the Eugene Division of Lowden Company.Your long-time friend,David Orth,is the Eugene Division manager.David was instrumental in helping you obtain your current position.Because the manager's annual bonus is based on the amount of profit the Eugene Division reports for the year,David has asked you to "massage the numbers" to make the Eugene Division appear more profitable.
Considering the Standards of Ethical Conduct for Management Accountants,how would you respond to David Orth's request?

Question 26

Hoiberg Corporation incurred the following costs:
$\begin{array}{llr} \text { Direct labour } &\$600,000\\ \text {Direct material purchases } &555,000\\ \text { Depreciation on plant } &30,000\\ \text { Factory supervisor's salary } &75,000\\ \text { Plant maintenance } &15,000\\ \text {Plant utilities } &27,000\\ \text {Sales } &1,950,000\\ \text { Selling and administrative expenses } &300,000\\ \text { Beginning direct materials inventory } &51,000\\ \text { Beginning work-in-process inventory } &24,000\\ \text {Beginning finished goods inventory } &54,000\\ \text { Ending direct materials inventory } &45,000\\ \text { Ending work in process} &39,000\\ \text { Ending finished goods } &72,000\\\end{array}$
Calculate the following values:
a.Direct materials used
b.Cost of goods manufactured
c.Cost of goods sold
d.Net income

Question 27

The cost of goods sold for the Tricky Corporation for the month of June was $450,000.Work-in-process inventory at the end of June was 95 percent of the work-in-process inventory at the beginning of the month.Overhead is 80 percent of the direct labour cost.During the month,$110,000 of direct materials were purchased.Revenues for Tricky were $600,000,and the selling and administrative costs were $70,000.Other information about Tricky's inventories and production for June was as follows:
$\text { Ending inventories -June } 30$
$\begin{array}{lr}\text { Direct materials } & \$ 19,000 \\\text { Work in process } & \\\text { Finished goods } & 105,000\end{array}$

$\text { Beginning inventories - June } 1$
$\begin{array}{lr}\text { Direct materials } & \$ 22,200 \\\text { Work in process } & 40,000 \\\text { Finished goods } & 208,500\end{array}$
a.Prepare a cost of goods manufactured and cost of goods sold statements.
b.Prepare an income statement.
c.What are the prime costs,conversion costs,and period costs?

Question 28

Best Corporation incurred the following costs:
$\begin{array}{llr} \text { Beginning direct materials inventory } &\$17,000\\ \text { Beginning work-in-piocess inventory } &8,000\\ \text {Beginning finished goods inventory } &18,000\\ \text {Ending direct materials inventory } &15,000\\ \text { Ending work in process } &13,000\\ \text { Ending finished goods } &24,000\\\text { Factory supervisor's salary } & 25,000 \\\text { Depreciation on plant } & 10,000 \\\text { Sales } & 650,000 \\\text { Selling and administrative expenses } & 100,000 \\\text { Plant maintenance } & 5,000 \\\text { Plant utilities } & 9,000 \\\text { Direct material purchases } & 185,000 \\\text { Direct labour } & 200,000\end{array}$
Calculate the following values:
a.Direct materials used
b.Cost of goods manufactured
c.Cost of goods sold
d.Net income

Question 29

Discuss the three forms of accounting certification.Which form of certification do you believe is best for management accountants? Why?

Question 30

You are a management accountant for Burn's Corporation.Ruth Hamilton,the sales representative for one of Burn's suppliers,invited you to attend a professional sporting event.Because you are an avid sports fan,you accepted Ruth's invitation.
At the sporting event,Ruth begins talking about Burn's upcoming contract renewals with suppliers.Because there is intense competition and because it is the first bid she will submit to Burn's Corporation,she asks you to review her bid to make sure "it is good enough" before she submits it to the company.In addition,because you are knowledgeable about costs,especially regarding this contract,she asks you to tell her if her bid is "in the ballpark" or "needs improvement." She indicates that if she wins the contract,you will be provided with season tickets for the rest of the year.
Considering the Standards of Ethical Conduct for Management Accountants,how would you respond to Ruth's request?

Question 31

What can a company do to increase the likelihood of its employees being ethical in all their undertakings?

Question 32

Information about Carter Company for the year ending December 31,is as follows:
Ending direct materials is 20 percent larger than beginning direct materials.Ending work in process is half of the beginning work in process.Ending finished goods increased by $8,000 during the year.Prime costs and conversion costs are 70 percent and 60 percent of total manufacturing costs added,respectively.Materials purchases are $113,200.
a.Prepare a statement of cost of goods manufactured.
b.Prepare an income statement.
Note: Find the numbers for the income statement first.