Problem: Financial and Managerial Accounting:
Assume Amy Filler has just been promoted to product manager at Kraft Foods. Although she is an accomplished sales representative and well versed in market research, her accounting background is limited to reviewing her paycheck, balancing her checkbook, filling income tax return, and reviewing the company's annual income statement and balance sheet. She commented that while the financial statements are no doubt useful to investor, she just doesn't see how accounting can help her be good product manager.
Required:
Based on her remarks, it is apparent that Amy's view of accounting is limited to financial accounting. Explain some of the important differences between financial and managerial accounting and suggest some ways managerial accounting can help Amy be a better product manager.
Problem 2: Scatter Diagram and High-Low Cost Estimation
From April 1 through October 31, Will County Highway Department hires temporary employees to mow and clean the right-of-way along county roads. The County Road Commissioner has asked you to help her in determining the variable labor cost of mowing and cleaning a mile of road. The following information is available regarding current-year operations:
|
|
Miles Mowed and Cleaned
|
Labor Costs
|
|
April
|
350
|
$8,000
|
|
May
|
300
|
7,500
|
|
June
|
400
|
9,000
|
|
July
|
250
|
5,500
|
|
August
|
375
|
8,500
|
|
September
|
200
|
5,000
|
|
October
|
100
|
4,800
|
Required:
a. Use the information from the high and low volume months to develop a cost estimating equation for monthly labor costs.
b. Plot the data on a scatter diagram. Using the information from representative high-and low-volume months, use the high low method to develop a cost-estimating equation for monthly labor costs.
c. What factors might have caused the differences in the equation developed for requirements (a) and (b)?
d. Adjust the equation developed in requirements (b) to incorporate the effect of an anticipated 7 percent increase in wages.
Problem 3: Traditional Product Costing versus Activity-based costing
High Country Outfitter, Inc., makes backpacks for large sporting goods chains that are sold under the customers store brand names. The Accounting Department has identified the following overhead costs and cost drivers for next year:
|
Overhead Item
|
Expected Costs
|
Cost Driver
|
Maximum Quantity
|
|
Setup costs
|
$972,000
|
Number of setups
|
7,200
|
|
Ordering costs
|
270,000
|
Number of orders
|
60,000
|
|
Maintenance
|
1,200,000
|
Number of machine hours
|
80,000
|
|
Power
|
150,000
|
Number of kilowatt hours
|
600,000
|
Total predicted direct labor hours for next year is 60,000. The following data are for two recently completed jobs:
|
|
Job 201
|
Job 202
|
|
Cost of direct materials
|
$13,500
|
$15,000
|
|
Cost of direct labor
|
$19,125
|
$71,250
|
|
Number of units completed
|
1,125
|
915
|
|
Number of direct labor hours
|
270
|
330
|
|
Number of setups
|
18
|
22
|
|
Number of orders
|
24
|
45
|
|
Number of machine hours
|
540
|
450
|
|
Number of kilowatt hours
|
270
|
360
|
|
|
|
|
Required:
a. Determine the unit cost for each job using a traditional plant wide overhead rate based on direct labor hours.
b. Determine the unit cost for each job using ABC.
c. As the manager of High Country, is there additional information that you would want to help you evaluate the pricing and profitability of Jobs 201 and 202?
d. Assuming the company has been using the method required in part a, how should management react to the findings in part b?
Problem 4: Contribution Margin Concepts
The following information is taken from the 2013 records of Cherokee Jewelry Shop.
Required:
a. Determine the annual break-even dollar sales volume.
b. Determine the current margin of safety in dollars.
c. Prepare a cost-volume-profit graph for the jewelry shop. Label both axes in dollars with maximum values of $1,000,000. Draw a vertical line on the graph for the current ($750,000) sales level, and label total variable costs, total fixed costs, and total profits at $750,000 sales.
d. What is the annual break-even dollar sales volume if management makes a decision that increases fixed costs by $35,000?
