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Principles of Accounting, Volume 2: Managerial Accounting

Thought Provokers

Principles of Accounting, Volume 2: Managerial AccountingThought Provokers
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TP 1.

LO 10.2Seda Sarkisian makes wedding cakes from her home. A customer has requested two duplicate wedding cakes: one for the wedding and one to be frozen for their anniversary. The couple has offered $400 for both cakes instead of $500 ($250 each). The cost information to make one cake is shown.

For one cake: Direct materials $50, Direct labor $100, Variable overhead $25, Fixed overhead $10.
  1. What is the cost for the first cake?
  2. What cost would not be included in the second cake?
  3. What is the cost of the second cake?
  4. What would be the total cost of this order if the offer was accepted?
  5. How much profit will Seda be recording for this special order?
  6. If your company policy is to always have a 15% profit on all order, would you still accept this order?
  7. If you would not accept the order, what price would you negotiate?
TP 2.

LO 10.3You are a management accountant for Time Treasures Company, whose company has recently signed an outsourcing agreement with Spotless, Inc., a janitorial service company. Spotless will provide all of Time Treasures’ janitorial services, including sweeping floors, hauling trash, washing windows, stocking restrooms, and performing minor repairs. Time Treasures will be billed at an hourly rate based on the type of service performed. The work of common laborers (sweeping, hauling trash) is to be billed at $8 per hour. More skilled (repairs) and more dangerous work (washing outside windows on the 23rd floor) are to be billed at $18 per hour. Supervisory time is to be billed at $20 per hour. Spotless will submit monthly invoices, which will show the number and types of hours for which Time Treasures is being charged. The outsourcing contract is simple and straightforward.

  1. What are some of the internal control problems you foresee as a result of outsourcing the janitorial service with this contract?
  2. Explain recommendations to control risk that would you suggest after reviewing the contract.
TP 3.

LO 10.5Brindi’s Babysitting Center currently rents a 1200 sq foot facility for her 20-child facility. Her business has gotten five stars on Yelp, which has prompted more applications. She has to make a decision between expanding her operations to an 1,800 sq foot facility or staying in the current facility. Shown is the cost data of the options:

Expand and Stay, respectively: Children served 30, 20; Annual rent $1,500, $1,000; Utilities $500, $300; Food and materials $2,100, $1,400; Direct labor $6,000, $4,000; Moving cost $5,000, $?.

What is the differential cost of the two alternatives: A) move to a larger facility or B) stay in current facility?

TP 4.

LO 10.6Akimoto’s Bicycle Co assembles three types of bicycles: Charger, Sublime, Kidde. Due to their residential location they operate with one 8 hour shift, 5 days per week, 50 weeks a year. Balancing the bikes is the bottleneck. The information about production time and costs for these three bicycles are:

Charger, Sublime, and Kidde, respectively: Hours to produce 2, 1.75, 0.5; Selling price $600, $300, $200; Direct material $100, $75, $50; Direct labor $150, $100, $75; Variable overhead $50, $25, $25; Fixed overhead $25, $25, $20.
  1. How many of each bicycle should be produced to maximize profits?
  2. What qualitative factors would you need to consider?
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