Question 1. 1. (TCO A) Explain what a cost driver is and give an example. Explain what relevant range is. What is the relationship between a cost driver and a relevant range?
- (TCO B) Jones and Heather started the JH Widget Company in 2014 to manufacture widgets. They rented a building, bought equipment, and hired employees to work full time at fixed monthly salaries. Utilities and other operating charges remained fairly constant during each month. JH Widget Company sells each widget at $70 each. JH paid fixed costs of $5,850 per month and variable costs of $25 per widget. Jones and Heather are concerned about the break-even and probability. Using the equation method to do your calculations, explain to Jones and Heather how many widgets must be sold, and the totals sales revenue that must be reached, in order to break-even.
- (TCO C) There are basically two distinct methods of calculating product costs. Compare and contrast the two methods
- (TCO D) Explain how traditional cost systems, using a single unit-level cost rate, may distort product costs.
- (TCO F) During June, the Charleston Manufacturing Company’s costing system reported several variances that the production manager was surprised to see. Most of the company’s monthly variances are under $125, even though they may be either favorable or unfavorable. The following information is for the manufacture of garden gates, its only product.
(1) Direct materials price variance, $800 unfavorable.
(2) Direct materials efficiency variance, $1,800 favorable.
(3) Direct manufacturing labor price variance, $4,000 favorable.
(4) Direct manufacturing labor efficiency variance, $600 unfavorable.
Provide the manager with some ideas as to what may have caused the efficiency
variances.
Question 2. 2. (TCO G) Eric Segal has just purchased the film studio of a movie company that specializes in love stories. The company did not try to estimate the cost of making a movie. Instead, it just gave the producer a budget and told him or her to make a movie within budget. Mr. Segal does not like the former movie-budget concept and desires to establish a formal cost estimation system. What are alternative methods of cost estimation that could be used in the movie making system? Briefly describe each method.
- (TCO H) Rick Godwin, CFO, discusses the pricing of a new product with the sales manager, John Tag. What are the steps taken to develop target prices and target costs? Discuss each briefly.
Question 4. 4. (TCO I) Describe the four capital budgeting methods. How would you determine which one to use?
- (TCO E) Gloria Enterprises reports the year-end information from 2014 as follows.
| Sales (100,000 units) | $250,000 |
| Less _____. cost of goods sold | 150,000 |
| Gross profit | 100,000 |
| Operating expenses (includes $10,000 of depreciation) | 60,000 |
| Net income | $ 40,000 |
Gloria is developing the 2015 budget. In 2015, the company would like to increase selling prices by 30%, and as a result, expects a decrease in sales volume of 15%. Cost of goods sold as a percentage of sales is expected to increase to 60%. Other than depreciation, all operating costs are variable.
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