Reference no: EM13852766

Problem: Financial and Managerial Accounting:

Assume Amy Filler has just been promoted to product manager at Kraft Foods. Although she is an accomplished sales representative and well versed in market research, her accounting background is limited to reviewing her paycheck, balancing her checkbook, filling income tax return, and reviewing the company's annual income statement and balance sheet. She commented that while the financial statements are no doubt useful to investor, she just doesn't see how accounting can help her be good product manager.

Required:

Based on her remarks, it is apparent that Amy's view of accounting is limited to financial accounting. Explain some of the important differences between financial and managerial accounting and suggest some ways managerial accounting can help Amy be a better product manager.

Problem 2: Scatter Diagram and High-Low Cost Estimation

From April 1 through October 31, Will County Highway Department hires temporary employees to mow and clean the right-of-way along county roads. The County Road Commissioner has asked you to help her in determining the variable labor cost of mowing and cleaning a mile of road. The following information is available regarding current-year operations:

	Miles Mowed and Cleaned	Labor Costs
April	350	$8,000
May	300	7,500
June	400	9,000
July	250	5,500
August	375	8,500
September	200	5,000
October	100	4,800

 Required:

a. Use the information from the high and low volume months to develop a cost estimating equation for monthly labor costs.

b. Plot the data on a scatter diagram. Using the information from representative high-and low-volume months, use the high low method to develop a cost-estimating equation for monthly labor costs.

c. What factors might have caused the differences in the equation developed for requirements (a) and (b)?

d. Adjust the equation developed in requirements (b) to incorporate the effect of an anticipated 7 percent increase in wages.

Problem 3: Traditional Product Costing versus Activity-based costing

High Country Outfitter, Inc., makes backpacks for large sporting goods chains that are sold under the customers store brand names. The Accounting Department has identified the following overhead costs and cost drivers for next year:

Overhead Item	Expected Costs	Cost Driver	Maximum Quantity
Setup costs	$972,000	Number of setups	7,200
Ordering costs	270,000	Number of orders	60,000
Maintenance	1,200,000	Number of machine hours	80,000
Power	150,000	Number of kilowatt hours	600,000

Total predicted direct labor hours for next year is 60,000. The following data are for two recently completed jobs:

	Job 201	Job 202
Cost of direct materials	$13,500	$15,000
Cost of direct labor	$19,125	$71,250
Number of units completed	1,125	915
Number of direct labor hours	270	330
Number of setups	18	22
Number of orders	24	45
Number of machine hours	540	450
Number of kilowatt hours	270	360

Required:

a. Determine the unit cost for each job using a traditional plant wide overhead rate based on direct labor hours.

b. Determine the unit cost for each job using ABC.

c. As the manager of High Country, is there additional information that you would want to help you evaluate the pricing and profitability of Jobs 201 and 202?

d. Assuming the company has been using the method  required in part a, how should management react to the findings in part b?

Problem 4: Contribution Margin Concepts

The following information is taken from the 2013 records of Cherokee Jewelry Shop.

Required:

a. Determine the annual break-even dollar sales volume.

b. Determine the current margin of safety in dollars.

c. Prepare a cost-volume-profit graph for the jewelry shop. Label both axes in dollars with maximum values of $1,000,000. Draw a vertical line on the graph for the current ($750,000) sales level, and label total variable costs, total fixed costs, and total profits at $750,000 sales.

d. What is the annual break-even dollar sales volume if management makes a decision that increases fixed costs by $35,000?