2 an introduction to cost terms and purposes - Pearson Learning ...

More documents

Recommendations

Info

$College of Marin Study Guide for Math 95 A,B - Pearson Learning ...$

If you want to use Excel to solve this problem, go to the Excel Lab at www.prenhall.com/horngren/ cost12e and download the template for Problem 2-35. 1. Calculate the gross margin on each order if only Westec was a rush order. 2. Calculate the gross margin on each order if only Pinnacle was a rush order. 3. Calculate the gross margin on each order if neither of the two orders were rush orders. 4. Why do you think that Gary Shaw, EMI operations manager, is very particular about how overtime is tracked? Required 2-36 Fire loss, computing inventory costs. A distraught employee, Fang W. Arson, put a torch to a manufacturing plant on a blustery February 26. The resulting blaze destroyed the plant and its contents. Fortunately, certain accounting records were kept in another building. They reveal the following for the period from January 1, 2007, to February 26, 2007: Direct materials purchased $160,000 Work in process, 1/1/2007 $34,000 Direct materials, 1/1/2007 $16,000 Finished goods, 1/1/2007 $30,000 Manufacturing overhead costs 40% of conversion costs Revenues $500,000 Direct manufacturing labor $180,000 Prime costs $294,000 Gross margin percentage based on revenues 20% Cost of goods available for sale $450,000 The loss is fully covered by insurance. The insurance company wants to know the historical cost of the inventories as a basis for negotiating a settlement, although the settlement is actually to be based on replacement cost, not historical cost. Calculate the cost of: 1. Finished goods inventory, 2/26/2007 2. Work-in-process inventory, 2/26/2007 3. Direct materials inventory, 2/26/2007 Required 2-37 Comprehensive problem on unit costs, product costs. Tampa Office Equipment manufactures and sells metal shelving. It began operations on January 1, 2007. Costs incurred for 2007 are as follows (V stands for variable; F stands for fixed): Direct materials used $140,000 V Direct manufacturing-labor costs 30,000 V Plant energy costs 5,000 V Indirect manufacturing-labor costs 10,000 V Indirect manufacturing-labor costs 16,000 F Other indirect manufacturing costs 8,000 V Other indirect manufacturing costs 24,000 F Marketing, distribution, and customer-service costs 122,850 V Marketing, distribution, and customer-service costs 40,000 F Administrative costs 50,000 F Variable manufacturing costs are variable with respect to units produced. Variable marketing, distribution, and customer-service costs are variable with respect to units sold. Inventory data are: Beginning: Ending: January 1, 2007 December 31, 2007 ISBN: 0-536-53243-5 Direct materials 0 lb. 2,000 lbs. Work in process 0 units 0 units Finished goods 0 units ? units Production in 2007 was 100,000 units. Two pounds of direct materials are used to make one unit of finished product. Revenues in 2007 were $436,800. The selling price per unit and the purchase price per pound of direct materials were stable throughout the year. The company’s ending inventory of finished goods is carried at the average unit manufacturing costs for 2007. Finished-goods inventory at December 31, 2007, was $20,970. 1. Calculate direct materials inventory, total cost, December 31, 2007. 2. Calculate finished-goods inventory, total units, December 31, 2007. 3. Calculate selling price in 2007. 4. Calculate operating income for 2007. Required An Introduction to Cost Terms and Purposes 57 Cost Accounting: A Managerial Emphasis, Twelfth Edition, by Charles T. Horngren, Srikant M. Datar, and George Foster. Copyright © 2006 by Pearson Education, Inc. Published by Prentice Hall.
Required 2-38 Cost analysis, litigation risk, ethics. Forever Young (FY) is a division of a large cosmetics company. It formulates and sells creams and lotions for toning and tightening facial skin. FY’s scientists have developed Enhance, a drug that must be injected by a doctor and lasts for two to three months. Patients are not likely to be price-sensitive and therefore would be willing to pay the doctor $300 per treatment. Sam Nash, Enhance’s VP of marketing, has found a subcontractor who will produce Enhance to FY’s exacting standards for $100 per treatment. FY plans to mark up each dose by 20% and sell it to physicians for $120. Amy Keely, the CEO, feels that Enhance is a thoroughly researched wonder drug and at these prices, it will be popular with doctors and their patients and will reverse the sagging division fortunes. Nash, who had previously been controller of FY, points out that the litigation risk from Enhance is greater than from FY’s other products. He estimates that the potential litigation cost amounts to $110 per treatment. He suggests that they factor that cost into the upcoming presentation on Enhance to the board of directors, but Keely forbids it. 1. Why might Amy Keely prevent Sam Nash from including the cost of potential litigation in the presentation of Enhance’s economics and pricing? 2. If FY set prices by adding 20% to the total cost and the litigation cost were included, how much would FY charge doctors for a single shot of Enhance? How would that affect doctors’ gross margins? How might this price affect the promotion of Enhance? 3. Nash discovers that FY may be able to purchase insurance to reduce its own litigation risk on Enhance. If FY wants doctors to enjoy a minimum gross margin of 40% and FY itself has a firm 20%-markup policy, what is the maximum per treatment litigation cost it would be willing to pay? 4. Keely tells Nash to stop worrying about a “mythical litigation issue” and get back to work on making Enhance a blockbuster treatment of choice. What should Nash do now? Collaborative Learning Problem 2-39 Finding unknown amounts. An auditor for the Internal Revenue Service is trying to reconstruct some partially destroyed records of two taxpayers. For each of the cases in the accompanying list, find the unknowns designated by the letters A through D. Case 1 Case 2 (in thousands) Accounts receivable, 12/31 $ 6,000 $ 2,100 Cost of goods sold A 20,000 Accounts payable, 1/1 3,000 1,700 Accounts payable, 12/31 1,800 1,500 Finished goods inventory, 12/31 B 5,300 Gross margin 11,300 C Work in process inventory, 1/1 0 800 Work in process inventory, 12/31 0 3,000 Finished goods inventory, 1/1 4,000 4,000 Direct materials used 8,000 12,000 Direct manufacturing labor 3,000 5,000 Manufacturing overhead costs 7,000 D Purchases of direct materials 9,000 7,000 Revenues 32,000 31,800 Accounts receivable, 1/1 2,000 1,400 Get Connected: Cost Accounting in the News Go to www.prenhall.com/horngren/cost12e for additional online exercise(s) that explore issues affecting the accounting world today. These exercises offer you the opportunity to analyze and reflect on how cost accounting helps managers to make better decisions and handle the challenges of strategic planning and implementation. CHAPTER 2 Video Case CHAPTER 2 58 THREE DOG BAKERY: Understanding Cost Terms “Going to the dogs” has been good for Mark Beckloff and Dan Dye. Back in 1989, they founded the first bakery just for fourlegged canine friends with little more than the desire to satisfy the finicky palate of their beloved 114-pound, deaf Great Dane, Gracie. The small venture has grown from a single store in downtown Kansas City to more than 40 locations worldwide, including Japan and Korea. Their dog treats are made from wholesome ingredients such as flour, eggs, carrots, spinach, ISBN: 0-536-53243-5 Cost Accounting: A Managerial Emphasis, Twelfth Edition, by Charles T. Horngren, Srikant M. Datar, and George Foster. Copyright © 2006 by Pearson Education, Inc. Published by Prentice Hall.
Page 1 and 2: Because of permissions issues, some
Page 3 and 4: EXHIBIT 2-1 Examples of Cost Object
Page 5 and 6: ect cost if the cost object is a pr
Page 7 and 8: Again examine the table. It is prec
Page 9 and 10: EXHIBIT 2-4 $160,000 Fixed-Cost Beh
Page 11 and 12: Study Tip: Practice is helpful if y
Page 13 and 14: EXHIBIT 2-6 Assignment of Costs to
Page 15 and 16: Step 3: Cost of goods manufactured
Page 17 and 18: Prime Costs and Conversion Costs Tw
Page 19 and 20: Benefits of Defining Accounting Ter
Page 21 and 22: 9 Describe a framework for cost acc
Page 23 and 24: SOLUTION 1. Foxwood Company Income
Page 25 and 26: direct materials inventory (p. 37)
Page 27 and 28: . Variable or fixed (V or F) costs
Page 29 and 30: Required 1. What is the unit cost t
Page 31: 2-33 Income statement and schedule

2 an introduction to cost terms and purposes - Pearson Learning ...

Create successful ePaper yourself

Delete template?

Save as template?