Our mission is to give people the power to share

Our mission is to give people the power to share and make the world more open and connected. Our top priority is to build useful and engaging products that enable people to connect and share through mobile devices, personal computers, and other surfaces. We also help people discover and learn about what is going on in the world around them, enable people to share their opinions, ideas, photos and videos, and other activities with audiences ranging from their closest friends to the public at large, and stay connected everywhere by accessing our products . . .

Description of business for Lowe’s Companies, Inc.

Lowe’s Companies, Inc. and subsidiaries (the Company or Lowe’s) is a Fortune® 50 company and the world’s second largest home improvement retailer. As of February 3, 2017, Lowe’s operated 2,129 home improvement and hardware stores, representing approximately 213 million square feet of retail selling space.

These operations were comprised of 1,820 stores located across 50 U.S. states, including 87 Orchard Supply Hardware (Orchard) stores, as well as 299 stores in Canada, and 10 stores in Mexico.


a. Determine which company appears to have the higher operating leverage.

b. Write a paragraph or two explaining why the company you identified in Requirement a might be expected to have the higher operating leverage.

c. If revenues for both companies increased by 5 percent, which company do you think would likely experience the greater percentage increase in operating earnings? Explain your answer.

As the data on the partial income statements shown as

As the data on the partial income statements shown as follows reveal, Netflix, Inc. increased its revenues by 72 percent from 2015 to 2017, while its operating income during this period increased by 174 percent.


a. What concept explains, at least in part, how Netflix’s net income could rise by 174 percent when its revenue rose only 72 percent?

b. Does the concept identified in Requirement a result from fixed costs or variable costs?

c. Analyze the data for the four expense categories presented. Which one seems the most responsible for the causing percentage increase in operating income to be so much greater than the percentage increase in revenues? Explain your answer with computations. Note: You will need to use some creative thought for this, as the material in the chapter does not show an exact demonstration, but the concepts involved should be familiar.

HealthSouth Corporation claims to be “the nation’s leading owner and

HealthSouth claims to be “the nation’s leading owner and operator of inpatient rehabilitation hospitals and a leader in home-based care (home health and hospice), offering services in 36 states and Puerto Rico.” As of December 31, 2017, the company derived 96.7 percent of its hospital revenues from inpatient services. During 2017 it treated and discharged 171,922 patients, and the average length of a patient’s stay was 12.7 days. If one patient occupying one bed for one day represents a “patientday,” then HealthSouth produced 2,183,409 patient-days of output during 2017 (171,922 × 12.7 = 2,183,409). During this period, HealthSouth incurred depreciation and amortization costs of $183,800,000. For the purpose of this problem, assume that all of this is depreciation that is related to the property, plant, and equipment of inpatient hospitals. 


a. Indicate whether the depreciation cost is a:

(1) Product (i.e., patient) cost or a general, selling, and administrative cost.

(2) Fixed or variable cost relative to the volume of production.

(3) Direct or indirect cost if the cost object is the cost of patient services provided in 2017.

b. Assume that HealthSouth incurred depreciation of $15,320,000 during each month of the 2017 fiscal year, but that it produced 196,000 patient-days of service during February and 166,000 patientdays of service during March. Based on monthly costs and service levels, what was the average amount of depreciation cost per patient day of service provided during each of these two months, assuming each patient-day of service was charged the same amount of depreciation?

c. If HealthSouth expected to produce 2,270,000 patient-days of service during 2017 and estimated its annual depreciation costs to be $190,000,000, what would have been its predetermined overhead charge per patient-day of service for depreciation? Explain the advantage of using this amount to determine the cost of providing one patient-day of service in February and March versus the amounts you computed in Requirement b.

d. If HealthSouth’s management had estimated the profit per patient-day of service based on its budgeted production of 2,270,000 patient-days, would you expect its actual profit per patient-day of service to be higher or lower than expected? Explain.

Use the 2017 Form 10-K (year ended on December 31,

Use the 2017 Form 10-K (year ended on December 31, 2017) for Coca-Cola Bottling Co. Consolidated to complete the following requirements. Be aware that Coca-Cola Bottling Co. Consolidated (COKE) is a separate company from The Coca-Cola Company (KO), so do not confuse them. To obtain the Form 10-K, you can use the EDGAR system (see Appendix A at the back of this text for instructions), or it can be found under the “Investor Relations” link on the company’s corporate website at www.cokeconsolidated.com. The company’s Form 10-K can be found under “SEC Filings.” Be sure to read carefully the following sections of the document:

■ Under “Item 1.Business,” read the subsection titled “Seasonality” on page 13.

■ Under “Item 2.Properties,” on page 22.

■ In the footnotes section of the report, under “Note 1—Summary of Significant Accounting Policies,” read the following subsections:

■ “Marketing Programs and Sales Incentives” on page 69.

■ “Cost of Sales” on page 70.

■ “Selling, Delivery and Administrative Expenses” on page 70.

■ “Shipping and Handling Costs” on page 70.


a. Does COKE consider shipping and handling costs and advertising costs to be direct or indirect costs in relation to the manufacturing of its products? Explain.

b. Assume that when COKE ships orders of finished goods from manufacturing locations to sales centers each shipment includes several different products such as Coca-Cola, Sprite, Dr Pepper, and Seagrams Ginger Ale. If COKE wanted to allocate the shipping costs among the various products, what would be an appropriate cost driver? Explain the rationale for your choice.

c. Based on COKE’s discussion of the seasonality of its business, should the depreciation of production equipment recorded in a given month be based on the volume of drinks produced that month, or should the depreciation for each month be 1/12th of the estimated annual depreciation COKE expects to incur? Explain your answer.

d. As Item 2. Properties indicates, COKE appears to have significant excess capacity at its plants. Approximately what percentage of available production capacity was not being used by COKE in 2017? What are some possible reasons COKE might want to have this much excess capacity? Explain.

Obtain Berkshire Hathaway’s (Berkshire) Form 10-K for the year ended

Obtain Berkshire Hathaway’s (Berkshire) Form 10-K for the year ended December 31, 2017, and complete the following requirements. To obtain the Form 10-K, you can use the EDGAR system (see Appendix A at the back of this text for instructions), or it can be found on the company’s corporate website, www.berkshirehathaway.com.


a. Unlike most companies, Berkshire organizes the revenues and expenses on its earnings statements, and the assets and liabilities on its balance sheets, by major business segments. Calculate the return on investment for 2017 for each segment of Berkshire’s business using the margin × turnover method. For segment earnings, use earnings before taxes, which you will have to calculate. Show your computations.

b. Rank the segments’ performance from best to worst, based on their ROIs.

c. Why did the best-performing segment do better than the next best? Was it profitability, the efficiency with which it used its assets, or both?

The following information was taken from Starbucks Corporation’s SEC filings.Requireda.

The following information was taken from Starbucks Corporation’s SEC filings.


a. Explain whether each line of information in the preceding table would best be described as being primarily financial accounting or managerial accounting in nature.

b. Provide some additional examples of managerial and financial accounting information that could apply to Starbucks.

c. If you analyze only the data you identified as financial in nature, does it appear that Starbucks’ 2017 fiscal year was better or worse than its 2016 fiscal year? Explain.

d. If you analyze only the data you identified as managerial in nature, does it appear that Starbucks’ 2017 fiscal year was better or worse than its 2016 fiscal year? Explain.

e. Did Starbucks appear to be using its facilities more efficiently or less efficiently in 2017 than in 2016?

During the past year, the high and low use of

During the past year, the high and low use of three different resources for Wilson Trucking occurred in July and April. The resources are truck depreciation, fuel, and truck maintenance. The number of kilometres travelled is the driver. The total costs of the three resources and the related number of truck kilometres are as follows:

Use the high-low method to answer the following questions.
1. What is the variable rate for truck depreciation? The fixed cost?
2. What is the cost formula for truck depreciation?
3. What is the variable rate for fuel? The fixed cost?
4. What is the cost formula for fuel?
5. What is the variable rate for truck maintenance? The fixed cost?
6. What is the cost formula for truck maintenance?
7. Using the three cost formulas that you developed, predict the cost of each resource in a month with 36,000,000 kilometres travelled.

De Silva Inc. produces submersible water pumps for ponds and

De Silva Inc. produces submersible water pumps for ponds and cisterns. The unit sales for the first four months of the year for this product are as follows:
……………………………………..Unit Sales
January ……………………………180,000
February ………………………….220,000
March ………………………………200,000
April ………………………………….240,000

Company policy requires that ending inventories for each month be 25 percent of next month’s sales. However, at the beginning of January, due to greater sales in December than anticipated, the beginning inventory of pumps is only 21 ,000.

Prepare a production budget for the first quarter of the year. Show the number of units that should be produced each month as well as for the quarter in total.

Ahmedabad Manufacturing Corporation (AMC) is based in western India and

Ahmedabad Manufacturing (AMC) is based in western India and uses India’s currency, the rupee (symbol: ). AMC has been operating in its own manufacturing facility for over 15 years. Given the size of the facility, AMC has been able to rent the back portion of the building to a local retailer to use as a warehouse. It has now decided not to renew the lease and instead to use the area to manufacture a new product. AMC will lose a rental income of 1,800,000 per year.

The direct materials and direct labour per unit for the new product will amount to 4,000 and 2,200, respectively. AMC does not have sufficient equipment to produce the product; hence, it will rent the required equipment at a cost of 250,000 per month. The company will require additional space to store the raw material and work-in-process inventories associated with the new product; space can be rented in a nearby facility for 26,500 per month. AMC has always amortized its building on a straight-line basis and will continue to do so. The depreciation amount for the back portion of the building is 300,000 per year.

Other costs include the following:

Production supervisor salary………………………………….₹ 52,000 per month
Electricity for operating the machines…………………….₹ 54 per unit
Delivery costs…………………………………………………………₹ 390 per unit
Advertising……………………………………………………………..₹ 3,100,000 per year

Rather than borrow money to buy raw materials, pay workers’ salaries, and meet other expenses, AMC’s management has decided to liquidate some temporary investments that provided a return of 92,000 per year.


1. Classify the above costs using the following categories: behaviour, function, and relevance.

2. Assume that AMC will produce 1,800 units per month (90% of its capacity of 2,000 units per month). Compute the product cost per unit. Round your answer to two decimal places.

3. Assume AMC receives an order for 300 new units (i.e., total production will be 2,100 units). Compute the additional or incremental costs that AMC will incur in the manufacture and delivery of these 300 units.

“I was sure that when our cellphone hit the market

“I was sure that when our cellphone hit the market it would be an instant success,” said Brittany Patel, founder and president of Sun Power Communications, Inc. “But just look at the gusher of red ink for the first quarter. It’s obvious that we’re better scientists than we are businesspeople.” The data to whichPatelwas referring follow:

“At this rate we’ll be out of business within a year,” said Peter Merchant, the company’s accountant. “But I’ve double-checked these figures, so I know they’re right.”

Sun Power Communications was organized at the beginning of the current year to produce and market a revolutionary new solar-powered cellphone. The company’s accounting system was set up by Margie Wallace, an experienced accountant who recently left the company to do independent consulting work. The statement above was prepared by Merchant, her assistant.

“We may not last a year if the insurance company doesn’t pay the $286,000 it owes us for the 8,000 cellphones lost in the warehouse fire last week,” said Patel. “The insurance adjuster says our claim is inflated, but he’s just trying to pressure us into a lower figure. We have the data to back up our claim, and it will stand up in any court.”

On April 3, just after the end of the first quarter, the company’s finished goods storage area was swept by fire and all 8,000 unsold cellphones were destroyed. (These phones were part of the 40,000 units completed during the first quarter.) The company’s insurance policy states that the company will be reimbursed for the “cost” of any finished phones destroyed or stolen. Merchant has determined this cost as follows:

The following additional information is available on the company’s activities during the quarter ended March 31:

a. Inventories at the beginning and end of the quarter were as follows:

b. 80% of the rental cost for facilities and 90% of the utilities cost relates to manufacturing operations. The remaining amounts relate to selling and administrative activities.


1. Write a brief memorandum to the president identifying what conceptual errors, if any, were made in preparing the income statement above.

2. Prepare a schedule of cost of goods manufactured for the first quarter.

3. Prepare a corrected income statement for the first quarter. Your statement should show in detail how the cost of goods sold is computed.

4. Do you agree that the insurance company owes Sun Power Communications, Inc. $286,000? Explain your answer in another brief memorandum to the president.