Glendo Industries’ balance sheet at December 31, 2010, is presented below and on the next

page. Additional information accumulated for the budgeting process is as follows. Budgeted
data for the year 2011 include the following. To meet sales requirements and to have 3,000 units
of finished goods on hand at Decem

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How do direct fixed costs differ from indirect fixed costs? Are both types of fixed costs
controllable?

Network Computing Devices Inc. was founded in 1988 in Mountain View, California. The
company develops software products such as X-terminals, Z-mail, PC X-ware, and related
hardware products. Presented below is a discussion by management in its annual report.
NETWORK COMPUTING DEVICES, INC. Management Discussion The Com

G-Bar Pastures is a 400-acre farm on the outskirts of the Kentucky Bluegrass, specializing in the
boarding of broodmares and their foals. A recent economic downturn in the thoroughbred
industry has led to a decline in breeding activities, and it has made the boarding business
extremely competitive. To meet the competit

Edington Company combines its operating expenses for budget purposes in a selling and
administrative expense budget. For the first 6 months of 2010, the following data are available.
1. Sales: 20,000 units quarter 1; 22,000 units quarter 2. 2. Variable costs per dollar of sales: Sales
commissions 5%, delivery expense 2

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Gonzales Manufacturing Inc. has three divisions which are operated as profit centers. Actual
operating data for the divisions listed alphabetically are as follows. Instructions (a) Compute the
missing amounts. Show computations. (b) Prepare a responsibility report for the Women’s
Shoe Division assuming (1) the dat

You are an accountant in the budgetary, projections, and special projects department of
American Conductor, Inc., a large manufacturing company. The president, William Brown, asks
you on very short notice to prepare some sales and income projections covering the next 2 years
of the company’s much heralded new product

Garza Company expects to have a cash balance of $46,000 on January 1, 2010. Relevant
monthly budget data for the first 2 months of 2010 are as follows. Collections from customers:
January $85,000, February $150,000. Payments for direct materials: January $50,000, February
$70,000. Direct labor: January $30,000, Februar

Vidro Company prepares monthly cash budgets. Relevant data from operating budgets for 2011
are: All sales are on account. Collections are expected to be 60% in the month of sale, 30% in
the first month following the sale, and 10% in the second month following the sale. Thirty
percent (30%) of direct materials purcha

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There are many useful online resources regarding budgeting. The following activity investigates
the results of a comprehensive budgeting study performed by a very large international
accounting firm. Address:
www.pwc.com/extweb/pwcpublications.nsf/docid/C2D9FB96F792CFA3852572B10049C87D,
or go to www.wiley.com/college/w

Fugate Company manufactures expensive watch cases sold as souvenirs. Three of its sales
departments are: Retail Sales, Wholesale Sales, and Outlet Sales. The Retail Sales Department is
a profit center. The Wholesale Sales Department is a cost center. Its managers merely take orders
from customers who purchase through t

Eckert Manufacturing Company accumulates the following summary data for the year ending
December 31, 2010, for its Water Division which it operates as a profit center:
sales—$2,000,000 budget, $2,080,000 actual; variable costs—$1,000,000 budget, $1,050,000
actual; and controllable fixed costs—$300,000 budget, $31

For the year ending December 31, 2010, Kaspar Company accumulates the following data for the
Plastics Division which it operates as an investment center: contribution margin—$700,000
budget, $715,000 actual; controllable fixed costs—$300,000 budget, $309,000 actual. Average
operating assets for the year were $2,000

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For its three investment centers, Paige Company accumulates the following data: Compute the
return on investment (ROI) for eachcenter.

Widnet Manufacturing Inc. operates the Home Appliance Division as a profit center. Operating
data for this division for the year ended December 31, 2010, are shown below. In addition,
Widnet Manufacturing incurs $150,000 of indirect fixed costs that were budgeted at $155,000.
Twenty percent (20%) of these costs are

Explain the ways that ROI can be improved.

Mendle Co. had zero units of beginning work in process. During the period 12,000 units were
completed, and there were 800 units of ending work in process one-fifth complete as to
conversion cost and 100% complete as to materials cost. What were the equivalent units of
production for (a) Materials and (b) Conversion c

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Ernie Els has formulated the following list of statements about contemporary developments in
managerial accounting. 1. Just-in-time processing results in a push approach; that is, raw
materials are pushed through each process. 2. A primary objective of just-in-time processing is to
eliminate all manufacturing inventor

SEK Printing provides printing services to many different corporate clients. Although SEK bids
most jobs, some jobs, particularly new ones, are negotiated on a “cost-plus” basis. Cost-
plus means that the buyer is willing to pay the actual cost plus a return (profit) on these costs to
SEK. Betty Keiser, controller f

The budget committee of Guzman Company collects the following data for its Westwood Store
in preparing budgeted income statements for July and August 2010. 1. Expected sales: July
$400,000, August $450,000, September $500,000. 2. Cost of goods sold is expected to be 60% of
sales. 3. Company policy is to maintain ending

(a) What costs are included in a performance report for a cost center? (b) In the report, are
variable and fixed costs identified?

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Identify which costing system–job order or process cost–the following companies would
primarily use: (a) Quaker Oats, (b) Ford Motor Company, (c) Kinko’s Print Shop, and (d)
Warner Bros. Motion Pictures.

At Ace Company, overhead is assigned to production departments at the rate of $5 per machine
hour. In July, machine hours were 3,000 in the Machining Department and 2,400 in the
Assembly Department. Prepare the entry to assign overhead to production.

How does a company decide whether to use a job order or a process cost system?

Weinrich Manufacturing uses a job order cost system and applies overhead to production on the
basis of direct labor hours. On January 1, 2010, Job No. 25 was the only job in process. The costs
incurred prior to January 1 on this job were as follows: direct materials $10,000; direct labor
$6,000; and manufacturing overh

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In Ramirez Company, materials are entered at the beginning of each process. Work in process
inventories, with the percentage of work done on conversion costs, and production data for its
Sterilizing Department in selected months during 2010 are as follows. Instructions (a) Compute
the physical units for January and

During January, its first month of operations, Reyes Tool & Die accumulated the following
manufacturing costs: raw materials $4,000 on account, factory labor $5,000 of which $4,200
relates to factory wages payable and $800 relates to payroll taxes payable, and utilities payable
$2,000. Prepare separate journal entries

Mel Finney believes actual manufacturing overhead should be charged to jobs. Do you agree?
Why or why not?

What are the similarities between a job order and a process cost system?

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Production costs chargeable to the Finishing Department in June in Castilla Company are
materials $15,000, labor $29,500, overhead $18,000. Equivalent units of production are materials
20,000 and conversion costs 19,000. Compute the unit costs for materials and conversion costs.

Gary Weiss is uncertain about the steps used to prepare a production cost report. State the
procedures that are required in the sequence in which they are performed.

Rich Mordica is confused about computing physical units. Explain to Rich how physical units to
be accounted for and physical units accounted for are determined.

At Frank Company, there are 800 units of ending work in process that are 100% complete as to
materials and 40% complete as to conversion costs. If the unit cost of materials is $4 and the
costs assigned to the 800 units is $6,000, what is the per-unit conversion cost?

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Renteria Company applies manufacturing overhead to jobs on the basis of machine hours used.
Overhead costs are expected to total $305,000 for the year, and machine usage is estimated at
125,000 hours. For the year, $322,000 of overhead costs are incurred and 130,000 hours are
used. Instructions (a) Compute the manufa

Tony Andres is confused about the source documents used in assigning materials and labor costs.
Identify the documents and give the entry for each document.

The Welding Department of Batista Manufacturing Company has the following production and
manufacturing cost data for February 2010. All materials are added at the beginning of the
process. Instructions Prepare a production cost report for the Welding Department for the month
ofFebruary.

Using the data in BE21-4, compute equivalent units of production for materials and conversion
costs, assuming materials are entered at the beginning of the process.

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For KnightRider Company, the predetermined overhead rate is 150% of direct labor cost. During
the month, KnightRider incurred $100,000 of factory labor costs, of which $85,000 is direct
labor and $15,000 is indirect labor. Actual overhead incurred was $120,000. Compute the
amount of manufacturing overhead applied durin

For the year ended December 31, 2010, the job cost sheets of DeVoe Company contained the
following data. Other data: 1. Raw materials inventory totaled $15,000 on January 1. During the
year, $140,000 of raw materials were purchased on account. 2. Finished goods on January 1
consisted of Job No. 7638 for $87,000 and

Easy Decorating uses a job order costing system to collect the costs of its interior decorating
business. Each client’s consultation is treated as a separate job. Overhead is applied to each
job based on the number of decorator hours incurred. Listed below are data for the current year.
Budgeted overhead ........$96

In March, Hollaway Company completes Jobs 10 and 11. Job 10 cost $25,000 and Job 11
$30,000. On March 31, Job 10 is sold to the customer for $35,000 in cash. Journalize the entries
for the completion of the two jobs and the sale of Job 10.

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The Blending Department of Hancock Company has the following cost and production data for
the month of April. Units transferred out totaled 14,000. Ending work in process was 1,000 units
that are 100% complete as to materials and 40% complete as to conversion costs. Instructions (a)
Compute the equivalent units of

The gross earnings of the factory workers for Brantley Company during the month of January are
$60,000. The employer’s payroll taxes for the factory payroll are $8,000. The fringe benefits
to be paid by the employer on this payroll are $4,000. Of the total accumulated cost of factory
labor, 85% is related to direct l

Indicate whether each of the following statements is true or false. 1. Just-in-time processing is
also known as just-in-case processing. 2. Companies that use just-in-time processing complete
finished goods just in time to be sold. 3. A major benefit of just-in-time processing is enhanced
product quality. 4. An ABC sys

Pedro Morales and Associates, a C.P.A. firm, uses job order costing to capture the costs of its
audit jobs. There were no audit jobs in process at the beginning of November. Listed below are
data concerning the three audit jobs conducted during November. Overhead costs are applied to
jobs on the basis of auditor hou

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In the course of routine checking of all journal entries prior to preparing yearend reports, Diane
Riser discovered several strange entries. She recalled that the president’s son Ron had come
in to help out during an especially busy time and that he had recorded some journal entries. She
was relieved that there were

Elder Corporation incurred the following transactions. 1. Purchased raw materials on account
$46,300. 2. Raw Materials of $36,000 were requisitioned to the factory. An analysis of the
materials requisition slips indicated that $6,800 was classified as indirect materials. 3. Factory
labor costs incurred were $53,900, of

There are two inventory control accounts in a job order system. Identify the control accounts and
their subsidiary ledgers.

At December 31, balances in Manufacturing Overhead are: Lott Company—debit $1,500, Perez
Company—credit $900. Prepare the adjusting entry for each company at December 31,
assuming the adjustment is made to cost of goods sold.

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Elliott Manufacturing uses a job order cost system in each of its three manufacturing
departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in
Department A, direct labor hours in Department B, and machine hours in Department C. In
establishing the predetermined overhead rates for 2010

Many of you will work for a small business. As noted in the All About You feature in this
chapter, some of you will even own your own business. In order to operate a small business you
will need a good understanding of managerial accounting, as well as many other skills. Much
information is available to assist people w

You are the management accountant for Newberry Manufacturing. Your company does custom
carpentry work and uses a job order cost accounting system. Newberry sends detailed job cost
sheets to its customers, along with an invoice. The job cost sheets show the date materials were
used, the dollar cost of materials, and the

Fernando Company manufactures pizza sauce through two production departments: Cooking and
Canning. In each process, materials and conversion costs are incurred evenly throughout the
process. For the month of April, the work in process accounts show the following debits.
Instructions Journalize the Apriltransactions

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The assembly department has the following production and cost data for the current month.
Materials are entered at the beginning of the process. The ending work in process units are 70%
complete as to conversion costs. Compute the equivalent units of production for (a) Materials
and (b) Conversioncosts.
The Institute of Management Accountants sponsors a certification for management accountants,
allowing them to obtain the title of Certified Management Accountant. Address:
www.imanet.org, or go to www.wiley.com/college/weygandt Steps 1. Go to the site shown
above. 2. Choose Certification, and then, Getting Started. In

Data pertaining to job cost sheets for Reyes Tool & Die are given in BE20-3 and BE20-4.
Prepare the job cost sheets for each of the three jobs. (Note: You may omit the column for
Manufacturing Overhead.)

For the year ended December 31, 2010, the job cost sheets of Moxie Company contained the
following data. Other data: 1. Raw materials inventory totaled $20,000 on January 1. During the
year, $100,000 of raw materials were purchased on account. 2. Finished goods on January 1
consisted of Job No. 7648 for $93,000 and

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Pine Products Company uses a job order cost system. For a number of months there has been an
ongoing rift between the sales department and the production department concerning a special-
order product, TC-1.TC-1 is a seasonal product that is manufactured in batches of 1,000 units.
TC-1 is sold at cost plus a markup of 4

A job order cost sheet for Rolen Company is shown below. Instructions (a) On the basis of the
foregoing data answer the following questions. (1) What was the balance in Work in Process
Inventory on January 1 if this was the only unfinished job? (2) If manufacturing overhead is
applied on the basis of direct labor

Data for Sanchez Manufacturing are given in BE21-1. Supporting records show that (a) The
Assembly Department used $24,000 of raw materials and $30,000 of the factory labor, and (b)
The Finishing Department used the remainder. Journalize the assignment of the costs to the
processing departments on March 31.

Reyes Co. started 3,000 units in the period. Its beginning inventory is 500 units one-fourth
complete as to conversion costs and 100% complete as to materials cost. Its ending inventory is
200 units one-fifth complete as to conversion cost and 100% complete as to materials costs. How
many units were transferred out thi

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Milner Manufacturing uses a job order cost accounting system. On May 1, the company has a
balance in Work in Process Inventory of $3,200 and two jobs in process: Job No. 429 $2,000,
and Job No. 430 $1,200. During May, a summary of source documents reveals the following.
Milner Manufacturing applies manufacturing ove
Sanchez Manufacturing purchases $45,000 of raw materials on account, and it incurs $50,000 of
factory labor costs. Journalize the two transactions on March 31 assuming the labor costs are not
paid until April.

Bell Company’s fiscal year ends on June 30. The following accounts are found in its job
order cost accounting system for the first month of the new fiscal year. Other data: 1. On July 1,
two jobs were in process: Job No. 4085 and Job No. 4086, with costs of $19,000 and $13,200,
respectively. 2. During July, Job N

How can the agreement of Work in Process Inventory and job cost sheets be verified?

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Marquis Company estimates that annual manufacturing overhead costs will be $800,000.
Estimated annual operating activity bases are: direct labor cost $500,000, direct labor hours
50,000, and machine hours 100,000. Compute the predetermined overhead rate for each activity
base.

Boaz Company manufactures CH-21 through two processes: Mixing and Packaging. In July, the
following costs were incurred. Units completed at a cost of $21,000 in the Mixing Department
are transferred to the Packaging Department. Units completed at a cost of $102,000 in the
Packaging Department are transferred to Fini

Stan Maley has recently been promoted to production manager, and so he has just started to
receive various managerial reports. One of the reports he has received is the production cost
report that you prepared. It showed that his department had 2,000 equivalent units in ending
inventory. His department has had a histor

Factory labor data for Reyes Tool & Die is given in BE20-2. During January, time tickets show
that the factory labor of $5,000 was used as follows: Job 1 $1,200, Job 2 $1,600 Job 3 $1,400,
and general factory use $800. Prepare a summary journal entry to record factory labor used.

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At May 31, 2010, the accounts of Hannifan Manufacturing Company show the following. 1. May
1 inventories—finished goods $12,600, work in process $14,700, and raw materials $8,200. 2.
May 31 inventories—finished goods $9,500, work in process $17,900, and raw materials
$7,100. 3. Debit postings to work in process wer

What relationships are involved in computing a predetermined overhead rate?

During the current month, Seeza Corporation completed Job 310 and Job 312. Job 310 cost
$60,000 and Job 312 cost $40,000. Job 312 was sold on account for $90,000. Journalize the
entries for the completion of the two jobs and the sale of Job 312.
Your roommate is confused about the features of process cost accounting. Identify and explain
the distinctive features for your roommate.

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Factory labor data for Sanchez Manufacturing are given in BE21-2. Manufacturing overhead is
assigned to departments on the basis of 200% of labor costs. Journalize the assignment of
overhead to the Assembly and Finishing Departments.

In January, Reyes Tool & Die requisitions raw materials for production as follows: Job 1 $900,
Job 2 $1,200, Job 3 $700, and general factory use $600. Prepare a summary journal entry to
record raw materials used.

(a) Identify the steps that pertain to activity-based costing. (b) What are the advantages of ABC
costing?

The Sanding Department of Ortiz Furniture Company has the following production and
manufacturing cost data for March 2010, the first month of operation. Production: 12,000 units
finished and transferred out; 3,000 units started that are 100% complete as to materials and 20%
complete as to conversion costs. Manufacturin

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Pink Martini Company has gathered the following information. Units in beginning work in
process ............20,000 Units started into production .............72,000 Units in ending work in
process ............24,000 Percent complete for conversion costs in ending work in process 60%
Costs incurred (inc

(a) What are the principal differences between activity based costing (ABC) and traditional
product costing? (b) What assumptions must be met for ABC costing to be useful?

How are equivalent units of production computed?

A job cost sheet of Nilson Company is given below. Instructions (a) Answer the following
questions. (1) What are the source documents for direct materials, direct labor, and
manufacturing overhead costs assigned to this job? (2) What is the predetermined manufacturing
overhead rate? (3) What are the total cost and t

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Manufacturing cost data for Pena Company, which uses a job order cost system, are presented
below. Instructions Indicate the missing amount for each letter. Assume that in all cases
manufacturing overhead is applied on the basis of direct labor cost and the rate is thesame.
Hindi Company has the following production data for April: units transferred out 40,000, and
ending work in process 5,000 units that are 100% complete for materials and 40% complete for
conversion costs. If unit materials cost is $4 and unit conversion cost is $9, determine the costs to
be assigned to the units transfe

Garnett Printing Corp. uses a job order cost system.The following data summarize the operations
related to the first quarter’s production. 1. Materials purchased on account $192,000, and
factory wages incurred $87,300. 2. Materials requisitioned and factory labor used by job: 3.
Manufacturing overhead costs incurr

Vargas Corporation’s fiscal year ends on November 30. The following accounts are found in
its job order cost accounting system for the first month of the new fiscal year. Other data: 1. On
December 1, two jobs were in process: Job No. 154 and Job No. 155.These jobs had combined
direct materials costs of $9,750 and

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Douglas Manufacturing Company has two production departments: Cutting and Assembly. July
1 inventories are Raw Materials $4,200, Work in Process-Cutting $2,900, Work in Process-
Assembly $10,600, and Finished Goods $31,000. During July, the following transactions
occurred. 1. Purchased $62,500 of raw materials on accoun

The Polishing Department of Estaban Manufacturing Company has the following production and
manufacturing cost data for September. Materials are entered at the beginning of the process.
Production: Beginning inventory 1,600 units that are 100% complete as to materials and 30%
complete as to conversion costs; units start

In March, Lasso Manufacturing had the following unit production costs: materials $10 and
conversion costs $8. On March 1, it had zero work in process. During March, Lasso transferred
out 22,000 units. As of March 31, 2,000 units that were 40% complete as to conversion costs and
100% complete as to materials were in end

(a) Eve Adams believes the production cost report is an external report for stockholders. Is Eve
correct? Explain. (b) Identify the sections in a production cost report.

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What purposes are served by a production cost report?

At the end of the year, under- or overapplied overhead is closed to Income Summary.” Is this
correct? If not, indicate the customary treatment of this amount.

The Smelting Department of Massaro Manufacturing Company has the following production and
cost data for November. Production: Beginning work in process 2,000 units that are 100%
complete as to materials and 20% complete as to conversion costs; units transferred out 8,000
units; and ending work in process 5,000 units th

Mabry Manufacturing Company uses a job order cost system in each of its three manufacturing
departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in
Department D, direct labor hours in Department E, and machine hours in Department K. In
establishing the predetermined overhead rates fo

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Enos Inc. is a construction company specializing in custom patios. The patios are constructed of
concrete, brick, fiberglass, and lumber, depending upon customer preference. On June 1, 2010,
the general ledger for Enos Inc. contains the following data. Subsidiary data for Work in Process
Inventory on June 1 are as f

Reyes Tool & Die begins operations on January 1. Because all work is done to customer
specifications, the company decides to use a job order cost accounting system. Prepare a flow
chart of a typical job order system with arrows showing the flow of costs. Identify the eight
transactions.

Bowyer Manufacturing Company has the following production data for selected months.
Compute the physical units for eachmonth.

What is the difference between operations costing and a process costing system?

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Explain how a “materials requisition slip” is used in a job order cost system.

(a) Describe the philosophy and approach of just-in-time processing. (b) Identify the major
elements of JIT processing.

Podsednik Company has gathered the following information Units in beginning work in
process ........–0– Units started into production ..........36,000 Units in ending work in
process ..........6,000 Percent complete for conversion costs in ending work in
process .............40% Costs incurred: Direct materials

In Montego Company, total material costs are $32,000, and total conversion costs are $54,000.
Equivalent units of production are materials 10,000 and conversion costs 12,000. Compute the
unit costs for materials, conversion costs, and total manufacturing costs.

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The ledger of Molindo Company has the following work in process account. Production records
show that there were 400 units in the beginning inventory, 30% complete, 1,100 units started,
and 1,200 units transferred out. The beginning work in process had materials cost of $2,040 and
conversion costs of $1,550.The unit

Kiner Company transfers out 14,000 units and has 2,000units of ending work in process that are
25% complete. Materials are entered at the beginning of the process and there is no beginning
work in process. Assuming unit materials costs of $3 and unit conversion costs of $6, what are
the costs to be assigned to units (

During the current month, Barnum Company incurs the following manufacturing costs: a.
Purchased raw materials of $13,000 on account. b. Incurred factory labor of $40,000. Of that
amount, $31,000 relates to wages payable and $9,000 relates to payroll taxes payable. c. Factory
utilities of $3,100 are payable, prepaid fac

(a) What source documents are used in assigning (1) materials and (2) labor to production in a
process cost system? (b) What criterion and basis are commonly used in allocating overhead to
processes?

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Fishel Company is working on two job orders. The job cost sheets show the following: Prepare
the three summary entries to record the assignment of costs to Work in Process from the data on
the job costsheets.

Garcia Manufacturing uses a job order cost system and applies overhead to production on the
basis of direct labor costs. On January 1, 2010, Job No. 50 was the only job in process. The costs
incurred prior to January 1 on this job were as follows: direct materials $20,000, direct labor
$12,000, and manufacturing overhe

Founded in 1970, Parlex Corporation is a world leader in the design and manufacture of flexible
interconnect products. Utilizing proprietary and patented technologies, Parlex produces custom
flexible interconnects including flexible circuits, polymer thick film, laminated cables, and
value-added assemblies for sophisti

Doc Gibbs has prepared the following list of statements about process cost accounting. 1.
Process cost systems are used to apply costs to similar products that are mass-produced in a
continuous fashion. 2. A process cost system is used when each finished unit is indistinguishable
from another. 3. Companies that produce

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Data for Castilla Company are given in BE21-8. Production records indicate that 18,000 units
were transferred out, and 2,000 units in ending work in process were 50% complete as to
conversion cost and 100% complete as to materials. Prepare a cost reconciliation schedule.
Dipak Co. identifies the following activities that pertain to manufacturing overhead: Materials
Handling, Machine Setups, Factory Machine Maintenance, Factory Supervision, and Quality
Control. For each activity identify an appropriate cost driver.

Bristol Company identifies three activities in its manufacturing process: machine setups,
machining, and inspections. Estimated annual overhead cost for each activity is $120,000,
$300,000, and $70,000, respectively. The cost driver for each activity and the expected annual
usage are: number of setups 1,000, machine ho

Shown below are the job cost related accounts for the law firm of Barnes, King, and Morton and
their manufacturing-company equivalents: Cost data for the month of March follow. 1.
Purchased supplies on account $1,500. 2. Issued supplies $1,200 (60% direct and 40% indirect).
3. Time cards for the month indicated labo

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Jeff Gillum is confused about under- and overapplied manufacturing overhead. Define the terms
for Jeff, and indicate the balance in the manufacturing overhead account applicable to each term.

During the first quarter, Diaz Company incurs the following direct labor costs: January $40,000,
February $30,000, and March $50,000. For each month, prepare the entry to assign overhead to
production using a predetermined rate of 90% of direct labor cost.

Michael Ortiz is a contractor specializing in custom-built jacuzzis. On May 1, 2010, his ledger
contains the following data. Raw Materials Inventory....... $30,000 Work in Process
Inventory.......12,200 Manufacturing Overhead ........2,500 (dr.) The Manufacturing Overhead
account has debit totals of $12,500 and

Tomlin Company begins operations on April 1. Information from job cost sheets shows the
following. Job 12 was completed in April. Job 10 was completed in May. Jobs 11 and 13 were
completed in June. Each job was sold for 25% above its cost in the month following completion.
Instructions (a) What is the balance in W

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Given the income statement below for National Beverage Company for 2013, and the sales
forecast from Problem 1, prepare a pro forma income statement for 2014. National Beverage
Company Income Statement for 2013 Sales Revenue .................................$24,088,000
COGS .........................................

Given the income statement below for California Cement Company for 2013, and the sales
forecast from Problem 2, prepare a pro forma income statement for CCC for 2014. California
Cement Company Income Statement for 2013 Sales Revenue ........................................
$22,923,000 COGS .....................
Why is there typically a tax gain or tax loss at the disposal of capital assets?

Why should a company attempt to speed up its receivables and slow down its payables?

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The Cutting Department of Groneman Manufacturing has the following production and cost data
for July. Materials are entered at the beginning of the process. Conversion costs are incurred
uniformly during the process. Instructions (a) Determine the equivalent units of production for
(1) materials and (2) conversion

Rian Company had a target of twenty days for the collection cycle for the year 2014. If total
sales had remained at $970,000, how much of the sales revenue would have needed to be cash
sales for the company to meet the collection goal?

Explain why the real interest rate is the reward for saving?

What are some potential pitfalls of poor short-term financial planning?

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During what decade from 1950 to 1999 did we see the highest interest rates in the United States?

Since 1950, long-term government bonds have averaged a higher interest rate than short-term
government bonds. Why?

What is a positive correlation between two assets' returns? What is a negative correlation
between two assets' returns? Which correlation is better for reducing the variance of a portfolio
made up of two assets?

Myers and Associates, a famous law office in California, bills it clients on the first of each
month. Clients pay in the following fashion: 40% pay at the end of the first month, 30% pay at
the end of the second month, 20% pay at the end of the third month, 5% pay at the end of the
fourth month, and 5% default on their

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What drawback of discounted payback period does the net present-value overcome?

All six decision models from Chapter 9 rely on the appropriate timing and amount of cash flow.
What are the potential errors a manager can make if this information is not accurate?

Beverage Company anticipates the following first-quarter sales for 2015: $1,800,000 (January),
$1,600,000 (February), and $2,100,000 (March). It posted the following sales figures for the last
quarter of 2014: $1,900,000 (October), $2,050,000 (November), and $2,200,000 (December).
NBC sells 40% of its products on credi
1. Determine Cranston's average production cycles for 2013 and 2014. 2. Determine Cranston's
average collection cycles for 2013 and 2014.Assume that all sales are credit sales. 3. Determine
Cranston's average payment cycles for 2013 and 2014. 4. Using your answers to Questions 1
through 3, determine Cranston's cash

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Why not use a single WACC for all company projects?

Why are owners of a business only interested only in incremental cash flow for a project and not
the total cash flow of a project?

What role do Moody's, Standard & Poor's, and Fitch's bond ratings play in the pricing of a bond?

You have been asked to forecast sales for the coming year. Being convinced that the compound
average growth rate is the best way to forecast growth, you collect data for the prior three years
as listed below. Using the data compute the compound growth rate for each of the years and then
forecast next year's sales by us

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Upstate University charges $16,000 a year in graduate tuition. Tuition rates are growing at 4.5%
each year. You plan on enrolling in graduate school in five years. What is your expected
graduate tuition in five years?

Why are cash management and cash budgeting important to a company's survival?

For the prior three years, sales for National Beverage Company have been $21,962,000 (2011),
$23,104,000 (2012), and $24,088,000 (2013). The company uses the prior two year's average
growth rate to predict the coming year's sales. What were the sales growth rates for 2012 and
2013? What is the expected sales growth rat

If a pro forma income statement has 5% for the net income line, what does this mean in terms of
a company's total sales and per dollar sales?

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In Problem 16, The Stack agrees to the one-time payment at a 5% discount rate but wants the
royalty payments figured from the beginning of the year, not the end of the year. How much
more will the band receive with annuity-due payments on the royalty checks?

California Cement Co. produces its products two months in advance of anticipated sales and
ships to warehouse centers the month before sale. The inventory safety stock is 20% of the
anticipated month's sale. Beginning inventory in September 2014 was 33,913 units. Each unit
costs $2.80 to make. The average sales price p
What is the difference between unsystematic and systematic risk? Which risk can you avoid?
Which risk can you not avoid?

Why is selecting a beta for a project more of an art than a science?

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Why is it straightforward to compare one project's NPV with that of another project's NPV? Why
does ranking projects based on the greatest to least NPV make sound financial sense?

Shaky Company has just issued a five-year bond with a yield of 9%; Stable Company has issued
an identical five-year bond but with a yield of 7%. Why did the market demand a higher return
from Shaky?

When might it be detrimental to a company to have too many items in inventory? When might it
be detrimental to have too few?

Given the income statement below for Imperial Products Corporation for 2014, and a 20%
growth in sales for 2015, prepare a pro forma income statement. Imperial Products Corp. Income
Statement for 2014 Sales Revenue .................................. $28,800,000
COGS .......................................... 11,4

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What does it mean that the current principal balance of a loan being repaid as an amortized loan
is the present value of the future payment stream?

What does analyzing a company against firms in other industries tell a financial manager or
analyst?

What is one of the problems in dealing with an event that has a large number of potential
outcomes?

If you switch from the internal rate of return to the modified internal rate of return model, what
assumption changes with respect to the cash flow of the project?

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Why is it necessary to consider changes to working capital accounts as part of the capital
budgeting decision?

Kyle is raising funds for his company by selling preferred stock. The preferred stock has a par
value of $100 and a dividend rate of 6%. The stock is selling for $80 in the market. What is the
cost of preferred stock for Kyle?
What are the types of errors a manager can make if he or she does not assign individual WACCs
to each potential project?

If you increase the interest rate on an amortized loan, does the payment increase or decrease?
Why or why not?

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Next year, California Cement Company will increase its Plant, Property, and Equipment (PPE)
by $6,000,000 with a plant expansion. The inventories will grow by 80%, accounts receivable
will grow by 70%, and marketable securities will be reduced by 60% to help finance the
expansion. If all other asset accounts remain the

What does restating financial statements into common-size financial statements allow a finance
manager or financial analyst to do?

What payment does Denise (from problem 8) need to make at the end of each month over the
coming forty-four years at 6% to reach her retirement goal of $1,000,000?

The financial manager of Hearty Cereals is in the process of preparing a cash budget for the first
quarter of 2015.The firm typically sells 1/3 of its monthly sales on cash terms and the rest on
credit. An analysis of the accounts receivables shows that on average 40% of the sales are
collected in the next month, 50% i

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What does the amortization schedule tell you about a loan repayment?

California Cement Company anticipates the following fourth-quarter sales for 2014: $1,800,000
(October), $1,600,000 (November), and $2,100,000 (December).It posted the following sales
figures for the third quarter of 2014: $1,900,000 (July), $2,050,000 (August), and $2,200,000
(September).CCC sells 90% of its products

Assume that Exxon-Mobil's price dropped to $30 overnight. Given the dividend growth rate of
Exxon-Mobil of 5.07% and the last annual dividend of $1.28, what is the implied required rate of
return necessary to justify the new lower market price of $30.00?

Magellan is adding a project to the company portfolio and has the following information: the
expected market return is 14%, the risk-free rate is 3%, and the expected return on the new
project is 18%. What is the project's beta?

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What are solvency ratios? Which ratio would be of most interest to a banker considering a debt
loan to a company? Why?
Should retained earnings reinvested in the company have a zero cost of capital because it
generates the funds internally and the company does not need to pay itself for borrowing money?
If not, why?

What is beta in the financial world? What is standard deviation in the financial world? What type
of risk does each measure? What assumption do you make about the stock when you use beta as
a measure of its risk?

Sam Hinds, a local dentist, is going to remodel the dental reception area and two new
workstations. He has contacted A-Dec, and the new equipment and cabinetry will cost $18,000.
A-Dec will finance the equipment purchase at 7.5% over a six-year period of time. What will
Hinds have to pay in annual payments for this equ

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Why does it make sense to say that the interest rate is the price to rent money?

Why is the yield to maturity on a bond the appropriate cost of debt financing?

In a pro forma income statement, why would a finance manager make changes in the prior year's
percentages for different line items? Give an example of a line item that you would expect to
vary in percentage every year as sales forecasts grow.

Why does a mortgage typically have a lower interest rate than a car loan?

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The Global Growth Corporation is planning for next year and wants you to help them prepare a
Pro Forma Balance Sheet for 2015.Their current Balance Sheet is shown below along with some
pre-determined changes in key balance sheet accounts. How will you proceed? The Global
Growth Corporation Balance Sheet for the Year

How does a business determine whether a project (new product or service) is worthwhile?

Kyle hires Wilson Investment Bankers to sell the preferred stock from Problem 7. Wilson
charges a fee of 3% on the sale of preferred stock. What is the cost of preferred stock for Kyle
using the investment banker?

National Beverage Company produces its products two months in advance of anticipated sales
and ships to warehouse centers the month before sale. The inventory safety stock is 10% of the
anticipated month's sale. Beginning inventory in October 2014 was 267,143 units. Each unit
costs $0.25 to make. The average selling pr

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Determine the cash flow to the woman under a discount loan, in which Ponzi will have a lump-
sum payment at the end of the contract? Required data: Chuck Ponzi has talked an elderly
woman into loaning him $25,000 for a new business venture. She has, however, successfully
passed a finance class and requires Chuck to si

What does it mean to diversify your portfolio, and what are you trying to gain by so doing?

Next year, National Beverage Company will increase its Plant, Property, and Equipment (PPE)
by $4,000,000 with a plant expansion. The inventories will grow