Question for classroom or small-group discussion. Now that we have studied different kinds of costs and the systems used to accumulate them, let’s think about how these concepts might apply in the social media industry. Suppose you are the CFO (chief financial officer) of Facebook, Twitter, Instagram, or any other social media company. What kinds of costs do these companies incur? Are there labor, material, and overhead costs? Direct and indirect costs? Fixed and variable costs? What are the types of services produced by social media companies? And how do the costs these companies incur relate to the services they generate?
A-1 Products manufactures wooden furniture using an assembly-line process. All direct materials are introduced at the start of the process, and conversion cost is incurred evenly throughout manufacturing. An examination of the company’s Work-in-Process Inventory account for June revealed the following selected information.
June 1 balance: 300 units, 30% complete as to conversion, cost $21,300* Production started: 900 units Direct material used during June: $45,000 June conversion cost: $25,700
Credit side: Production completed: 700 units *Supplementary records revealed direct-material cost of $15,000 and conversion cost of $6,300.
Conversations with manufacturing personnel revealed that the ending work in process was 60 percent complete as to conversion.
1. Determine the number of units in the June 30 work-in-process inventory.
2. Calculate the cost of goods completed during June and prepare the appropriate journal entry to record completed production.
3. Determine the cost of the June 30 work-in-process inventory.
4. Briefly explain the meaning of equivalent units. Why are equivalent units needed to properly allocate costs between completed production and production in process?
WMEJ is an independent television station run by a major state university. The station’s broadcast hours vary during the year depending on whether the university is in session. The station’s production-crew and supervisory costs are as follows for July and September.
1. Compute the cost per broadcast hour during July and September for each of these cost items.
2. What will be the total amount incurred for each of these costs during December, when the station’s activity will be 420 broadcast hours?
3. What will be the cost per broadcast hour in December for each of the cost items?
The customer profitability analysis for Dronze Inc., which is displayed in Exhibit 5–14, ranks customers by operating income. An alternative, often-used approach is to rank customers by sales revenue.
1. List the customer numbers in the left-hand column of Exhibit 5–14 by sales revenue, from highest to lowest. Is the ranking different from that in Exhibit 5–14?
2. Dronze Inc.’s smallest customers, in terms of sales revenue, are last in the listing prepared for requirement 1. Are these customers the company’s least profitable?
3. Would the customer profitability profile in Exhibit 5–15 be different if the customers were ranked by sales revenue instead of operating income? Explain.
4. What factors could cause a larger customer (in terms of sales revenue) to be less profitable than a smaller customer?
Hold a classroom discussion (or debate) arguing the following two viewpoints,
A: Sound data analytics is the key to using data for decision making. This is where the story embedded in the data is unlocked. Data visualization is all fluff—just a bunch of pretty pictures.
B: Data visualization methodology is the key to communicating the story in the data to the people who will make the decisions. It makes the data come alive. Try presenting a power point show to managers focusing on regression equation statistics such as intercepts and slopes. They will quickly develop a case of MEGO (“My eyes glaze over!”)
Write a brief report summarizing the discussion. Which viewpoint makes the most sense?
The European Division of Worldwide Reference produces a pocket dictionary containing popular phrases in six European languages. Annual budget data for the coming year follow. Projected sales are 100,000 books.
1. Calculate the break-even point in units and in sales dollars.
2. If the European Division is subject to an income-tax rate of 25 percent, compute the number of units the company would have to sell to earn an after-tax profit of $90,000.
3. If fixed costs increased $31,500 with no other cost or revenue factor changing, compute the firm’s break-even sales in units.
4. Focusing on operating profit (i.e., before-tax profit), prepare a profit-volume graph for the European Division.
5. Due to a possible change in the political situation in the country in which the European Division is located, management believes the country’s government may reduce the tax rate to 20 percent. Assuming all other data as in the original problem, how many pocket dictionaries must be sold to earn $90,000 after taxes?
Cape Cod Shirt Shop manufactures T-shirts and decorates them with custom designs for retail sale on the premises. Several costs incurred by the company are listed below. For each cost, indicate which of the following classifications best describe the cost. More than one classification may apply to the same cost item.
h. Research and development
i. Direct material
j. Direct labor
k. Manufacturing overhead
1. Cost of fabric used in T-shirts.
2. Wages of shirtmakers.
3. Cost of new sign in front of retail T-shirt shop.
4. Wages of the employee who repairs the firm’s sewing machines.
5. Cost of electricity used in the sewing department.
6. Wages of T-shirt designers and painters.
7. Wages of sales personnel. 8. Depreciation on sewing machines.
9. Rent on the building. Part of the building’s first floor is used to make and paint T-shirts. Part of it is used for the retail sales shop. The second floor is used for administrative offices and storage of raw material and finished goods.
10. Cost of daily advertisements in local media.
11. Wages of designers who experiment with new fabrics, paints, and T-shirt designs.
12. Cost of hiring a pilot to fly along the beach pulling a banner advertising the shop.
13. Salary of the owner’s secretary.
14. Cost of repairing the gas furnace.
15. Cost of insurance for the production employees.
Bodin Company manufactures finger splints for kids who get tendonitis from playing video games. The firm had the following inventories at the beginning and end of the month of January.
The following additional data pertain to January operations.
Raw material purchased ………………………………………………………………… $191,000
Direct labor …………………………………………………………………………………… 300,000
Actual manufacturing overhead ……………………………………………………… 175,000
Actual selling and administrative expenses ……………………………………… 115,000
The company applies manufacturing overhead at the rate of 60 percent of direct-labor cost. Any overapplied or underapplied manufacturing overhead is accumulated until the end of the year.
Compute the following amounts.
1. The company’s prime cost for January.
2. The total manufacturing cost for January.
3. The cost of goods manufactured for January.
4. The cost of goods sold for January.
5. The balance in the manufacturing overhead account on January 31. Debit or credit?
Give an example of managerial accounting information that could help a manager make each of the following decisions.
1. The president of Budget Rent a Car is deciding whether to add luxury cars to the rental car fleet.
2. The production manager in a Volvo Trucks plant is deciding whether to have routine maintenance performed on a machine weekly or biweekly.
3. The manager of a Target store is deciding how many security personnel to employ for the purpose of reducing shoplifting.
4. The Miami-Dade County board of representatives is deciding whether to build an addition onto one of the county libraries.
For each of the following activities, explain which of the objectives of managerial accounting activity is involved. In some cases, several objectives may be involved.
1. Developing a bonus reward system for the managers of the various offices of the AAA (American Automobile Association) Travel Agency.
2. Comparing the actual and planned cost of a consulting engagement completed by an engineering firm such as Allied Engineering.
3. Determining the cost of manufacturing a tennis racket at Wilson Sporting Goods.
4. Measuring the cost of the inventory of digital cameras on hand in a Best Buy store.
5. Estimating the annual operating cost of a newly proposed Wells Fargo branch bank.
6. Measuring the following costs incurred during one month in a Hyatt Regency hotel: a. Wages of table-service personnel. b. Property taxes.
7. Comparing a Sheraton Hotel’s room rate structure, occupancy rate, and restaurant patronage with industry averages.