Managerial Accounting: Creating Value in a Dynamic Business Environment
11th Edition
ISBN: 9781259569562
Author: Ronald W Hilton Proffesor Prof, David Platt
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 5, Problem 43E
Big Apple Design Company specializes in designing commercial office space in Chicago. The firm’s president recently reviewed the following income statement and noticed that operating profits were below her expectations. She had a hunch that certain customers were not profitable for the company and asked the controller to perform a customer-profitability analysis showing profitability by customer for the month of March.
The controller provided the following customer-profitability graph:
Required: Put your-self in the position of Big Apple’s controller and write a memo to the president to accompany the customer-profitability graph. Comment on the implications of the customer-profitability analysis and raise four or more questions that should be addressed by the firm’s management team.
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Nation's Capital Fitness, Incorporated, operates a chain of fitness centers in the Washington, D.C., area. The firm's
controller is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern
of the firm's equipment maintenance costs must be determined. The accounting staff has suggested the use of an
equation, in the form of Y= a + bx, for maintenance costs. Data regarding the maintenance hours and costs for last year
are as follows:
Month
January
February
March
April
May
June
July
August
September
October
November
December
Total
Average
Hours of
Maintenance
Service
560
480
280
470
350
460
320
430
490
380
350
340
4,910
409
Maintenance cost
Maintenance
Costs
$ 5,110
4,240
2,730
4,300
3,030
4, 120
3,000
3,590
4,000
3,220
3,170
3,070
$ 43,580
$ 3,632
PR 6-38 (Algo) Part 3 Compute the predicted maintenance cost...
3. Compute the predicted maintenance cost at 670 hours of activity.
Answer is complete but not entirely correct.
$
49,192 X
Nation's Capital Fitness, Incorporated, operates a chain of fitness centers in the Washington, D.C., area. The firm's
controller is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern
of the firm's equipment maintenance costs must be determined. The accounting staff has suggested the use of an
equation, in the form of Y= a + bX, for maintenance costs. Data regarding the maintenance hours and costs for last year
are as follows:
Month
January
February
March
April
May
June
July
August
September
October
November
December
Total
Average
Hours of
Maintenance
Service
Variable maintenance cost
560
480
280
470
350
460
320
430
490
380
350
340
4,910
409
$
Maintenance
Costs
$ 5,110
4,240
2,730
4,300
3,030
4, 120
PR 6-38 (Algo) Part 2 What is the variable component of the maintenance cost?
2. Using your answer to requirement 1, what is the variable component of the maintenance cost?
Note: Round your answer to 2 decimal places.
3,000
3,590…
Nation's Capital Fitness, Incorporated, operates a chain of fitness centers in the Washington, D.C., area. The firm's
controller is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern
of the firm's equipment maintenance costs must be determined. The accounting staff has suggested the use of an
equation, in the form of Y= a + bX, for maintenance costs. Data regarding the maintenance hours and costs for last year
are as follows:
Month
January
February
March
April
May
June
July
August
September
October
November
December
Total
Average
Hours of
Maintenance
Service
560
480
280
470
350
Monthly maintenance cost =
460
320
430
490
380
350
340
4,910
409
Maintenance
Costs
$ 5,110
4,240
2,730
4,300
3,030
4,120
3,000
3,590
4,000
3,220
3,170
3,070
$ 43,580
$ 3,632
PR 6-38 (Algo) Part 1 Estimate the behavior of the maintenance costs incurred...
Required:
1. Using the high-low method of cost estimation, estimate the behavior of the maintenance…
Chapter 5 Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
Ch. 5 - Briefly explain how a traditional, volume-based...Ch. 5 - Prob. 2RQCh. 5 - Explain how an activity-based costing system...Ch. 5 - What are cost drivers? What is their role in an...Ch. 5 - List and briefly describe the four broad...Ch. 5 - How can an activity-based costing system alleviate...Ch. 5 - Prob. 7RQCh. 5 - How is the distinction between direct and indirect...Ch. 5 - Explain the concept of a pool rate in...Ch. 5 - Briefly explain two factors that tend to result in...
Ch. 5 - List three factors that are important in selecting...Ch. 5 - Prob. 12RQCh. 5 - Explain why a new product-costing system may be...Ch. 5 - Prob. 14RQCh. 5 - Are activity-based costing systems appropriate for...Ch. 5 - Explain why maintaining their medical-services...Ch. 5 - How could the administration at Immunity Medical...Ch. 5 - Prob. 18RQCh. 5 - Prob. 19RQCh. 5 - What is meant by the term activity analysis? Give...Ch. 5 - Prob. 21RQCh. 5 - What is meant by customer-profitability analysis?...Ch. 5 - Explain the relationship between customer profit...Ch. 5 - What is a customer profitability profile?Ch. 5 - Describe the use of practical capacity in a TDABC...Ch. 5 - Tioga Company manufactures sophisticated lenses...Ch. 5 - Urban Elite Cosmetics has used a traditional cost...Ch. 5 - Kentaro Corporation manufactures Digital Video...Ch. 5 - Kentaro Corporation manufactures Digital Video...Ch. 5 - Prob. 31ECh. 5 - Refer to the description given for Wheelco, Inc....Ch. 5 - Prob. 33ECh. 5 - United Technologies Corporation implemented...Ch. 5 - Redwood Company sells craft kits and supplies to...Ch. 5 - Non-value-added costs occur in nonmanufacturing...Ch. 5 - Since you have always wanted to be an...Ch. 5 - Prob. 39ECh. 5 - Prob. 42ECh. 5 - Big Apple Design Company specializes in designing...Ch. 5 - Prob. 44ECh. 5 - Borealis Manufacturing has just completed a major...Ch. 5 - Ontario, Inc. manufactures two products, Standard...Ch. 5 - Kitchen Kings Toledo plant manufactures three...Ch. 5 - Prob. 48PCh. 5 - Maxey Sons manufactures two types of storage...Ch. 5 - Prob. 50PCh. 5 - John Patrick has recently been hired as controller...Ch. 5 - The controller for Tulsa Medical Supply Company...Ch. 5 - Prob. 53PCh. 5 - Prob. 54PCh. 5 - Prob. 55PCh. 5 - World Gourmet Coffee Company (WGCC) is a...Ch. 5 - Knickknack, Inc. manufactures two products: Odds...Ch. 5 - Prob. 58PCh. 5 - Marconi Manufacturing produces two items in its...Ch. 5 - Gigabyte, Inc. manufactures three products for the...Ch. 5 - Refer to the new target prices for Gigabytes three...Ch. 5 - Prob. 62PCh. 5 - Better Bagels, Inc. manufactures a variety of...Ch. 5 - Midwest Home Furnishings Corporation (MHFC)...Ch. 5 - Fresno Fiber Optics, Inc. manufactures fiber optic...Ch. 5 - Refer to the information given in the preceding...Ch. 5 - Whitestone Company produces two subassemblies,...Ch. 5 - Morelli Electric Motor Corporation manufactures...Ch. 5 - Refer to the product costs developed in...Ch. 5 - Morelli Electric Motor Corporations controller,...
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