COST ACCOUNTING
16th Edition
ISBN: 9781323169261
Author: Horngren
Publisher: PEARSON C
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 7, Problem 7.45P
Direct-cost and selling price variances. MicroDisk is the market leader in the Secure Digital (SD) card industry and sells memory cards for use in portable devices such as mobile phones, tablets, and digital cameras. Its most popular card is the Mini SD, which it sells through outlets such as Target and Walmart for an average selling price of $8. MicroDisk has a standard monthly production level of 420,000 Mini SDs in its Taiwan facility. The standard input quantities and prices for direct-cost inputs are as follows:
Phoebe King, the CEO, is disappointed with the results for June 2017, especially in comparison to her expectations based on the
King observes that despite the significant increase in the output of Mini SDs in June, the product’s contribution to the company’s profitability has been lower than expected. She gathers the following information to help analyze the situation:
Calculate the following variances. Comment on the variances and provide potential reasons why they might have arisen, with particular attention to the variances that may be related to one another:
- 1. Selling-price variance
- 2. Direct materials price variance, for each category of materials
- 3. Direct materials efficiency variance, for each category of materials
- 4. Direct manufacturing labor price variance, for setup and fabrication
- 5. Direct manufacturing labor efficiency variance, for setup and fabrication
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Sheen Co. manufactures a standard cabinet for a Blu-ray player. The variable cost per unit is $16. The fixed cost per unit is $9. The desired ROI per unit is $6.
Compute the markup percentage on total unit cost and the target selling price for the cabinet.
The Aqua Company manufactures and sells television sets.
Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets.
The SD, which is operating at capacity, incurs an incremental manufacturing cost of $60 per screen. The SD can sell all its output to the outside market at a price of $110 per screen, after incurring a variable marketing and distribution cost of $10 per screen. If the AD purchases screens from outside suppliers at a price of $110 per screen, it will incur a variable purchasing cost of $8 per screen. Aqua's division managers can act autonomously to maximize their own division's operating income.
1. What is the minimum transfer price at which the SD manager would be willing to sell screens to the AD?
2. What is the maximum transfer price at which the AD manager would be willing to purchase screens from the SD?
3. Now suppose that the SD can sell only 80% of its output capacity of 10,000 screens per month on the open market.…
Acme Co. manufactures widgets. The variable cost per unit is $17. The fixed cost per unit is $9. The desired ROI per unit is $6. What is the target selling price?
Chapter 7 Solutions
COST ACCOUNTING
Ch. 7 - What is the relationship between management by...Ch. 7 - What are two possible sources of information a...Ch. 7 - Distinguish between a favorable variance and an...Ch. 7 - What is the key difference between a static budget...Ch. 7 - Why might managers find a flexible-budget analysis...Ch. 7 - Describe the steps in developing a flexible...Ch. 7 - List four reasons for using standard costs.Ch. 7 - How might a manager gain insight into the causes...Ch. 7 - List three causes of a favorable direct materials...Ch. 7 - Describe three reasons for an unfavorable direct...
Ch. 7 - How does variance analysis help in continuous...Ch. 7 - Why might an analyst examining variances in the...Ch. 7 - Prob. 7.13QCh. 7 - When inputs are substitutable, how can the direct...Ch. 7 - Benchmarking against other companies enables a...Ch. 7 - Metal Shelf Companys standard cost for raw...Ch. 7 - All of the following statements regarding...Ch. 7 - Amalgamated Manipulation Manufacturings (AMM)...Ch. 7 - Atlantic Company has a manufacturing facility in...Ch. 7 - Basix Inc. calculates direct manufacturing labor...Ch. 7 - Flexible budget. Sweeney Enterprises manufactures...Ch. 7 - Flexible budget. Bryant Companys budgeted prices...Ch. 7 - Flexible-budget preparation and analysis. Bank...Ch. 7 - Flexible budget, working backward. The Clarkson...Ch. 7 - Flexible-budget and sales volume variances....Ch. 7 - Price and efficiency variances. Sunshine Foods...Ch. 7 - Materials and manufacturing labor variances....Ch. 7 - Direct materials and direct manufacturing labor...Ch. 7 - Price and efficiency variances, journal entries....Ch. 7 - Materials and manufacturing labor variances,...Ch. 7 - Journal entries and T-accounts (continuation of...Ch. 7 - Price and efficiency variances, benchmarking....Ch. 7 - Static and flexible budgets, service sector....Ch. 7 - Flexible budget, direct materials, and direct...Ch. 7 - Variance analysis, nonmanufacturing setting. Joyce...Ch. 7 - Comprehensive variance analysis review. Ellis...Ch. 7 - Possible causes for price and efficiency...Ch. 7 - Material-cost variances, use of variances for...Ch. 7 - Direct manufacturing labor and direct materials...Ch. 7 - Direct materials efficiency, mix, and yield...Ch. 7 - Direct materials and manufacturing labor...Ch. 7 - Direct materials and manufacturing labor...Ch. 7 - Use of materials and manufacturing labor variances...Ch. 7 - Direct manufacturing labor variances: price,...Ch. 7 - Direct-cost and selling price variances. MicroDisk...Ch. 7 - Variances in the service sector. Derek Wilson...Ch. 7 - Prob. 7.47P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- The Slate Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a price of $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act autonomously to maximize their own division’s operating income. Q. Now suppose that the SD can sell only 70% of its output capacity of 20,000 screens per month on the open market. Capacity cannot be reduced in the short run. The AD can assemble and sell more than 20,000 TV sets per month. a. If Slate mandates the SD and AD managers to “split the difference” on the minimum and maximum transfer…arrow_forwardThe Slate Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a price of $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act autonomously to maximize their own division’s operating income. Q. What is the maximum transfer price at which the AD manager would be willing to purchase screens from the SD?arrow_forwardThe Slate Company manufactures and sells television sets. Its assembly division (AD) buys television screens from the screen division (SD) and assembles the TV sets. The SD, which is operating at capacity, incurs an incremental manufacturing cost of $65 per screen. The SD can sell all its output to the outside market at a price of $100 per screen, after incurring a variable marketing and distribution cost of $8 per screen. If the AD purchases screens from outside suppliers at a price of $100 per screen, it will incur a variable purchasing cost of $7 per screen. Slate’s division managers can act autonomously to maximize their own division’s operating income. Q. Now suppose that the SD can sell only 70% of its output capacity of 20,000 screens per month on the open market. Capacity cannot be reduced in the short run. The AD can assemble and sell more than 20,000 TV sets per month. a. From the point of view of Slate’s management, how much of the SD output should be transferred to the AD?arrow_forward
- Garcia Company produces two different types of gauges: a density gauge and a thickness gauge. The segmented income statement for a typical quarter follows. The density gauge uses a subassembly that is purchased from an external supplier for $25 per unit. Each quarter, 2,000 subassemblies are purchased. All units produced are sold, and there are no ending inventories of subassemblies. Garcia is considering making the subassembly rather than buying it. Unit-level variable manufacturing costs are as follows: Direct materials $2Direct labor 3Variable overhead 2No significant non-unit-level costs are incurred. Garcia is considering two alternatives to supply the productive capacity for the subassembly. Lease the needed space and equipment at a cost of $27,000 per quarter for the space and $10,000 per quarter for a supervisor. There are no other fixed expenses. Drop the thickness gauge. The equipment could be adapted with virtually no cost and the existing space utilized to produce…arrow_forwardSuppose that Stillwater Designs has two classes of distributors: JIT distributors and non-JIT distributors. The JIT distributor places small, frequent orders, and the non-JIT distributor tends to place larger, less frequent orders. Both types of distributors are buying the same product. Stillwater Designs provides the following information about customer-related activities and costs for the most recent quarter: JITDistributors Non-JITDistributors Sales orders 1,000 100 Sales calls 70 70 Service calls 350 175 Average order size 650 6,500 Manufacturing cost/unit $125 $125 Customer costs: Processing sales orders $3,380,000 Selling goods 1,120,000 Servicing goods 1,050,000 Total $5,550,000 Required: 1. Calculate the total revenues per distributor category, and assign the customer costs to each distributor type by using revenues as the allocation base. Selling price for one unit is $150. Round calculations to the nearest dollar. JIT…arrow_forwardCollyer Products Inc. has a Valve Division that manufactures and sells a standard valve as follows: Capacity in units Selling price to outside customers on the intermediate market Variable costs per unit Fixed costs per unit (based on capacity) 10,000 15 8 5 The company has a Pump Division that could use this valve in the manufacture of one of its pumps. The Pump Division is currently purchasing 10,000 valves per year from an overseas supplier at a cost of $14 per valve. 3. Assume again that the Valve Division is selling all that it can produce to outside customers on the intermediate market. Also assume that $2 in variable expenses can be avoided on transfers within the company, due to reduced selling costs. What is the acceptable range, if any, for the transfer price between the two divisions? Transfer price 4. Assume the Pump Division needs 20,000 special high-pressure valves per year. The Valve Division's variable costs to manufacture and ship the special valve would be $10 per…arrow_forward
- Ortega Company manufactures computer hard drives. The market for hard drives is very competitive. The current market price for a computer hard drive is $54. Ortega would like a profit of $14 per drive. What target cost Ortega should set to accomplish this objective? Target cost $ per hard drivearrow_forwardGamin Inc. produces various GPS devices with a wide assortment of different models for its customers. One item, RC1 is very popular. Keen of keeping its stock under control, a decision is taken to order only the optimum economic quantity, for this item, each time. You have the following information. Annual demand (units) 115,200 Purchase price per unit $ 300 Carrying/Holding costs per unit $ 8 Cost per order $ 200 Required: Determine the EOQ using the equation method. Fill the blanks in the following table using the above data. No. of orders 1 10 20 30 90 120 Order size Average stock Carrying (Holding) costs Order costs Total costs Calculate the holding, ordering cost & their total cost at the EOQ level. Plot the graph at the EOQ level showing the…arrow_forwardStavos Company’s Screen Division manufactures a standard screen for high-definition televisions (HDTVs). The cost per screen is: Variable cost per screen $ 117 Fixed cost per screen 27* Total cost per screen $ 144 *Based on a capacity of 810,000 screens per year. Part of the Screen Division’s output is sold to outside manufacturers of HDTVs and part is sold to Stavos Company’s Quark Division, which produces an HDTV under its own name. The Screen Division charges $189 per screen for all sales. The net operating income associated with the Quark Division’s HDTV is computed as follows: Selling price per unit $ 582 Variable cost per unit: Cost of the screen $ 189 Variable cost of electronic parts 239 Total variable cost 428 Contribution margin 154 Fixed costs per unit 87* Net operating income per unit $ 67 *Based on a capacity of 170,000 units per year. The Quark Division has an order from an overseas source for 5,400 HDTVs. The…arrow_forward
- LG Electronics Ltd operates as a decentralised multidivisional company. The Electronic Division of LG Electronics Ltd manufactures smart televisions, each of which requires one square metre of special integrated circuit boards. The Electronic division can purchase this material from an external supplier at $100 plus a $5 inspection cost per square metre. Alternatively, it could purchase this material internally from the Assembly Division of LG Electronics Ltd. The Assembly Division’s incremental (variable) cost for manufacturing one square metre of special integrated circuit boards needed per television is $80. The Assembly Division is currently operating at 60% of its capacity of 20,000 square metres per month. It currently sells one square metre of special integrated circuit boards to external customers at $90 per square metre. The Electronic Division will initially manufacture 7,500 smart television units per month. REQUIRED: A) What is the minimum price at which the Assembly…arrow_forwardMorrill Company produces two different types of gauges: a density gauge and a thickness gauge.The segmented income statement for a typical quarter follows. The density gauge uses a subassembly that is purchased from an external supplier for $25 perunit. Each quarter, 2,000 subassemblies are purchased. All units produced are sold, and thereare no ending inventories of subassemblies. Morrill is considering making the subassemblyrather than buying it. Unit-level variable manufacturing costs are as follows: Direct materials $2Direct labor 3Variable overhead 2 No significant non-unit-level costs are incurred.Morrill is considering two alternatives to supply the productive capacity for the subassembly.1. Lease the needed space and equipment at a cost of $27,000 per quarter for the space and$10,000 per quarter for a supervisor. There are no other fixed expenses.2. Drop the thickness gauge. The equipment could be adapted with virtually no cost and theexisting space utilized to produce the…arrow_forwardStavos Company's Screen Division manufactures a standard screen for high-definition televisions (HDTVs). The cost per screen is: Variable cost per screen $ 119 Fixed cost per screen 32* Total cost per screen $ 151 *Based on a capacity of 800,000 screens per year. Part of the Screen Division's output is sold to outside manufacturers of HDTVs and part is sold to Stavos Company's Quark Division, which produces an HDTV under its own name. The Screen Division charges $192 per screen for all sales. The net operating income associated with the Quark Division's HDTV is computed as follows: Selling price per unit $ 579 Variable cost per unit: Cost of the screen $ 192 Variable cost of electronic parts 240 Total variable cost 432 Contribution margin 147 Fixed costs per unit 81* Net operating income per unit $ 66 *Based on a capacity of 180,000 units per year. The Quark Division has an order from an overseas source for 4,800 HDTVs. The overseas source wants to pay only $410 per unit. Required:…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
What is Risk Management? | Risk Management process; Author: Educationleaves;https://www.youtube.com/watch?v=IP-E75FGFkU;License: Standard youtube license