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Concept explainers
Single plant-wide factory overhead rate: The rate at which the factory or manufacturing overheads are allocated to products is referred to as single plant-wide factory overhead rate.
Multiple production department factory overhead rate: This allocation method identifies different departments in the process of production. The factory overheads are allocated to products based on the overhead rate for each of the production departments.
Activity-based costing (ABC) method: The costing method which allocates overheads to the products based on factory overhead rate for each activity or cost object, according to the cost pooled for the cost drivers (allocation base).
Generally Accepted Accounting Principles (GAAP): These are the guidelines necessary to create accounting principles for the implementation of financial information reporting.
To explain: Whether A’s concern is valid, and explain the method by which FN could
redesign cost allocation system
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Chapter 26 Solutions
Financial & Managerial Accounting
- Rachel Boyce, president of a company that manufactures electronic components, has a number of questions concerning quality and quality costs. She has heard a few things about quality and has asked you to respond to the following questions. Required: 1. What does it mean to have a quality product or service? Explain how product quality and conformance are related. 2. Yesterday, my quality manager told me that we need to redefine what we mean by a defective product. He said that conforming to specifications ignores the cost of product variability and that further reduction of product variability is a veritable gold minejust waiting to be mined. What did he mean?arrow_forwardSuspicious Acquisition of Data, Ethical Issues Bill Lewis, manager of the Thomas Electronics Division, called a meeting with his controller, Brindon Peterson, and his marketing manager, Patty Fritz. The following is a transcript of the conversation that took place during the meeting: Bill: Brindon, the variable costing system that you developed has proved to be a big plus for our division. Our success in winning bids has increased, and as a result our revenues have increased by 25%. However, if we intend to meet this years profit targets, we are going to need something extraam I right, Patty? Patty: Absolutely. While we have been able to win more bids, we still are losing too many, particularly to our major competitor, Kilborn Electronics. If we knew more about their bidding strategy, we could be more successful at competing with them. Brindon: Would knowing their variable costs help? Patty: Certainly. It would give me their minimum price. With that knowledge, Im sure that we could find a way to beat them on several jobs, particularly on those jobs where we are at least as efficient. It would also help us to identify where we are not cost competitive. With this information, we might be able to find ways to increase our efficiency. Brindon: Well, I have good news. Ive been talking with Carl Penobscot, Kilborns assistant controller. Carl doesnt feel appreciated by Kilborn and wants to make a change. He could easily fit into our team here. Plus, Carl has been preparing for a job switch by quietly copying Kilborns accounting files and records. Hes already given me some data that reveal bids that Kilborn made on several jobs. If we can come to a satisfactory agreement with Carl, hell bring the rest of the information with him. Well easily be able to figure out Kilborns prospective bids and find ways to beat them. Besides, I could use another accountant on my staff. Bill, would you authorize my immediate hiring of Carl with a favorable compensation package? Bill: I know that you need more staff, Brindon, but is this the right thing to do? It sounds like Carl is stealing those files, and surely Kilborn considers this information confidential. I have real ethical and legal concerns about this. Why dont we meet with Laurie, our attorney, and determine any legal problems? Required: 1. Is Carls behavior ethical? What would Kilborn think? 2. Is Bill correct in supposing that there are ethical and/or legal problems involved with the hiring of Carl? (Reread the section on corporate codes of conduct in Chapter 1.) What would you do if you were Bill? Explain.arrow_forwardRizzo Goal Inc. produces and sells hockey equipment, often custom made for online orders. The company has the following performance metrics on its balanced scorecard: days from ordered to delivered, number of shipping errors, customer retention rate, and market share. A measure map illustrates that the days from ordered to delivered and the number of shipping errors are both expected to directly affect the customer retention rate, which affects market share. Additional internal analysis finds that: Every shipping error over three shipping errors per month reduces the customer retention rate by 1.5%. On average, each day above three days from ordered to delivered yields a reduction in the customer retention rate of 1%. Each day before three days from order to delivery yields an increase in the customer retention rate of 1%, on average. Rizzo Goal Inc.s current customer retention rate is 60%. The company estimates that for every 1% increase or decrease in the customer retention rate, market share changes 0.5% in the same direction. Rizzo Goal Inc.s current market share is 21.4%. Ignoring any other factors, if the company has six shipping errors this month and an average of 3.5 days from ordered to delivered, determine (a) the new customer retention rate and (b) the new market share that Rizzo Goal Inc. expects to have.arrow_forward
- Levine Company is a manufacturer of very inexpensive DVD players and television sets. The company uses recycled parts and a highly structured manufacturing process to keep costs low so that it can sell at very low prices. The company uses lean accounting procedures to help keep costs low and to examine financial performance. Levine uses value streams to study the profitability of its two main product groups, DVD players and TVs. Information about finished goods inventory, sales, production, and average sales price follows: DVD Group TV Group Units Beginning inventory 390 700 Price $ 55 $ 46 Sold 17,300 17,500 Budgeted and actual production 17,800 16,900 Levine’s costs for the current quarter are as follows. Note that some of the company’s manufacturing and selling costs are traceable directly to the two value streams, while other costs are not traceable. Levine considers all traceable fixed costs to be controllable by…arrow_forwardThe advantages of calculating Contribution Margins of a company’s products seem to be overwhelming according to the author. One can quickly calculate their break-even point and evaluate pricing changes and product quality improvements. But after reviewing several annual reports, apparently, no one is using this technique. What’s missing in this analysis?arrow_forwardSubject :- Accountingarrow_forward
- The problem statement here is that in recent months, the cost accounting reports have been somewhat disturbing to management. It seems that some of the finished products are costing more than they should, even to the point of approaching their retail value. It has been noted by the accounting manager that this problem began when the company started buying ore from different parts of the world, some of which require difficult extraction methods. Explain how the company might change its accounting system to reflect the reporting problems better.arrow_forwardProductivity and Quality: Prospective Analysis Analytic Company is considering the acquisition of a computerized manufacturing system. The new system has a built-in quality function that increases the control over product specifications. An alarm sounds whenever the product falls outside the programmed specifications. An operator can then make some adjustments on the spot to restore the desired product quality. The system is expected to decrease the number of units scrapped because of poor quality. The system is also expected to decrease the amount of labor inputs needed. The production manager is pushing for the acquisition because he believes that productivity will be greatly enhanced—particularly when it comes to labor and material inputs. Output and input data follow. The data for the computerized system are projections. Current System Computerized System Output (units) 30,000 30,000 Output selling price $40 $40 Input quantities: Materials 120,000…arrow_forwardRizzo Goal Inc. produces and sells hockey equipment, often custom made for online orders. The company has the following performance metrics on its balanced scorecard: days from ordered to delivered, number of shipping errors, customer retention rate, and market share. A measure map illustrates that the days from ordered to delivered and the number of shipping errors are both expected to directly affect the customer retention rate, which affects market share. Additional internal analysis finds that: Every shipping error over 2 shipping errors per month reduces the customer retention rate by 1.5%. On average, each day above 2 days from ordered to delivered yields a reduction in the customer retention rate of 1%. Each day before 2 days from order to delivery yields an increase in the customer retention rate of 1%, on average. Rizzo Goal Inc.’s current customer retention rate is 75%. The company estimates that for every 1% increase or decrease in the customer retention rate, market share…arrow_forward
- You are the new cost accountant for ABX Corporation. After careful review of the company’s operations you have been tasked to determine the company’s break-even point in units and dollars, the numbers sold to meet the company’s target profit and contribution income statement for both outcomes.Management has also asked that you discuss the risk, uncertainty, changing variables and margin of safety regarding Cost Volume Profit Analysis. Based on your discussion and calculations what would be your recommendation if the company wanted to increase variable cost by 20% and sales price by 5%? Support your recommendation. ABX Corporation sold it's product for $600/unit. Fixed cost are $725,000 per year. Variable costs are $455 per unit. ABX Corporation desires a target profit of $1,250,000 per year.arrow_forwardTMD Goal Inc. produces and sells hockey equipment, often custom made for online orders. The company has the following performance metrics on its balanced scorecard: days from ordered to delivered, number of shipping errors, customer retention rate, and market share. A measure map illustrates that the days from ordered to delivered and the number of shipping errors are both expected to directly affect the customer retention rate, which affects market share. Additional internal analysis finds that: Every shipping error over 2 shipping errors per month reduces the customer retention rate by 1.5%. • On average, each day above 2 days from ordered to delivered yields a reduction in the customer retention rate of 1%. Each day before two days from order to delivery yields an increase in the customer retention rate of 1%, on average. ⚫ TMD Goal Inc.'s current customer retention rate is 60%. ⚫ The company estimates that for every 1% increase or decrease in the customer retention rate, market…arrow_forwardRizzo Goal Inc. produces and sells hockey equipment, often custom made for online orders. The company has the following performance metrics on its balanced scorecard: days from ordered to delivered, number of shipping errors, customer retention rate, and market share. A measure map illustrates that the days from ordered to delivered and the number of shipping errors are both expected to directly affect the customer retention rate, which affects market share. Additional internal analysis finds that: Every shipping error over 3 shipping errors per month reduces the customer retention rate by 1.5%. On average, each day above 3 days from ordered to delivered yields a reduction in the customer retention rate of 1%. Each day before 3 days from order to delivery yields an increase in the customer retention rate of 1%, on average. Rizzo Goal Inc.'s current customer retention rate is 70%. ● The company estimates that for every 1% increase or decrease in the customer retention rate, market share…arrow_forward
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