Question 1

Flexible Budgets
A chair manufacturer has established the following flexible budget for the month.  Required:
a. What is the sales price per chair?
b. What is the expected profit if 1,600 chairs are made?

Accepted Answer

The answer of Flexible Budgets
A chair manufacturer has established the...

Question 2

Responsibility Centers
The Maple Way Golf Course is a private club that is owned by the members. It has the following managers and organizational structure:
Eric Olson: General manager responsible for all the operations of the golf course and other facilities (swimming pool, restaurant, golf shop).
Jennifer Jones: Manager of the golf course and responsible for its maintenance.
Edwin Moses: Manager of the restaurant.
Mabel Smith: Head golf professional and responsible for golf lessons, the golf shop, and reserving times for starting golfers on the course.
Wanda Itami: Manager of the swimming pool and family recreational activities.
Jake Reece: Manager of golf carts rented to golfers.
Describe each of the managers in terms of being responsible for a cost, profit, or investment center and possible performance measures for each manager.

Accepted Answer

The answer of Responsibility Centers
The Maple Way Golf Course is...

Question 3

Transfer Prices and Divisional Profit
A chair manufacturer has two divisions: framing and upholstering. The framing costs are $100 per chair and the upholstering costs are $200 per chair. The company makes 5,000 chairs each year, which are sold for $500.
Required:
a. What is the profit of each division if the transfer price is $150?
b. What is the profit of each division if the transfer price is $200?

Accepted Answer

The answer of Transfer Prices and Divisional Profit
A chair manufacturer...

Question 4

Job Cost Flows
The job cost sheet for 1,000 units of toy trucks is:  All of the materials for the job were purchased on 4/10. The batch of 1,000 toy trucks is sold on 7/10.
What are the costs of this job order in the raw materials account, the work-in-process account, the finished goods account, and the cost of goods account on 4/30, 5/31, 6/30 and 7/31?

Accepted Answer

The answer of Job Cost Flows
The job cost sheet for...

Question 5

Pro-Forma Financial Statements
The Gold Bay Hotel is in the process of developing a master budget and pro-forma financial statements for 1999. The beginning balance sheet for the fiscal year 1999 is estimated to be:  During the year the hotel expects to rent 30,000 rooms. Rooms rent for an average of $90 per night. The hotel expects to sell 40,000 meals during the year at an average price of $20 per meal. The variable cost per room rented is $30 and the variable cost per meal is $8. The fixed costs not including depreciation is expected to be $2,000,000. Depreciation is expected to be $500,000. The hotel also expects to refurbish the kitchen at a cost of $200,000, which is capitalized (included in the facility account). Interest of the note payable is expected to be $50,000 and $100,000 of the note payable will be retired during the year. The ending accounts receivable amount is expected to be $40,000 and the ending accounts payable is expected to be $30,000.
Prepare pro-forma financial statements for the end of the year.

Accepted Answer

The answer of Pro-Forma Financial Statements
The Gold Bay Hotel is...

Question 6

Cost Allocation and Contingency Fees
A lawyer allocates overhead costs based on his hours working with different clients. The lawyer expects to have $200,000 in overhead during the year and expects to work on clients' cases 2,000 hours during the year. In addition he wants to pay himself $50 per hour for working with clients. The lawyer, however, does not bill all of his clients based on covering overhead costs and his own salary. Some clients pay her on contingency fees. If the lawyer works with a client on a contingency fee basis, the lawyer receives half of any settlement for his client. During the year the lawyer works 1,200 hours that are billable to clients. The remaining hours are worked on a contingency basis. The lawyer wins $300,000 in settlements for his clients of which he receives half. Actual overhead was $210,000,
What does the lawyer earn during the year after expenses?

Accepted Answer

The answer of Cost Allocation and Contingency Fees
A lawyer allocates...

Question 7

Top-down versus Bottom-up Budgets
Describe (a) the benefits of top-down budgeting and (b) the benefits of bottom-up budgeting.

Accepted Answer

The answer of Top-down versus Bottom-up Budgets
Describe (a) the benefits...

Question 8

Prorating Over/Underabsorbed Overhead
A computer manufacturer has the following account balances at the end of the year.  These accounts contain $500,000 of allocated overhead. Actual overhead, however, is $600,000.
What are the account balances after prorating the underabsorbed overhead?

Accepted Answer

The answer of Prorating Over/Underabsorbed Overhead
A computer manufacturer has the...

Question 9

Fixed Costs and Allocated Costs
The maintenance department's costs are allocated to other departments based on the number of hours of maintenance use by each department. The maintenance department has fixed costs of $500,000 and variable costs of $30 per hour of maintenance provided. The variable costs include the salaries of the maintenance workers. More maintenance workers can be added if greater maintenance is demanded by the other departments without affecting the fixed costs of the maintenance department. The maintenance department expects to provide 10,000 hours of maintenance.
Required:
a. What is the application rate for the maintenance department?
b. What is the additional cost to the maintenance department of providing another hour of maintenance?
c. What problem exists if the managers of other departments can choose how much maintenance to be performed?
d. What problem exists if the other departments are allowed to go outside the organization to buy maintenance services?

Accepted Answer

The answer of Fixed Costs and Allocated Costs
The maintenance department's...

Question 10

Choosing Allocation Bases For Levying Taxes
The town of Seaside has decided to construct a new sea aquarium to attract tourist. The cost of the measure is to be paid by a special tax. although most of the townspeople believe the sea aquarium is a good idea, there is disagreement about how the tax should be levied.
Required:
Suggest three different methods of levying the tax and the advantages and disadvantages of each.

Accepted Answer

The answer of Choosing Allocation Bases For Levying Taxes
The town...

Question 11

Job Order Sheet
The Talbott Company has received an order (#324) for 100 widgets. On January 20 the shop supervisor requisitioned 100 units of part 503 at a cost of $5 per unit and 500 units part 456 at a cost of $3 per unit to begin work on the 100 widgets. On the same day 20 hours of direct labor at $20 per hour are used to work on the widgets. On January 21, 200 units of part 543 at $6 per unit are requisitioned and 10 hours of direct labor at $15 per hour are performed on the 100 units of widgets to complete the job. Overhead is allocated to the job based on $5 per direct labor hour.
Required:
Make a job order cost sheet for the 100 widgets.

Accepted Answer

The answer of Job Order Sheet
The Talbott Company has received...

Question 12

Budgeting Direct Materials
The Jung Corporation's budget calls for the following production:  Each unit of production requires three pounds of direct material. The company's policy is to begin each quarter with an inventory of direct materials equal to 30 percent of that quarter's direct material requirements. Compute budgeted direct materials purchases for the third quarter.

Accepted Answer

The answer of Budgeting Direct Materials
The Jung Corporation's budget calls...

Question 13

Transfer Pricing in the Presence of Divisional Interdependencies
Prior to 1997, PepsiCo, a major soft drink company, had a restaurant division consisting of Kentucky Fried Chicken, Taco Bell, and Pizza Hut. The only cola beverage these restaurants served was Pepsi. Assume that the major reason PepsiCo owned fast food restaurants is an attempt to increase its share of the cola market. Under this assumption, some Pizza Hut patrons who order a cola at the restaurant and are told they are drinking a Pepsi will switch and become Pepsi drinkers instead of Coke drinkers on other purchase occasions. However, studies have shown that some customers refuse to eat at restaurants unless they can get a Coke.
PepsiCo sells Pepsi Cola to non-PepsiCo restaurants at $0.53 per gallon. This is the market price of Pepsi-Cola. Pepsi-Cola's variable manufacturing cost is $0.09 per gallon and its total (fixed and variable) manufacturing cost is $0.22 per gallon. PepsiCo produces Pepsi-Cola in numerous plants located around the world. Plant capacity can be added in small increments (e.g., a half-million gallons per year). The cost of additional capacity is approximately equal to the fixed costs per gallon of $0.13.
Required:
What transfer price should be set for Pepsi transferred from the soft drink division of PepsiCo to a PepsiCo restaurant such as Taco Bell? Justify your answer.

Accepted Answer

The answer of Transfer Pricing in the Presence of Divisional...

Question 14

Transfer Pricing in Universities
The Eastern University Business School teaches some undergraduate business courses for students in the Eastern University College of Arts and Science (CAS). The 6,000 undergraduates generate 2,000 undergraduate student course enrollments in business courses per year. The B-school and CAS are treated as profit centers in that their budgets contain student tuition revenues as well as costs. The deans have discretion to set tuition and salaries and determine hiring as long as they operate with no deficit (revenues = expenses). Undergraduate tuition is $12,000 per year and each student takes eight courses per year. Average undergraduate financial aid amounts to 20% of gross tuition. The current transfer price rule is gross tuition per course less average financial aid.
This transfer price rule gives net tuition to the B-school as a revenue and deducts an equal amount from the CAS budget. The CAS dean argues that the current system is grossly unfair. CAS must provide costly services for undergraduates to maintain a top-rated undergraduate program. For example, career counseling, academic advising, sports programs, and the admissions office are costs that must be incurred if undergraduates are to enroll at Eastern. Therefore, the CAS dean argues, the average cost of these services per undergraduate student course enrollment should be deducted from the tuition transfer price. These undergraduate student services total $9.6 million per year.
Required:
a. Calculate the current revenue the B-school is receiving from undergraduate business courses. What will it be if the CAS dean's proposal is adopted?
b. Discuss the pros and cons of the CAS dean's proposal.
c. As special assistant to the B-school dean, prepare a response to the proposed tuition transfer pricing scheme.

Accepted Answer

The answer of Transfer Pricing in Universities
The Eastern University Business...

Question 15

Transfer Prices and Capacity
Jefferson Company has two divisions: Jefferson Bottles and Jefferson Juice. Jefferson Bottles makes glass containers, which it sells to Jefferson Juice and other companies. Jefferson Bottles has a capacity of 10 million bottles a year. Jefferson Juice currently has a capacity of 3 million bottles of juice per year. Jefferson Bottles has a fixed cost of $100,000 per year and a variable cost of $0.01/bottle. Jefferson Bottles can currently sell all of its output at $0.03/bottle.
Required:
a. What should Jefferson Bottles charge Jefferson Juice for bottles so that both divisions will make appropriate decentralized planning decisions?
b. If Jefferson Bottles can only sell 5 million bottles to outside buyers, what should Jefferson Bottles charge Jefferson Juice for bottles so that both divisions will make appropriate decentralized planning decisions?

Accepted Answer

The answer of Transfer Prices and Capacity
Jefferson Company has two...

Question 16

Estimating Production Costs
The Fancy Umbrella Company makes beach umbrellas. The production process requires 3 square meters of plastic sheeting and a metal pole. The plastic sheeting costs $0.50 per square meter and each metal pole costs $1.00. At the beginning of the month, the company has 5,000 square feet of plastic and 1,000 poles in raw materials inventory. The preferred raw material amount at the end of the month is 3,000 square feet of plastic sheeting and 600 poles. The company has 300 finished umbrellas in inventory at the beginning of the month and plans to have 200 finished umbrellas at the end of the month. Sales in the coming month are expected to be 5,000 umbrellas.
Required:
a. How many umbrellas must the company produce to meet demand and have sufficient ending inventory?
b. What is the cost of materials that must be purchased?

Accepted Answer

The answer of Estimating Production Costs
The Fancy Umbrella Company makes...

Question 17

Performance Measures for Cost Centers
A soft drink company has three bottling plants throughout the country. Bottling occurs at the regional level because of the high cost of transporting bottled soft drinks. The parent company supplies each plant with the syrup. The bottling plants combine the syrup with carbonated soda to make and bottle the soft drinks. The bottled soft drinks are then sent to regional grocery stores.
The bottling plants are treated as costs centers. The managers of the bottling plants are evaluated based on minimizing the cost per soft drink bottled and delivered. Each bottling plant uses the same equipment, but some produce more bottles of soft drinks because of different demand. The costs and output for each bottling plant are:  Required:
a. Estimate the average cost per unit for each plant.
b. Why would the manager of plant A be unhappy with using the average cost as the performance measure?
c. What is an alternative performance measure that would make the manager of plant A happier?
d. Under what circumstances might the average cost be a better performance measure?

Accepted Answer

The answer of Performance Measures for Cost Centers
A soft drink...

Question 18

The Effect of Budgets on Organization
Describe how budgets and budgeting systems help solve the organization problem. Give examples.

Accepted Answer

The answer of The Effect of Budgets on Organization
Describe how...

Question 19

Over/Underabsorbed Overhead
The Alphonse Company allocates fixed overhead costs by machine hours and variable overhead costs by direct labor hours. At the beginning of the year the company expects fixed overhead costs to be $600,000 and variable costs to be $800,000. The expected machine hours are 6,000 and the expected direct labor hours are 80,000. The actual fixed overhead costs are $700,000 and the actual variable overhead costs are $750,000. The actual machine hours during the year are 5,500 and the actual direct labor hours are 90,000.
Required:
a. How much overhead is allocated?
b. What is the over/underabsorbed overhead?

Accepted Answer

The answer of Over/Underabsorbed Overhead
The Alphonse Company allocates fixed overhead...

Question 20

Different Types of Budgets
The Sticky Company makes a glue that is used to glue the layers of wood veneer together to make plywood. The process for making the glue has been used for many years and the customers are satisfied with the product. The Sticky Company has had very low turnover of personnel and the president and the managers have all been with the company for many years. Although the company appears very stable today, plywood prices are rising and the construction industry is beginning to switch to a cheaper product called chipboard. Chipboard uses a different glue than the glue made by the Sticky Company.
Given the present condition of Sticky Company, should the company use long-term budgets, line-item budgets, budget lapsing, flexible budgets, or zero-based budgeting?

Accepted Answer

The answer of Different Types of Budgets
The Sticky Company makes...

Quiz 1: Accounting for Decision Making and Control

Flexible Budgets A chair manufacturer has established the following flexible budget for the month. Required: a. What is the sales price per chair? b. What is the expected profit if 1,600 chairs are made?

Top-down versus Bottom-up Budgets Describe (a) the benefits of top-down budgeting and (b) the benefits of bottom-up budgeting.

Prorating Over/Underabsorbed Overhead A computer manufacturer has the following account balances at the end of the year. These accounts contain $500,000 of allocated overhead. Actual overhead, however, is $600,000. What are the account balances after prorating the underabsorbed overhead?

The Effect of Budgets on Organization Describe how budgets and budgeting systems help solve the organization problem. Give examples.