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Table of contents
  1. Preface
  2. 1 Accounting as a Tool for Managers
    1. Why It Matters
    2. 1.1 Define Managerial Accounting and Identify the Three Primary Responsibilities of Management
    3. 1.2 Distinguish between Financial and Managerial Accounting
    4. 1.3 Explain the Primary Roles and Skills Required of Managerial Accountants
    5. 1.4 Describe the Role of the Institute of Management Accountants and the Use of Ethical Standards
    6. 1.5 Describe Trends in Today’s Business Environment and Analyze Their Impact on Accounting
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Thought Provokers
  3. 2 Building Blocks of Managerial Accounting
    1. Why It Matters
    2. 2.1 Distinguish between Merchandising, Manufacturing, and Service Organizations
    3. 2.2 Identify and Apply Basic Cost Behavior Patterns
    4. 2.3 Estimate a Variable and Fixed Cost Equation and Predict Future Costs
    5. Key Terms
    6. Summary
    7. Multiple Choice
    8. Questions
    9. Exercise Set A
    10. Exercise Set B
    11. Problem Set A
    12. Problem Set B
    13. Thought Provokers
  4. 3 Cost-Volume-Profit Analysis
    1. Why It Matters
    2. 3.1 Explain Contribution Margin and Calculate Contribution Margin per Unit, Contribution Margin Ratio, and Total Contribution Margin
    3. 3.2 Calculate a Break-Even Point in Units and Dollars
    4. 3.3 Perform Break-Even Sensitivity Analysis for a Single Product Under Changing Business Situations
    5. 3.4 Perform Break-Even Sensitivity Analysis for a Multi-Product Environment Under Changing Business Situations
    6. 3.5 Calculate and Interpret a Company’s Margin of Safety and Operating Leverage
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  5. 4 Job Order Costing
    1. Why It Matters
    2. 4.1 Distinguish between Job Order Costing and Process Costing
    3. 4.2 Describe and Identify the Three Major Components of Product Costs under Job Order Costing
    4. 4.3 Use the Job Order Costing Method to Trace the Flow of Product Costs through the Inventory Accounts
    5. 4.4 Compute a Predetermined Overhead Rate and Apply Overhead to Production
    6. 4.5 Compute the Cost of a Job Using Job Order Costing
    7. 4.6 Determine and Dispose of Underapplied or Overapplied Overhead
    8. 4.7 Prepare Journal Entries for a Job Order Cost System
    9. 4.8 Explain How a Job Order Cost System Applies to a Nonmanufacturing Environment
    10. Key Terms
    11. Summary
    12. Multiple Choice
    13. Questions
    14. Exercise Set A
    15. Exercise Set B
    16. Problem Set A
    17. Problem Set B
    18. Thought Provokers
  6. 5 Process Costing
    1. Why It Matters
    2. 5.1 Compare and Contrast Job Order Costing and Process Costing
    3. 5.2 Explain and Identify Conversion Costs
    4. 5.3 Explain and Compute Equivalent Units and Total Cost of Production in an Initial Processing Stage
    5. 5.4 Explain and Compute Equivalent Units and Total Cost of Production in a Subsequent Processing Stage
    6. 5.5 Prepare Journal Entries for a Process Costing System
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  7. 6 Activity-Based, Variable, and Absorption Costing
    1. Why It Matters
    2. 6.1 Calculate Predetermined Overhead and Total Cost under the Traditional Allocation Method
    3. 6.2 Describe and Identify Cost Drivers
    4. 6.3 Calculate Activity-Based Product Costs
    5. 6.4 Compare and Contrast Traditional and Activity-Based Costing Systems
    6. 6.5 Compare and Contrast Variable and Absorption Costing
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  8. 7 Budgeting
    1. Why It Matters
    2. 7.1 Describe How and Why Managers Use Budgets
    3. 7.2 Prepare Operating Budgets
    4. 7.3 Prepare Financial Budgets
    5. 7.4 Prepare Flexible Budgets
    6. 7.5 Explain How Budgets Are Used to Evaluate Goals
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  9. 8 Standard Costs and Variances
    1. Why It Matters
    2. 8.1 Explain How and Why a Standard Cost Is Developed
    3. 8.2 Compute and Evaluate Materials Variances
    4. 8.3 Compute and Evaluate Labor Variances
    5. 8.4 Compute and Evaluate Overhead Variances
    6. 8.5 Describe How Companies Use Variance Analysis
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  10. 9 Responsibility Accounting and Decentralization
    1. Why It Matters
    2. 9.1 Differentiate between Centralized and Decentralized Management
    3. 9.2 Describe How Decision-Making Differs between Centralized and Decentralized Environments
    4. 9.3 Describe the Types of Responsibility Centers
    5. 9.4 Describe the Effects of Various Decisions on Performance Evaluation of Responsibility Centers
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  11. 10 Short-Term Decision Making
    1. Why It Matters
    2. 10.1 Identify Relevant Information for Decision-Making
    3. 10.2 Evaluate and Determine Whether to Accept or Reject a Special Order
    4. 10.3 Evaluate and Determine Whether to Make or Buy a Component
    5. 10.4 Evaluate and Determine Whether to Keep or Discontinue a Segment or Product
    6. 10.5 Evaluate and Determine Whether to Sell or Process Further
    7. 10.6 Evaluate and Determine How to Make Decisions When Resources Are Constrained
    8. Key Terms
    9. Summary
    10. Multiple Choice
    11. Questions
    12. Exercise Set A
    13. Exercise Set B
    14. Problem Set A
    15. Problem Set B
    16. Thought Provokers
  12. 11 Capital Budgeting Decisions
    1. Why It Matters
    2. 11.1 Describe Capital Investment Decisions and How They Are Applied
    3. 11.2 Evaluate the Payback and Accounting Rate of Return in Capital Investment Decisions
    4. 11.3 Explain the Time Value of Money and Calculate Present and Future Values of Lump Sums and Annuities
    5. 11.4 Use Discounted Cash Flow Models to Make Capital Investment Decisions
    6. 11.5 Compare and Contrast Non-Time Value-Based Methods and Time Value-Based Methods in Capital Investment Decisions
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  13. 12 Balanced Scorecard and Other Performance Measures
    1. Why It Matters
    2. 12.1 Explain the Importance of Performance Measurement
    3. 12.2 Identify the Characteristics of an Effective Performance Measure
    4. 12.3 Evaluate an Operating Segment or a Project Using Return on Investment, Residual Income, and Economic Value Added
    5. 12.4 Describe the Balanced Scorecard and Explain How It Is Used
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  14. 13 Sustainability Reporting
    1. Why It Matters
    2. 13.1 Describe Sustainability and the Way It Creates Business Value
    3. 13.2 Identify User Needs for Information
    4. 13.3 Discuss Examples of Major Sustainability Initiatives
    5. 13.4 Future Issues in Sustainability
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Thought Provokers
  15. A | Financial Statement Analysis
  16. B | Time Value of Money
  17. C | Suggested Resources
  18. Answer Key
    1. Chapter 1
    2. Chapter 2
    3. Chapter 3
    4. Chapter 4
    5. Chapter 5
    6. Chapter 6
    7. Chapter 7
    8. Chapter 8
    9. Chapter 9
    10. Chapter 10
    11. Chapter 11
    12. Chapter 12
    13. Chapter 13
  19. Index
PB 1.

LO 6.1Bobcat uses a traditional cost system and estimates next year’s overhead will be $800,000, as driven by the estimated 25,000 direct labor hours. It manufactures three products and estimates the following costs:

The information for Bobcat, Jaguar, and Tiger, respectively. Units: 250,000, 80,000, 12,000. Direct Material Cost: $13, $22, $37. Direct Labor Hours per Unit 2, 3, 5.

If the labor rate is $30 per hour, what is the per-unit cost of each product?

PB 2.

LO 6.1Five Card Draw manufactures and sells 10,000 units of Aces, which retails for $200, and 8,000 units of Kings, which retails for $170. The direct materials cost is $20 per unit of Aces and $15 per unit of Kings. The labor rate is $30 per hour, and Five Card Draw estimated 64,000 direct labor hours. It takes 4 direct labor hours to manufacture Aces and 3 hours for Kings. The total estimated overhead is $128,000. Five Card Draw uses the traditional allocation method based on direct labor hours.

  1. How much is the gross profit per unit for Aces and Kings?
  2. What is the total gross profit for the year?
PB 3.

LO 6.2A local picnic table manufacturer has budgeted the following overhead costs:

Estimated Overhead for the following: Purchasing $80,000; Handling materials 45,00; Machine setups 55,000; Assembly 60,000; Utilities 90,000.

They are considering adapting ABC costing and have estimated the cost drivers for each pool as shown:

Cost Drivers are: Orders, Material moves, Machine setups, Number of parts, and Square feet. Activities are, respectively: 10,000, 1,500, 5,000, 5,000, and 60,000.

Recent success has yielded an order for 1,500 tables. Determine how much the job would cost given the following activities, and assuming an hourly rate for direct labor of $25 per hour:

Activity for the following: Order (units) 1,500; Direct materials 75,900; Machine hours 3,310; Direct labor hours 4,590; Number of purchase orders 70; Number of material moves 750; Number of machine setups 85;  Number of parts 290; Number of square feet occupied 3,000.
PB 4.

LO 6.2Explain how each activity in this list can be associated with the corresponding unit or batch level provided.

  1. Assembling products: batch level
  2. Issuing raw materials: unit level
  3. Machine setup: unit level
  4. Inspection: batch level
  5. Loading the labeling machine: unit level
  6. Equipment maintenance: unit level
  7. Printing a banner: batch level
  8. Moving material: unit level
  9. Ordering a part: unit level
PB 5.

LO 6.3Wrappers Tape makes two products: Simple and Removable. It estimates it will produce 369,991 units of Simple and 146,100 of Removable, and the overhead for each of its cost pools is as follows:

Cost Pools and Estimated Overhead are: Material receipts $249,975; Machine setups 150,000; Assembly 450,000; Machine maintenance 175,000; Total $1,024,975.

It has also estimated the activities for each cost driver as follows:

Driver, Simple, and Removable, respectively. Machine hours, 2,000, 1,500. Requisitions, 300, 450. Parts, 100, 200. Setups, 150, 50.

How much is the overhead allocated to each unit of Simple and Removable?

PB 6.

LO 6.3Box Springs, Inc., makes two sizes of box springs: queen and king. The direct material for the queen is $35 per unit and $55 is used in direct labor, while the direct material for the king is $55 per unit, and the labor cost is $70 per unit. Box Springs estimates it will make 4,300 queens and 3,000 kings in the next year. It estimates the overhead for each cost pool and cost driver activities as follows:

Activity Cost Pools, Driver, Estimated Overhead, Use per Queen, Use per King, respectively. Framing, Square feet of pine, $150,000, 4,500, 3,000. Padding, Square feet of quilting, 156,000, 80,000, 40,000. Filling, Square feet of filling, 210,000, 150,000, 60,000. Labeling, Number of boxes, 190,000, 38,000, 38,000. Inspection, Number of inspections, 180,000, 120,000, 60,000.

How much does each unit cost to manufacture?

PB 7.

LO 6.3Please use the information from this problem for these calculations. After grouping cost pools and estimating overhead and activities, Box Springs determined these rates:

Purchasing $21. Utilities 15. Machine setups 10. Supervision 3.

Box Springs estimates there will be four orders in the next year, and those jobs will involve:

Orders 4. Square feet 150. Machine hours 60. Direct labor hours 25. Direct materials 900. Direct labor rate 35

What is the total cost of the jobs?

PB 8.

LO 6.4A company has traditionally allocated its overhead based on machine hours but collected this information to change to activity-based costing:

Estimated Activity by Activity Center for Product 1, Product 2, and Estimated Cost, respectively. Machine setups, 10, 15, $50,000. Assembly parts, 1,000 1,500, 75,000. Packaging units, 500, 300, 80,000. Machine hours per unit, 1, 1.5. Production volume 2,000, 2,000.
  1. How much overhead would be assigned to each unit under the traditional allocation method?
  2. How much overhead would be assigned to each unit under activity-based costing?
PB 9.

LO 6.4Casey’s Kitchens makes two types of food smokers: Gas and Electric. The company expects to manufacture 20,000 units of Gas smokers, which have a per-unit direct material cost of $15 and a per-unit direct labor cost of $25. It also expects to manufacture 50,000 units of Electric smokers, which have a per-unit material cost of $20 and a per-unit direct labor cost of $45. Historically, it has used the traditional allocation method and applied overhead at a rate of $125 per machine hour. It was determined that there were three cost pools, and the overhead for each cost pool is as follows:

Machine setups $5,000; Machine processing 6,000,000; Material requisitions 25,000; Total overhead $6,030,000.

The cost driver for each cost pool and its expected activity is as follows:

For Gas, Electric, and Total, respectively. Machine setups, 100, 150, 250. Machine hours, 45,000, 105,000, 150,000. Parts requisitions, 360, 140, 500.
  1. What is the per-unit cost for each product under the traditional allocation method?
  2. What is the per-unit cost for each product under ABC costing?
PB 10.

LO 6.4Casey’s Kitchens’ three cost pools and overhead estimates are as follows:

Activity Cost Pools, Cost Driver, Estimated Overhead, Use per Product A, Use per Product B, respectively. Machine setups, Setups, $250,000, 7,000, 3,000. Assembly, Number of parts, 300,000, 25,000, 35,000. Machine maintenance, Machine hours, 500,000, 10,000, 50,000.

Compare the overhead allocation using:

  1. The traditional allocation method
  2. The activity-based costing method

(Hint: the traditional method uses machine hours as the allocation base.)

PB 11.

LO 6.4Lampierre makes silver and gold candlesticks. The company computed this information to decide whether to switch from the traditional allocation method to ABC.

Silver and Gold, respectively. Units planned 500, 250. Material moves 250, 750. Machine setups 5,600, 4,400. Direct labor hours 500, 1,500.

The estimated overhead for the material cost pool is estimated as $45,000, and the estimate for the machine setup pool is $55,000. Calculate the allocation rate per unit of silver and per unit of gold using:

  1. The traditional allocation method
  2. The activity-based costing method
PB 12.

LO 6.4Portable Seats makes two chairs: folding and wooden. This information was obtained to review the decision to consider ABC:

Folding Chairs, Wooden Chairs, and Total Cost, respectively. Material requisitions 450 pounds, 250 pounds, $105,000. Inspections 250, 150, $30,000. Labor hours 1,300, 1,700.

Compute the overhead assigned to each product under:

  1. The traditional allocation method
  2. The activity-based costing method
PB 13.

LO 6.5Submarine Company produces only one product and sells that product for $150 per unit. Cost information for the product is as follows:

Direct material $40 per unit. Direct labor $50 per unit. Variable overhead $10 per unit. Fixed overhead $40,000.

Selling expenses are $2 per unit and are all variable. Administrative expenses of $15,000 are all fixed, Submarine produced 2,000 units and sold 1,800. Grainger had no beginning inventory.

  1. Compute net income under
    1. absorption costing
    2. variable costing
  2. Reconcile the difference between the income under absorption and variable costing.
PB 14.

LO 6.5Summarized data for Backdraft Co. for its first year of operations are as follows:

Sales (90,000 units) $3,500,000. Production costs (100,000 units): Direct material 1,100,000, Direct labor 400,000. Manufacturing overhead: variable 200,000, fixed 100,000. Selling and administrative expenses: variable 80,000, fixed 50,000.
  1. Prepare an income statement under absorption costing
  2. Prepare an income statement under variable costing
PB 15.

LO 6.5Trail Outfitters has this information for its manufacturing:

Direct materials $15; Direct labor $15; Variable manufacturing overhead $3; Fixed manufacturing overhead $25; Units produced 30,000; Units sold 38,000.

Its income statement under absorption costing is as follows:

Sales $3,200,000. Less Cost of Goods Sold: Beginning Inventory 464,000 plus Cost of Goods Manufactured 1,740,000 equals Cost of Goods Available for Sale 2,204,000 less Ending Inventory 0 equals Cost of Goods Sold 2,204,000. Equals Gross Profit 996,000. Less Sales and Admin Expenses: Variable 266,000 and Fixed 300,000, Total Sales and Admin Expenses 566,000. Equals Net Operating Income $430,000.

Prepare an income statement with variable costing and a reconciliation statement between both methods.

PB 16.

LO 6.5Wifi Apps has these costs associated with its production and sale of devices that allow visual communications between cell phones:

Beginning inventory $0. Units produced 33,000. Units sold 23,000. Selling price per unit $170. Variable sales and administration expenses $4. Fixed sales and administration expenses $895,000. Direct material cost per unit $23. Direct labor cost per Unit $15. Variable manufacturing overhead cost per unit $4. Fixed manufacturing overhead cost per month $858,000.

Prepare an income statement under both the absorption and variable costing methods along with a reconciliation between the two statements.

PB 17.

LO 6.5This information was collected for the first year of manufacturing for Wifi Apps:

Direct materials per unit $1.75; Direct labor per unit $3.50; Variable manufacturing overhead per Unit $0.55; Variable Selling and administration expenses $1.25; Units produced 50,000; Units sold 40,000; Sales price $13; Fixed manufacturing expenses $120,000; Fixed selling and administration expenses $35,000.

Prepare an income statement under variable costing and prepare a reconciliation to the income under the absorption method.

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