Managerial Accounting: Creating Value in a Dynamic Business Environment
12th Edition
ISBN: 9781260417074
Author: HILTON, Ronald
Publisher: MCGRAW-HILL HIGHER EDUCATION
expand_more
expand_more
format_list_bulleted
Question
Chapter 11, Problem 46P
To determine
Explain the causes of purchasing the new production equipment.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Sanchez Trucking has been experiencing delays at its warehouse operations. Management hired a consultant to find out why service deliveries to local businesses
have taken longer than they should. The consultant narrowed down the problem to the number of work crews loading and unloading trucks. Each crew consists of 7
employees who work as a team on a variety of tasks; each employee works a full 40 hours a week. However, costs are also a concern. The consultant advised
management that they could supplement work crews with short-term employees, at a higher cost, to cover unexpected needs on a weekly basis. Each work crew
permanently hired by Sanchez costs $3,500 per week in wages and benefits, while a crew of short-term employees costs $6,000 per week. Complicating the decision
is the fact that the weekly hourly requirements for work crews is uncertain because of the volatility in the number of deliveries to be made. Deliberating with
management, the consultant arrived at the following…
Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders. Personal and Commercial. The Personal grinders have a
smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since
the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at
ACE believes that the problem might be in how the accounting system allocates costs to products.
The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which
is representative, manufacturing overhead totaled $1,929,000 based on production of 30,000 Personal grinders and 10,000
Commercial grinders. Direct costs were as follows:
Direct materials
Direct labor
Cost Driver
Number of production runs
Quality tests performed
Shipping orders processed
Total overhead
Management has determined that overhead costs are caused by three cost…
Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE believes that the problem might be in how the accounting system allocates costs to products.
The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which is representative, manufacturing overhead totaled $2,037,000 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows:
Â
Personal
Commercial
Total
Direct materials
$ 1,445,000
$ 620,000
$ 2,065,000
Direct labor
1,030,000
667,500
1,697,500
Management has determined that overhead costs are caused by three cost…
Chapter 11 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
Ch. 11 - Distinguish between static and flexible budgets.Ch. 11 - Explain the advantage of using a flexible budget.Ch. 11 - Why are flexible overhead budgets based on...Ch. 11 - Distinguish between a columnar and a formula...Ch. 11 - Show, using T-accounts, how production overhead is...Ch. 11 - How have advances in manufacturing technology...Ch. 11 - What is the interpretation of the...Ch. 11 - Jeffries Companys only variable-overhead cost is...Ch. 11 - What is the interpretation of the...Ch. 11 - Distinguish between the interpretations of the...
Ch. 11 - What is the fixed-overhead budget variance?Ch. 11 - What is the correct interpretation of the...Ch. 11 - Describe a common but misleading interpretation of...Ch. 11 - Draw a graph showing budgeted and applied fixed...Ch. 11 - What types of organizations use flexible budgets?Ch. 11 - What is the conceptual problem of applying fixed...Ch. 11 - Distinguish between the control purpose and the...Ch. 11 - Why are fixed-overhead costs sometimes called...Ch. 11 - Draw a graph showing both budgeted and applied...Ch. 11 - Give one example of a plausible activity base to...Ch. 11 - Explain how an activity-based flexible budget...Ch. 11 - Crystal Glassware Company has the following...Ch. 11 - Refer to the data in the preceding exercise. Use...Ch. 11 - Crystal Glassware Company has the following...Ch. 11 - The following data are the actual results for...Ch. 11 - Evening Star, Inc. produces binoculars of two...Ch. 11 - The controller for Rainbow Childrens Hospital,...Ch. 11 - You recently received the following note from the...Ch. 11 - You brought your work home one evening, and your...Ch. 11 - Refer to DCdesserts.coms activity-based flexible...Ch. 11 - Montoursville Control Company, which manufactures...Ch. 11 - Prob. 33ECh. 11 - The following data pertain to Aurora Electronics...Ch. 11 - Calgary Paper Company produces paper for...Ch. 11 - Gibralter Insurance Company uses a flexible...Ch. 11 - Country time Studios is a recording studio in...Ch. 11 - Newark Plastics Corporation developed its overhead...Ch. 11 - Johnson Electrical produces industrial ventilation...Ch. 11 - Fall City Hospital has an outpatient clinic....Ch. 11 - Maxwell Company uses a standard cost accounting...Ch. 11 - Mark Fletcher, president of SoftGro, Inc., was...Ch. 11 - LawnMate Company manufactures power mowers that...Ch. 11 - For each of the following independent Cases A and...Ch. 11 - Prob. 45PCh. 11 - Prob. 46PCh. 11 - WoodCrafts, Inc. is a manufacturer of furniture...Ch. 11 - Rutherford Wheel and Axle, Inc. has an automated...Ch. 11 - Chillco Corporation produces containers of frozen...Ch. 11 - Montreal Scholastic Supply Company uses a...Ch. 11 - College Memories, Inc. publishes college...Ch. 11 - While Mountain Sled Company manufactures childrens...Ch. 11 - Cleveland Computer Accessory Company (CCAC)...Ch. 11 - Prob. 54CCh. 11 - Prob. 55C
Knowledge Booster
Similar questions
- Asbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE believes that the problem might be in how the accounting system allocates costs to products. The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which is representative, manufacturing overhead totaled $2,023,500 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows:  Personal Commercial Total Direct materials $ 1,444,200 $ 609,750 $ 2,053,950 Direct labor 1,029,000 657,250 1,686,250 Management has determined that overhead costs are caused by three cost…arrow_forwardAsbury Coffee Enterprises (ACE) manufactures two models of coffee grinders: Personal and Commercial. The Personal grinders have a smaller capacity and are less durable than the Commercial grinders. ACE only recently began producing the Commercial model. Since the introduction of the new product, profits have been steadily declining, although sales have been increasing. The management at ACE believes that the problem might be in how the accounting system allocates costs to products. The current system at ACE allocates manufacturing overhead to products based on direct labor costs. For the most recent year, which is representative, manufacturing overhead totaled $1,902,000 based on production of 30,000 Personal grinders and 10,000 Commercial grinders. Direct costs were as follows: Direct materials Direct labor Personal $ 1,437,000 1,020,000 Commercial $ 517,500 565,000 Total $ 1,954,500 1,585,000 Management has determined that overhead costs are caused by three cost drivers. These…arrow_forwardJohnson Limited is contemplating the installation of a new system that would allow for automated handling of customer inquiries about their order status, account balances, etc. Currently all such inquiries are handled manually by customer service representatives. The software for the new system would cost $214,000. An additional $169,000 would be required for one-time installation costs. Management estimates that the new system would result in costs of $10,300 per year related to addressing software issues and other technological problems that may arise. However, the new system is expected to reduce labour costs by $65,000 per year. Management estimates that the system would be used for five years. Severance costs related to the employees that would be laid off after implementing the new system would be $22,600. Johnson Limited requires a return of at least 15% on investments of this type. Required: Ignore income taxes. 1. Compute the net annual cost savings promised by the new system.…arrow_forward
- Algonac Moldings produces a product made from a metal alloy. Two suppliers, Liebold Metal and Cecil Distributors, supply the alloy. Neither supplier can meet Algonac's typical demand, because of capacity constraints. The material from Liebold is less expensive to buy but more difficult to use, resulting in greater waste. The metal alloy is highly toxic and any waste requires costly handling to avoid environmental accidents. Last year the cost of handling the waste totaled $1,200,000. Additional data from last year’s operations are shown as follows:  Liebold Metals Cecil Distributors Amount of material purchased (tons) 64.8 115.2 Amount of waste (tons) 9.0 11.0 Cost of purchases $ 1,488,000 $ 3,312,000 Required: Allocate the cost of the waste handling to the two suppliers based on: Amount of material purchased. Amount of waste. Cost of material purchased. Amount of material purchased. Note: Do not round intermediate calculations. A.)…arrow_forwardRichins Company is considering the acquisition of a computerized manufacturing system. The new system has a built in quality function that increases the control over product specifications. An alarm sounds whenever the product falls outside the programmed specifications. An operator can then make some adjustments on the spot to restore the desired product quality. The system is expected to decrease the number of units scrapped because of poor quality. The system is also expected to decrease the amount of labor inputs needed. The production manager is pushing for the aquisition because he believes that productivity will be greatly enhanced - particularly when it comes to labor and material inputs. Output and input data follow. The data for the computerized system are projections.                     Current System    Computerized System                                                     Output (units)…arrow_forwardMaglie Company manufactures two video game consoles: handheld and home. The handheld consoles are smaller and less expensive than the home consoles. The company only recently began producing the home model. Since the introduction of the new product, profits have been steadily declining. Management believes that the accounting system is not accurately allocating costs to products, particularly because sales of the new product have been increasing.  Management has asked you to investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on their direct labor costs. For your investigation, you have data from last year. Manufacturing overhead was $1,262,000 based on production of 320,000 handheld consoles and 114,000 home consoles. Direct labor and direct materials costs were as follows.   Handheld Home Total Direct labor $1,192,500 $385,000 $1,577,500 Materials 780,000 711,000 1,491,000  Management has determined that…arrow_forward
- Maglie Company manufactures two video game consoles: handheld and home. The handheld consoles are smaller and less expensive than the home consoles. The company only recently began producing the home model. Since the introduction of the new product, profits have been steadily declining. Management believes that the accounting system is not accurately allocating costs to products, particularly because sales of the new product have been increasing. Management has asked you to investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on their direct labor costs. For your investigation, you have data form last year. Manufacturing overhead was $1,432,000 based on production of 290,000 handheld consoles and 108,000 home consoles. Direct labor and direct materials costs were as follows.                                                     Handheld               Home                  Total Direct labor…arrow_forwardTombro Industries is in the process of automating one of its plants and developing a flexible manufacturing system. The company is finding it necessary to make many changes in operating procedures. Progress has been slow, particularly in trying to develop new performance measures for the factory.  In an effort to evaluate performance and determine where improvements can be made, management has gathered the following data relating to activities over the last four months:   Month 1 2 3 4 Quality control measures:         Number of defects 201  179  140  98  Number of warranty claims 62  55  46  43  Number of customer complaints 118  112  95  74  Material control measures:         Purchase order lead time 10 days 9 days 7 days 5 days Scrap as a percent of total cost 1%  1%  2%  3%  Machine performance measures:         Machine downtime as a percentage of availability 5%  6%  6%  10%  Use as a percentage of…arrow_forwardMaglie Company manufactures two video game consoles: handheld and home. The handheld consoles are smaller and less expensive than the home consoles. The company only recently began producing the home model. Since the introduction of the new product, profits have been steadily declining. Management believes that the accounting system is not accurately allocating costs to products, particularly because sales of the new product have been increasing.  Management has asked you to investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on their direct labor costs. For your investigation, you have data from last year. Manufacturing overhead was $1,334,000 based on production of 320,000 handheld consoles and 113,000 home consoles. Direct labor and direct materials costs were as follows.   Handheld Home Total Direct labor $ 1,285,500  $ 382,000  $ 1,667,500  Materials  800,000…arrow_forward
- Maglie Company manufactures two video game consoles: handheld and home. The handheld consoles are smaller and less expensive than the home consoles. The company only recently began producing the home model. Since the introduction of the new product, profits have been steadily declining. Management believes that the accounting system is not accurately allocating costs to products, particularly because sales of the new product have been increasing.  Management has asked you to investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on their direct labor costs. For your investigation, you have data from last year. Manufacturing overhead was $1,320,000 based on production of 300,000 handheld consoles and 105,000 home consoles. Direct labor and direct materials costs were as follows.  Handheld Home Total Direct labor  $        1,250,000  $     400,000  $     1,650,000 Materials  $           720,000  $     657,000  $…arrow_forwardMaglie Company manufactures two video game consoles: handheld and home. The handheld consoles are smaller and less expensive than the home consoles. The company only recently began producing the home model. Since the introduction of the new product, profits have been steadily declining. Management believes that the accounting system is not accurately allocating costs to products, particularly because sales of the new product have been increasing. Management has asked you to Investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on their direct labor costs. For your investigation, you have data from last year. Manufacturing overhead was $1.337,000 based on production of 310,.000 handheld consoles and 95,000 home consoles. Direct labor and direct materials costs were as follows. Handheld Home $409,000 696,000 Total $1,671,250 1,476,000 Direct labor $1,262,250 780,000 Materials Management has determined that overhead costs are…arrow_forwardMaglie Company manufactures two video game consoles: handheld and home. The handheld consoles are smaller and less expensive than the home consoles. The company only recently began producing the home model. Since the introduction of the new product, profits have been steadily declining. Management believes that the accounting system is not accurately allocating costs to products, particularly because sales of the new product have been increasing.  Management has asked you to investigate the cost allocation problem. You find that manufacturing overhead is currently assigned to products based on their direct labor costs. For your investigation, you have data from last year. Manufacturing overhead was $1,125,000 based on production of 310,000 handheld consoles and 110,000 home consoles. Direct labor and direct materials costs were as follows.   Handheld Home Total Direct labor $ 1,022,250  $ 384,000  $ 1,406,250  Materials  700,000   712,000   1,412,000…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education