Discussion Questions
need to be between 75 - 100 words.
Discussion 1
Compare and Contrast Managerial Accounting and Financial Accounting. Be sure to discuss how managerial accounting is useful for providing information for at least one of the following management functions: planning, directing, controlling.
Assignment 1
1. (a) "Managerial accounting is a field of accounting that provides economic information for all interested parties." Do you agree? Explain.
(b) Joe Delong believes that managerial accounting serves only manufacturing firms. Is Joe correct? Explain.
2. Distinguish between managerial and financial accounting as to
(a) primary users of reports,
(b) types and frequency of reports, and
(c) purpose of reports.
4. Linda Olsen is studying for the next accounting midterm examination. Summarize for Linda what she should know about management functions.
5. "Decision-making is management's most important function." Do you agree? Why or why not?
8. Jerry Lang is unclear as to the difference between the balance sheets of a merchandising company and a manufacturing company. Explain the difference to Jerry.
Listed below are the three functions of the management of an organization.
1. Planning
2. Directing
3. Controlling
•Identify which of the following statements best describes each of the above functions.
(a) ______ requires management to look ahead and to establish objectives. A key objective of management is to add value to the business.
(b) ______ involves coordinating the diverse activities and human resources of a company to produce a smooth-running operation. This function relates to the implementation of planned objectives.
(c) ______ is the process of keeping the activities on track. Management determines whether goals are being met and what changes are necessary when there are deviations.
Determine whether each of the following costs should be classified as direct materials (DM), direct labor (DL), or manufacturing overhead (MO).
(a) ______ Frames and tires used in manufacturing bicycles.
(b) ______ Wages paid to production workers.
(c) ______ Insurance on factory equipment and machinery.
(d) ______ Depreciation on factory equipment.
Indicate whether each of the following costs of an automobile manufacturer would be classified as direct materials, direct labor, or manufacturing overhead.
(a) ______ Windshield.
(b) ______ Engine.
(c) ______ Wages of assembly line worker.
(d) ______ Depreciation of factory machinery.
(e) ______ Factory machinery lubricants.
(f) ______ Tires.
(g) ______ Steering wheel.
(h) ______ Salary of painting supervisor.
Identify whether each of the following costs should be classified as product costs or period costs.
(a) ______ Manufacturing overhead.
(b) ______ Selling expenses.
(c) ______ Administrative expenses.
(d) ______ Advertising expenses.
(e) ______ Direct labor.
(f) ______ Direct materials.
Discussion 2
Discuss the advantages and disadvantages of Job Order Costing. Be sure to include specific examples of the advantages/disadvantages that you discuss.
Assignment 2
1. Dieker Company begins operations on January 1. Because all work is done to customer specifications, the company decides to use a job order cost system. Prepare a flowchart of a typical job order system with arrows showing the flow of costs. Identify the eight transactions.
2. During January, its first month of operations, Dieker Company accumulated the following manufacturing costs: raw materials $4,000 on account, factory labor $6,000 of which $5,200 relates to factory wages payable and $800 relates to payroll taxes payable, and utilities payable $2,000. Prepare separate journal entries for each type of manufacturing cost.
3. In January, Dieker Company requisitions raw materials for production as follows:
Job 1 $900, Job 2 $1,200, Job 3 $700, and general factory use $600. Prepare a summary journal entry to record raw materials used.
4. Factory labor data for Dieker Company is given in BE2-2. During January, time tickets show that the factory labor of $6,000 was used as follows: Job 1 $2,200, Job 2
$1,600, Job 3 $1,400, and general factory use $800. Prepare a summary journal entry to record factory labor used.
5. Data pertaining to job cost sheets for Dieker Company are given in BE2-3 and BE2-4.
Prepare the job cost sheets for each of the three jobs. (Note: You may omit the column for Manufacturing Overhead.)
Discussion 3
What is the difference between operations costing and a process costing system? How does a company decide whether to use a job order or a process cost system?
Assignment 3
BE3-7 Trek Company has the following production data for April: units transferred out 40,000, and ending work in process 5,000 units that are 100% complete for materials and 40% complete for conversion costs. If unit materials cost is $4 and unit conversion cost is
$7, determine the costs to be assigned to the units transferred out and the units in ending work in process.
BE3-9 Data for Hollins Company are given in BE3-8. Production records indicate that 18,000 units were transferred out, and 2,000 units in ending work in process were 50% complete as to conversion costs and 100% complete as to materials. Prepare a cost reconciliation schedule.
BE3-7 The Sanding Department of Quik Furniture Company has the following production and manufacturing cost data for March 2017, the first month of operation.
Production: 7,000 units finished and transferred out; 3,000 units started that are 100% complete as to materials and 20% complete as to conversion costs.
Manufacturing costs: Materials $33,000; labor $21,000; and overhead $36,000.
Instructions
Prepare a production cost report.
BE4-2 Finney Inc. has conducted an analysis of overhead costs related to one of its product lines using a traditional costing system (volume-based) and an activity-based costing system. Here are its results.
Traditional Costing ABC
Sales revenue $600,000 $600,000
Overhead costs:
Product RX3 $ 34,000 $ 50,000
Product Y12 36,000 20,000
$ 70,000 $ 70,000
Explain how a difference in the overhead costs between the two systems may have occurred.
E4-8 Wilmington, Inc. manufactures five models of kitchen appliances. The company is installing activity-based costing and has identified the following activities performed at its Mesa plant.
1. Designing new models.
2. Purchasing raw materials and parts.
3. Storing and managing inventory.
4. Receiving and inspecting raw materials and parts.
5. Interviewing and hiring new personnel.
6. Machine forming sheet steel into appliance parts.
7. Manually assembling parts into appliances.
8. Training all employees of the company.
9. Insuring all tangible fixed assets.
10. Supervising production.
11. Maintaining and repairing machinery and equipment.
12. Painting and packaging finished appliances.
Having analyzed its Mesa plant operations for purposes of installing activity-based costing, Wilmington, Inc. identified its activity cost centers. It now needs to identify relevant activity cost drivers in order to assign overhead costs to its products.
Instructions
Using the activities listed above, identify for each activity one or more cost drivers that might be used to assign overhead to Wilmington's five products.
Discussion 4
How is the contribution margin per unit of limited resources computed?
Assignment 4
BE5-1 Monthly production costs in Dilts Company for two levels of production are as follows.
Cost 2,000 Units 4,000 Units
Indirect labor $10,000 $20,000
Supervisory salaries 5,000 5,000
Maintenance 4,000 6,000
Discussion 5
Identify the relevant costs in a make-or-buy decision and provide an example of each type of cost.
Assignment 5
BE7-1 The steps in management's decision-making process are listed in random order below. Indicate the order in which the steps should be executed.
_____ Make a decision _____ Review results of the decision
_____ Identify the problem and assign _____ Determine and evaluate possible responsibility courses of action
BE7-2 Bogart Company is considering two alternatives. Alternative A will have revenues of $160,000 and costs of $100,000. Alternative B will have revenues of $180,000 and costs of $125,000. Compare Alternative A to Alternative B showing incremental revenues, costs,
and net income.
E7-1 As a study aid, your classmate Pascal Adams has prepared the following list of statements about decision-making and incremental analysis.
1. The first step in management's decision-making process is, "Determine and evaluate possible courses of action."
2. The final step in management's decision-making process is to actually make the decision.
3. Accounting's contribution to management's decision-making process occurs primarily in evaluating possible courses of action and in reviewing the results.
4. In making business decisions, management ordinarily considers only financial information because it is objectively determined.
5. Decisions involve a choice among alternative courses of action.
6. The process used to identify the financial data that change under alternative courses of action is called incremental analysis.
7. Costs that are the same under all alternative courses of action sometimes affect the decision.
8. When using incremental analysis, some costs will always change under alternative courses of action, but revenues will not.
9. Variable costs will change under alternative courses of action, but fixed costs will not.
Instructions
Identify each statement as true or false. If false, indicate how to correct the statement.
E7-4 Klean Fiber Company is the creator of Y-Go, a technology that weaves silver into its fabrics to kill bacteria and odor on clothing while managing heat. Y-Go has become very popular in undergarments for sports activities. Operating at capacity, the company can
produce 1,000,000 Y-Go undergarments a year. The per unit and the total costs for an individual garment when the company operates at full capacity are as follows.
Per Undergarment Total
Direct materials $2.00 $2,000,000
Direct labor 0.75 750,000
Variable manufacturing overhead 1.00 1,000,000
Fixed manufacturing overhead 1.50 1,500,000
Variable selling expenses 0.25 250,000
Totals $5.50 $5,500,000
The U.S. Army has approached Klean Fiber and expressed an interest in purchasing 250,000 Y-Go undergarments for soldiers in extremely warm climates. The Army would pay the unit cost for direct materials, direct labor, and variable manufacturing overhead costs. In addition, the Army has agreed to pay an additional $1 per undergarment to cover all other costs and provide a profit. Presently, Klean Fiber is operating at 70% capacity and does not have any other potential buyers for Y-Go. If Klean Fiber accepts the Army's offer, it will not incur any variable selling expenses related to this order.
Instructions
Using incremental analysis, determine whether Klean Fiber should accept the Army's offer.
E7-9 Anna Garden recently opened her own basketweaving studio. She sells finished baskets in addition to the raw materials needed by customers to weave baskets of their own.
Anna has put together a variety of raw material kits, each including materials at various stages of completion. Unfortunately, owing to space limitations, Anna is unable to carry all varieties of kits originally assembled and must choose between two basic packages.
The basic introductory kit includes undyed, uncut reeds (with dye included) for weaving one basket. This basic package costs Anna $16 and sells for $30. The second kit, called
Stage 2, includes cut reeds that have already been dyed. With this kit the customer need only soak the reeds and weave the basket. Anna is able to produce the second kit by using the basic materials included in the first kit and adding one hour of her own time, which she values at $18 per hour. Because she is more efficient at cutting and dying reeds than her average customer, Anna is able to make two kits of the dyed reeds, in one hour, from one kit of undyed reeds. The Stage 2 kit sells for $36.
Instructions
Determine whether Anna's basketweaving studio should carry the basic introductory kit with undyed and uncut reeds or the Stage 2 kit with reeds already dyed and cut. Prepare an incremental analysis to support your answer.
Discussion 6
Discuss the significance of recognizing the time value of money in the long-term impact of the capital budgeting decision.
Assignment 6
BE12-1 Rihanna Company is considering purchasing new equipment for $450,000. It is expected that the equipment will produce net annual cash flows of $60,000 over its 10-year useful life. Annual depreciation will be $45,000. Compute the cash payback period.
BE12-4 Caine Bottling Corporation is considering the purchase of a new bottling machine.
The machine would cost $200,000 and has an estimated useful life of 8 years with zero salvage value. Management estimates that the new bottling machine will provide net annual cash flows of $34,000. Management also believes that the new bottling machine will save the company money because it is expected to be more reliable than other machines, and thus will reduce downtime. How much would the reduction in downtime have to be worth in order for the project to be acceptable? Assume a discount rate of 9%.
(Hint: Calculate the net present value.)
BE12-5 McKnight Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $400,000, has an expected useful life of 10 years, a salvage value of zero, and is expected to increase net annual cash flows by $70,000. Project B will cost $310,000, has an expected useful life of 10 years, a salvage value of zero, and is expected to increase net annual cash flows by $55,000. A discount rate of 9% is appropriate for both projects. Compute the net present value and profitability index of each project.
Which project should be accepted?
BE12-6 Quillen Company is performing a post-audit of a project completed one year ago.
The initial estimates were that the project would cost $250,000, would have a useful life of 9 years, zero salvage value, and would result in net annual cash flows of $46,000 per year.
Now that the investment has been in operation for 1 year, revised figures indicate that it actually cost $260,000, will have a total useful life of 11 years, and will produce net annual cash flows of $39,000 per year. Evaluate the success of the project. Assume a discount rate of 10%.
E12-5 Bruno Corporation is involved in the business of injection molding of plastics. It is considering the purchase of a new computer-aided design and manufacturing machine for $430,000. The company believes that with this new machine it will improve productivity and increase quality, resulting in an increase in net annual cash flows of $101,000 for the next 6 years. Management requires a 10% rate of return on all new investments.
Instructions
Calculate the internal rate of return on this new machine. Should the investment be accepted?
Discussion 7
What is participative budgeting? What are its potential benefits? What are its potential disadvantages?
Assignment 7
BE9-3 Sales budget data for Paige Company are given in BE9-2. Management desires to have an ending finished goods inventory equal to 25% of the next quarter's expected unit sales. Prepare a production budget by quarters for the first 6 months of 2017.
BE9-4 Perine Company has 2,000 pounds of raw materials in its December 31, 2016, ending inventory. Required production for January and February of 2017 are 4,000 and 5,000 units, respectively. Two pounds of raw materials are needed for each unit, and the estimated cost per pound is $6. Management desires an ending inventory equal to 25% of next month's materials requirements. Prepare the direct materials budget for January.
BE13-1 Each of the items below must be considered in preparing a statement of cash flows for Baskerville Co. for the year ended December 31, 2017. For each item, state how
it should be shown in the statement of cash flows for 2017.
(a) Issued bonds for $200,000 cash.
(b) Purchased equipment for $150,000 cash.
(c) Sold land costing $20,000 for $20,000 cash.
(d) Declared and paid a $50,000 cash dividend.
BE13-11 The management of Morrow Inc. is trying to decide whether it can increase its dividend. During the current year, it reported net income of $875,000. It had net cash provided by operating activities of $734,000, paid cash dividends of $70,000, and had capital expenditures of $280,000. Compute the company's free cash flow, and discuss whether an increase in the dividend appears warranted. What other factors should be considered?