Week 1 discussions

Cost Terms, Classifications, and Behavior (graded)

Welcome to our Week 1 Discussions! To get us started, let’s consider the following questions.

1) Would a traditional income statement differ depending on whether the business is a service organization, merchandiser, or manufacturer?

2) Could we use managerial accounting tools to assess the profitability of an organization other than a manufacturing business, or are the topics that we are learning only related to manufacturing?

3) If we could use these concepts in service and/or merchandising businesses, how would we go about doing so?

Let’s start with the first question.

Research and Application (graded)

Go to page 130, Case 3-30, Ethics and the Manager. Let’s discuss the questions, make value-added comments, points, and share personal experiences of unethical situations.

Week 2 discussions

Job Order and Process Costing Systems (graded)

Welcome to our Week 2 Discussions! Let’s begin by discussing when job order costing systems would be more appropriate than a process costing system.

Research and Application (graded)

Go to page 166 and read Case 4-19, Ethics and the Manager: Understanding the Impact of Percentage Completion on Profit. Let’s address the questions, provide reasons for our answers, share relevant personal experiences, and provide value-added comments, articles, and related websites. Let’s have a lot of interaction.

Week 3 discussion

Variable Costing and CVP concepts (graded)

Welcome to our Week 3 Discussions! To get us started, let’s discuss how CVP analysis is used in managerial accounting decision-making.

This section lists options that can be used to view responses.

Research and Application (graded)

Below is the link that will take you directly to the 2004 financial statements of the Benetton Group, followed by the discussion questions.

Let’s answer these questions in the order that they appear.

1. How do the formats of the income statements shown on pages 33 and 50 of Benetton’s annual report differ from one another (disregard everything beneath the line titled “income from operations”)? Which expenses shown on page 50 appear to have been reclassified as variable selling costs on page 33?

2. Why do you think cost of sales is included in the computation of contribution margin on page 33?

3. Perform two separate computations of Benetton’s break-even point in euros. For the first computation, use data from 2003. For the second computation, use data from 2004. Why do the numbers that you computed differ from one another?

4. What sales volume would have been necessary in 2004 for Benetton to attain a target income from operations of €300 million?

5. Compute Benetton’s margin of safety using data from 2003 and 2004. Why do your answers for the two years differ from one another?

6. What is Benetton’s degree of operating leverage in 2004? If Benetton’s sales in 2004 had been 6% higher than what is shown in the annual report, what income from operations would the company have earned? What percentage increase in income from operations does this represent?

7. What income from operations would Benetton have earned in 2004 if it had invested an additional €10 million in advertising and promotions and realized a 3% increase in sales? As an alternative, what income from operations would Benetton have earned if it not only invested an additional ?10 million in advertising and promotions but also raised its sales commission rate to 6% of sales, thereby generating a 5% increase in sales? Which of these two scenarios would have been preferable for Benetton?

8. Assume that total sales in 2004 remained unchanged at, €1,686 million (as shown on pages 33 and 50); however, the Casual sector sales were, €1,504 million, the Sportswear and Equipment sector sales were €75 million, and the Manufacturing and Other sector sales were €107 million. What income from operations would Benetton have earned with this sales mix? (Hint: look at pages 36 and 37 of the annual report.) Why is the income from operations under this scenario different from what is shown in the annual report?

Week 4 discussion

Budgeting Case Study (graded)

Let’s start the week by reviewing the following case. First, let’s discuss how the budgeting process as employed by Springfield contributes to the failure to achieve the president’s sales and profit targe

Exam Review (graded)

To begin, download the practice Midterm Exam from Doc Sharing to access questions and topics for review. For multiple-choice questions, please explain why the answer chosen is correct, and why the other choices would not be correct. Please support your response. Let’s begin with the questions on Page 1.

Week 5 discussions

Standards, Variances, Flexible Budgets (graded)

To begin, please read Case 10B-5 on page 471, Ethics and the Manager. How were the standard costs developed? Are the standards set too high or too low? Please elaborate.

Research and Application (graded)

Let’s look at Case 9-26, Ethics and the Manager, in Chapter 9, page 414, and address and discuss the question there.

Week 6 discunn

Segment Reporting and Relevant Costs (graded)

To begin, please read Case 12-32 on page 576. Which costs are relevant in the decision to shut down the Ashton facility? Then, let’s answer the questions at the end of the case. Also, value-added comments, points, and experiences are welcome and encouraged.

This section lists options that can be used to view responses.

Research and Application (graded)

To begin, please read Problem 11-22 on page 505 of the e-book and let’s discuss the first question! Value-added comments, points, and experiences are also welcomed and encouraged.

Week 7 discussion

Capital Budgeting (graded)

Welcome to Week 7 Discussions! Let’s begin by discussing the difference between capital budgeting screening decisions and capital budgeting preference decisions. Then, we will entertain additional questions relating to important capital budgeting terms, concepts, tools, methods, etc.

Value-added, comments, points, observations, and experiences are welcomed and encouraged.

Exam Review (graded)

To begin, download the Practice Final Exam from Doc Sharing to access questions and topics for review. For multiple-choice questions, please explain why the answer chosen is correct and why the other choices would not be correct. Please support your response. Let’s begin with the questions on page 1.

quiz 1

TCO F) Computing unit product costs involves averaging in:

Job-Order Costing

Process Costing













Student Answer:

Choice A.

Choice b

Choice C.

Choice D.

Instructor Explanation:

Chapter 3

r: Choice A.

Choice B.

Choice C.

Choice D.


Question 2. Question :

(TCO F) Process costing would be appropriate for each of the following except:

custom furniture manufacturing.

oil refining.

grain milling.

newsprint production.

Question 3. Question :

(TCO F) Assume there was no beginning work in process inventory and the ending work in process inventory is 70% complete with respect to conversion costs. Under the weighted-average method, the number of equivalent units of production with respect to conversion costs would be:

the same as the units completed.

less than the units completed.

the same as the units started during the period.

less than the units started during the period.

Question 4. Question :

(TCO F) Which of the following accounts is debited when direct labor is recorded?

Work in process

Salaries and wages expense

Salaries and wages payable

Manufacturing overhead

Question 5. Question :

(TCO F) Stickles Corporation incurred $79,000 of actual Manufacturing Overhead costs during August. During the same period, the Manufacturing Overhead applied to Work in Process was $75,000. The journal entry to record the incurrence of the actual Manufacturing Overhead costs would include a:

debit to Manufacturing Overhead of $79,000.

credit to Manufacturing Overhead of $79,000.

credit to Work in Process of $75,000.

debit to Work in Process of $75,000.

Question 6. Question :

(TCO F) Wedd Corporation had $35,000 of raw materials on hand on May 1. During the month, the company purchased an additional $68,000 of raw materials. During May, $92,000 of raw materials were requisitioned from the storeroom for use in production. These raw materials included both direct and indirect materials. The indirect materials totaled $5,000. The debits to the Work in Process account as a consequence of the raw materials transactions in May total:





case study

Evaluating a Company’s Budget Procedures

Springfield Corporation operates on a calendar-year basis. It begins the annual budgeting process in late August, when the president establishes targets for the total dollar sales and the net income before taxes for the next year.

The sales target is given to the Marketing Department, where the marketing manager formulates a sales budget by product line in both units and dollars. From this budget, sales quotas by product line in units and dollars are established for each of the corporation’s sales districts.

The marketing manager also estimates the cost of the marketing activities required to support the target sales volume and prepares a tentative marketing expense budget.

The executive vice president uses the sales and profit targets, the sales budget by product line, and the tentative marketing expense budget to determine the dollar amount that can be devoted to manufacturing and corporate expenses, and then forwards to the Production Department the product-line sales budget in units and the total dollar amount that can be devoted to manufacturing.

The production manager meets with the factory managers to develop a manufacturing plan that will produce the required units when needed within the cost constraints set by the executive vice president. The budgeting process usually comes to a halt at this point because the Production Department does not consider the financial resources allocated to be adequate.

When this standstill occurs, the vice president of finance, the executive vice president, the marketing manager, and the production manager meet to determine the final budgets for each of the areas. This normally results in a modest increase in the total amount available for manufacturing costs, while the marketing expense and corporate office expense budgets are cut. The total sales and net income figures proposed by the president are seldom changed. Although the participants are seldom pleased with the compromise, these budgets are final. Each executive then develops a new detailed budget for the operations in his or her area.

None of the areas has achieved its budget in recent years. Sales often run below the target. When budgeted sales are not achieved, each area is expected to cut costs so that the president’s profit target can still be met. However, the profit target is seldom met because costs are not cut enough. In fact, costs often run above the original budget in all functional areas. The president is disturbed that Springfield has not been able to meet the sales and profit targets. He hired a consultant with considerable experience with companies in Springfield’s industry. The consultant reviewed the budgets for the past four years. He concluded that the product-line sales budgets were reasonable and that the cost and expense budgets were adequate for the budgeted sales and production levels.

mid term

TCO A) The variable portion of advertising costs is a

Conversion YES… Period NO.

Conversion YES …. Period YES.

Conversion NO…. Period YES.

Conversion NO…. Period NO.

Question 2. Question : (TCO A) The costs of staffing and operating the accounting department at Central Hospital would be considered by the Department of Surgery to be

direct costs.

sunk costs.

incremental costs.

None of the above

Question 3. Question : (TCO A) Property taxes on a company’s factory building would be classified as a(n)

sunk cost.

opportunity cost.

period cost.

variable cost.

manufacturing cost.


Question 4. Question : (TCO A) When the activity level is expected to increase within the relevant range, what effects would be anticipated with respect to each of the following?

Fixed cost per unit Variable cost per unit

Increase No change

Increase Increase

Decrease No change

No change Increase

Question 5. Question : (TCO F) Which of the following statements is true?

I. Overhead application may be made slowly as a job is worked on.

II. Overhead application may be made in a single application at the time of completion of the job.

III. Overhead application should be made to any job not completed at year end in order to properly value the work in process inventory.

Only statement I is true.

Only statement II is true.

Both statements I and II are true.

Statements I, II, and III are all true.

Question 6. Question : (TCO F) Under a job-order costing system, the product being manufactured

is homogeneous.

passes from one manufacturing department to the next before being completed.

can be custom manufactured.

has a unit cost that is easy to calculate by dividing total production costs by the units produced.

Question 7. Question : (TCO F) Equivalent units for a process costing system using the FIFO method would be equal to

units completed during the period, plus equivalent units in the ending work-in-process inventory.

units started and completed during the period, plus equivalent units in the ending work-in-process inventory.

units completed during the period and transferred out.

units started and completed during the period, plus equivalent units in the ending work-in-process inventory, plus work needed to complete units in the beginning work-in-process inventory.

Question 8. Question : (TCO B) The contribution margin equals

sales – expenses.

sales – cost of goods sold.

sales – variable costs.

sales – fixed costs.

Question 9. Question : (TCO B) To obtain the break-even point in terms of dollar sales, total fixed expenses are divided by which of the following?

Student Answer: Variable expense per unit

Variable expense per unit/Selling price per unit

Fixed expense per unit

(Selling price per unit – Variable expense per unit) /Selling price per unit.

Question 10. Question : (TCO E) Under variable costing

Student Answer: net operating income will tend to move up and down in response to changes in levels of production.

inventory costs will be lower than under absorption costing.

net operating income will tend to vary inversely with production changes.

net operating income will always be higher than under absorption costing.

for the just-completed year.

Sales $950

Purchases of raw materials $170

Direct labor $210

Manufacturing overhead $220

Administrative expenses $180

Selling expenses $140

Raw materials inventory, beginning $70

Raw materials inventory, ending $80

Work-in-process inventory, beginning $30

Work-in-process inventory, ending $20

Finished goods inventory, beginning $100

Finished goods inventory, ending $70

Required: Prepare a Schedule of Cost of Goods Manufactured statement in the text box below.

Question 2. Question : (TCO F) The Indiana Company manufactures a product that goes through three processing departments. Information relating to activity in the first department during June is given below.

Percentage completed

Units Materials Conversion

Work in process, June 1 70,000 65% 45%

Work in process, Jun 30 60,000 75% 65%

The department started 290,000 units into production during the month and transferred 300,000 completed units to the next department.

Required: Compute the equivalent units of production for the first department for June, assuming that the company uses the weighted-average method of accounting for units and costs.

Question 3. Question : (TCO B) A tile manufacturer has supplied the following data:

Boxes of tile produced and sold 625,000

Sales revenue $2,975,000

Variable manufacturing expense $1,720,000

Fixed manufacturing expense $790,000

Variable selling and admin expense $152,000

Fixed selling and admin expense $133,000

Net operating income $180,000


a. Calculate the company’s unit contribution margin.

b. Calculate the company’s contribution margin ratio.

c. If the company increases its unit sales volume by 5% without increasing its fixed expenses, what would the company’s net operating income be?

Points Received: 20 of 25


Question 4. Question : (TCO E) Lehne Company, which has only one product, has provided the following data concerning its most recent month of operations:

Selling price $ 125

Units in beginning inventory 600

Units oroduced 3000

Units sold 3500

Units in ending inventory 100

Variable costs per unit:

Direct materials $ 15

Direct labor $ 50

Variable manufacturing overhead $ 8

Variable selling and admin $ 12

Fixed costs:

Fixed manufacturing overhead $ 75,000

Fixed selling and admin $ 20,000

The company produces the same number of units every month, although the sales in units vary from month to month. The company’s variable costs per unit and total fixed costs have been constant from month to month.


a. What is the unit product cost for the month under variable costing?

b. What is the unit product cost for the month under absorption costing?

c. Prepare an income statement for the month using the variable costing method.

d. Prepare an income statement for the month using

quiz 2

(TCO D) A company that has a profit can increase its return on investment by

increasing sales revenue and operating expenses by the same dollar amount.

increasing average operating assets and operating expenses by the same dollar amount.

increasing sales revenue and operating expenses by the same percentage.

decreasing average operating assets and sales by the same percentage.

Question 2. Question : (TCO D) Given the following data, what would ROI be?

Sales $50,000

Net operating income $5,000

Contribution margin $20,000

Average operating assets $25,000

Stockholder’s equity $15,000





Question 3. Question : (TCO D) Last year, the House of Orange had sales of $826,650, net operating income of $81,000, and operating assets of $84,000 at the beginning of the year and $90,000 at the end of the year. What was the company’s turnover, rounded to the nearest tenth?





(TCO D) Seebach Corporation has two major business segments—Apparel and Accessories. Data concerning those segments for June appear below.

Sales revenues, Apparel $700,000

Variable expenses, Apparel $406,000

Traceable fixed expenses, Apparel $98,000

Sales revenues, Accessories $710,000

Variable expenses, Accessories $312,000

Traceable fixed expenses, Accessories $107,000

Common fixed expenses totaled $292,000 and were allocated as follows: $155,000 to the Apparel business segment and $137,000 to the Accessories business segment.


Prepare a segmented income statement in the contribution format for the company. Omit percentages; show only dollar amounts.

Question 2. Question : (TCO D) Eber Wares is a division of a major corporation. The following data are for the latest year of operations.

Sales $30,000,000

Net Operating income $1,170,000

Average operating assets $8,000,000

The company’s minimum required rate of return 18%


i. What is the division’s margin?

ii. What is the division’s turnover?

iii. What is the division’s ROI?

iv. What is the division’s residual income?

Question 3. Question : (TCO D) Tjelmeland Corporation is considering dropping product S85U. Data from the company’s accounting system appear below.

Sales $360,000

Variable Expenses $158,000

Fixed Manufacturing Expenses $119,000

Fixed Selling and Administrative Expenses $94,000

All fixed expenses of the company are fully allocated to products in the company’s accounting system. Further investigation has revealed that $55,000 of the fixed manufacturing expenses and $71,000 of the fixed selling and administrative expenses are avoidable if product S85U is discontinued.


i. According to the company’s accounting system, what is the net operating income earned by product S85U? Show your work!

ii. What would be the effect on the company’s overall net operating income of dropping product S85U? Should the product be dropped? Show your work!

Question 4. Question : (TCO D) Part F77 is used in one of Wilcutt Corporation’s products. The company’s Accounting Department reports the following costs of producing the 7,000 units of the part that are needed every year.

Per Unit

Direct Materials $7.00

Direct Labor $6.00

Variable Overhead $5.60

Supervisor’s Salary $4.70

Depreciation of Special Equipment $1.50

Allocated General Overhead $5.40

An outside supplier has offered to make the part and sell it to the company for $28.30 each. If this offer is accepted, the supervisor’s salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier’s offer were accepted, only $9,000 of these allocated general overhead costs would be avoided.


i. Prepare a report that shows the effect on the company’s total net operating income of buying part F77 from the supplier rather than continuing to make it inside the company.

ii. Which alternative should the company choose?

Instructor Explanation: i.

ii. The total cost of the make alternative is lower by $26,000. Thus, net operating income would decline by $26,000 if the offer from the supplier were accepted. Therefore, the company should continue to make the part itself.

Points Received: 15 of 15


Question 5. Question : (TCO D) A customer has asked Clougherty Corporation to supply 4,000 units of product M97, with some modifications, for $40.10 each. The normal selling price of this product is $48.00 each. The normal unit product cost of product M97 is computed as follows.

Direct Materials $18.50

Direct Labor $1.20

Variable manufacturing overhead $8.40

Fixed manufacturing overhead $3.90

Unit product cost $32.00

Direct labor is a variable cost. The special order would have no effect on the company’s total fixed manufacturing overhead costs. The customer would like some modifications made to product M97 that would increase the variable costs by $5.70 per unit and that would require a one-time investment of $31,000 in special molds that would have no salvage value. This special order would have no effect on the company’s other sales. The company has ample spare capacity for producing the special order.


Determine the effect on the company’s total net operating income of accepting the special order. Show your work!

Student Answer: relevant cost = (18.5+1.2+8.4+5.7) x 4000 +31000 = 166200 revenue = 160,400 reduction in operating income = $5800


You have just been hired as a new management trainee by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country. In the past, the company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash.

Since you are well trained in budgeting, you have decided to prepare comprehensive budgets for the upcoming second quarter in order to show management the benefits that can be gained from an integrated budgeting program. To this end, you have worked with accounting and other areas to gather the information assembled below.

The company sells many styles of earrings, but all are sold for the same price—$10 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings):

The concentration of sales before and during May is due to Mother’s Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month.

Suppliers are paid $4 for a pair of earrings. One-half of a month’s purchases is paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only 20% of a month’s sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.

Monthly operating expenses for the company are given below:

Insurance is paid on an annual basis, in November of each year.

The company plans to purchase $16,000 in new equipment during May and $40,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $15,000 each quarter, payable in the first month of the following quarter.

A listing of the company’s ledger accounts as of March 31 is given below:

The company maintains a minimum cash balance of $50,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month.

The company has an agreement with a bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $50,000 in cash.


Prepare a master budget for the three-month period ending June 30. Include the following detailed budgets:

· 1.

o a. A sales budget, by month and in total.

o b. A schedule of expected cash collections from sales, by month and in total.

o c. A merchandise purchases budget in units and in dollars. Show the budget by month and in total.

o d. A schedule of expected cash disbursements for merchandise purchases, by month and in total.

· 2. A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of $50,000.

· 3. A budgeted income stat