 Questions:

1-4

What are the three roles that management accountants perform?

1-10

What are three guidelines help management accountants provide the most value to managers?

2-3

Why do managers consider direct cost to be more accurate than indirect costs?

2-10

What are three different types of inventory that manufacturing companies hold?

2-11

Distinguish between inventorable costs and period costs.

3-5

Describe three methods that can be used to calculate the breakeven point

3-10

Give example of how a manager can decrease variable costs while increasing fixed costs.

3-13

“There is no such thing as a fixed cost. All costs can be “unfixed” given sufficient time’. Do
you agree? What is the implication of your answer for CVP analysis?

10-5

Name four approaches to estimating a cost function

10-8

List six steps in estimating a cost function on the basis of an analysis of a part cost
relationship. Which step is typically the most difficult for the cost analyst?

 Exercises:
 1-16

Planning and control decisions. Barnes & Noble is a book retailing company. Most of its
sales are made at its own stores, located in shopping malls or in central business districts. A
small but increasing percentage of sale is made via BarnesandNoble.com, in which its major
competitor is Amazon.com.

The following five reports were recently prepared by the management accounting group at
Barnes & Noble:

1. Annual Financial statements

2. Weekly reports to vice president of operation for each Barnes &Noble’s store-includes
revenue, gross margin, and operating costs

3. Study for vice president of new business development of the expected revenues and cost of
Barnesandobles.com, selling music products (CD, cassettes,ect.) as well as book.

4. Weekly report to book publishers and trade magazines on the sales of the top 10 selling
fiction and nonfiction books at both its own stores and BarnesandNoble.com.

5. Report to insurance company on losses Barnes& Noble suffered at its three San Francisco
stores due to an earthquake

For each report, identify both a planning-decision and a control-decision use by a Barnes &
Noble manager..

2-27

Computing cost of goods purchased and cost of goods sold. The data below are for Marvin
Department Store. The account balances (in thousands) are for 2004.

Marketing, distribution, and customer-service costs $37,000

Merchandise inventory, January 1, 2004 $ 27,000
Utilities $ 17,000
General and administrative costs $43,000
Merchandise inventory, December 31, 2004 $ 34,000
Purchases $155,000
Miscellaneous cost $4,000
Transportation-in $7,000
Purchase returns and allowances $ 4,000
Purchase discounts $6,000

Compute

a. cost of goods purchased

 b. cost of goods sold

3-21

CBP exercises. The Doral Company manufactures and sells pens. Currently, 5,000,000 units
are sold per year at $0.50 per unit. Fixed cost are $900,000 per year. Variable cost are $0.30 per
unit.

Consider each case separately:

1. a. What is the present operating income for a year?

b. What is the present breakeven point in revenue?

Compute the new operating income for each of the following changes:

2. A $0.04 per unit increase in variable costs

3. A 10% increase in fixed costs and a 10% increase in unit sold

4. A 20% decrease in fixed costs, a 20% decrease in selling price, a 10% decrease in variable
cost per unit, and a 40% increase in unit sold.

Compute the new breakeven point in units for each of the following changes:

5. A 10% increase in fixed costs

6. A 10% increase in selling price and a $20,000 increase in fixed costs.

3-30

CVP analysis, multiple cost drivers. Susan Wong is a distributor of brass picture frames. For
2002, she plans to purchase frames for $30 each and sell them for $45 each. Susan’s fixed costs
for 2002 are expected to be $240,000. Susan’s only other cost will be variable cost of $60 per
shipment for preparing the invoice and delivery documents, organizing the delivery, and
following up for collecting accounts receivable. The $60 cost will be incurred each Susan ships
an order of picture frames, regardless of the number of frames in the order.

1. a. Suppose Susan sells 40,000 picture frames in 1,000 shipments in 2002. Calculate
Susan’s 2002 operating income

b. Suppose Susan sells 40,000 pictures frames in 800 shipments in 2002. Calculate Susan’s
2002 operating income.

2. Suppose Susan anticipates making 500 shipments in 2002. How many pictures frames
must Susan sell to break even in 2002?
 3. Calculate another breakeven point for 2002, different from the one describes in
requirement 2. Explain briefly why Susan has multiple breakeven points.

10-20

Account analysis method. Lorenzo operate a car wash. Incoming cars are put on an automatic
conveyor belt. Cars are washed as the conveyor belt carries the car from the start station to the
finish station. After the Car moves off the conveyor belt, the car is dried manually. Workers then
clean and vacuum the inside car. Lorenzo serviced 80,000 cars in 2004. Lorenzo report the
following cost for 2004.

Account description Cost $

Car wash labor 240,000
Soap, cloth, and supplies 32,000
Water 28,000
Electric power to move conveyor belt 72,000
Depreciation 64,000
Salaries 46,000
1. Classify each account as variable or fixed with respect to the number of car washes.
Explain
2. Lorenzo expect to wash 90,000 cars in 2005. Use the cost classification you developed
in requirement1 to estimate Lorenzo’s total costs in 2005. Depreciation is computed on
a straight-line basis.

2-39
Missing data. Shaheen Plastic, Inc’s selected data for the month of August 2004 are presented
bellow (in millions):
Work-in-process inventory 08/01/2004 200
Direct materials inventory 08/01/2004 90
Direct materials purchased 360
Direct materials used 375
Variable manufacturing overhead 250
Total manufacturing overhead 480
Total manufacturing costs 1600
Cost of goods manufactured 1650
Cost of goods sold 1700
Finished goods inventory 08/01/2004 125

Calculate the following costs:

1. Direct materials inventory 08/31/2004
2. Fixed manufacturing overhead costs foe August
3. Direct manufacturing labor cost for August
4. Work-in-process inventory 08/31/2004
5. Goods available for sale in August
6. Finished-goods inventory 08/31/2004
3-49
Deciding where to produce. (CMA, adapted) The PTO Division produces the same power
takeoff units in two plants, new plants in Peoria, and an older plant in Moline. The PTO Division
expected to produce and sell 192,000 power takeoff units during the coming year. The following
data are available for the two plants.
Peoria Peoria Moline Moline
Selling price 150.00 150.00
Variable 72.00 88.00
manufacturing
cost per unit
Fixed 30.00 15.00
manufacturing
cost per unit
Variable 14.00 14.00
marketing and
distribution cost
per unit
Fixed marketing 19.00 14.50
and distribution
cost per unit
Total cost per 135.00 131.5
unit
Operating 15.00 18.50
income per unit
Production rate 400 units 320 units
per day

All fixed costs per unit are calculated based on a normal year consists of 240 working days.
When the number of working days exceeds 240, variable manufacturing cost increase by $3.00
per unit in Peoria and $8.00 per unit in Moline. Capacity for each plant is 300 working days per
year.
Whishing to take advantage of the higher operating income per unit at Moline, PTO’s production
manager has decided to manufacture 96,000 units at each plant. This production plan results in
Moline operating at capacity (320 units per day x 300 days) and Peoria operating at its normal
value (400 units per day x 240 days).
1. Calculate the breakeven points in units for the Peoria and Moline plants.
2. Calculate the operating income that would result from the production manager’s plan to
produce 96,000 units at each plant.
3. Determine how the production of the 192,000 units should be allocated between the
Peoria and Moline plants to maximize operating income for the PTO Division. Show you
calculation.