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1.Describe a situation that may cause manufacturing overhead tobe over-allocated in a given year. Also, describe a situation thatmay cause manufacturing overhead to be under-allocated in a givenyear.

2. Think of a business or organization that would use processcosting. What type of waste are likely to be generated during themanufacturing process? Are there ways to avoid this waste orminimize it? How might managerial accounting support the efforts toreduce waste in the production process?

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Keith Leannon
Keith LeannonLv2
29 Sep 2019

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Please complete the following essay in a single page (nomore than two) Word document, double-spaced, 12 pt.font.

Instructions: Identify and discussa minimum of 5 managerial accountingtopics that could apply to the following situation! Pleaseanswer in complete sentences.

You have just graduated with your degree in accounting and areplanning on sitting for the CMA (Certified Managerial Accountant)examination. Managerial accounting was your favorite course ofstudy in accounting, and you can’t wait to show the world whatyou’ve learned! You have begun the interview process with severalmanufacturing companies. The larger companies look at you as justanother graduate. You have an interview with a smaller manufacturerwho is very impressed with you! Since the salary is the best you’vebeen offered, you’re just as eager to demonstrate your skills andknowledge. Your potential boss begins to tell you a little abouthis dilemma.

“I started this business with an idea and a prayer. For so long,I could do just fine operating out of my hip pocket. Then thingsreally started happening fast. Demand for our products increased,we built new manufacturing facilities, and hired more people than Icould keep up with. I think we are profitable, but I never knowuntil the end of the year when financial statements are prepared. Iwant to make sure the company can keep up with its growth, but Idon’t know what to do. That’s why I’m interested in hiring amanagerial accountant. Before I do, I need to know that whomever Ihire has some ideas as to how to help my company. I wouldappreciate it if you would prepare a short memo highlighting theareas that you think could use some attention. Once I have that, Ican make my decision about hiring you. I think you would be anasset (!) to our business, but I want to be sure I’m doing theright thing, not just hiring another worker for the office!

“Let me tell you a little about our company. We have threemanufacturing facilities in the United States, producingThis and That, but I’m not sure what the productcost is of each. We are in the process of considering production ofThe Other, which may involve construction of anothermanufacturing facility. We employ 250 people, including officestaff and managers. The overhead is a big chunk of money each year,and I don’t know what it goes for! I pay everyone what they’reworth, and try to give raises when I think I can. It’s really hardto know who is doing a good job since we’ve grown so big. Weusually handle things on a day-to-day basis, trying to resolvemajor problems as we go. Sometimes that means coming up short oncash to pay bills or product to meet demand. I’m sure there has tobe a better way. Do you think you can help us?”

You leave the interview confident that you will be the bestperson for this job! Your mind is racing with all of the things youlearned in accounting! With pen in hand, you begin expressing yourthoughts and suggestions...

please help. thank you!

1 An increase in fixed costs will cause the break-even point to decrease True False

2 Rental of equipment at $5,000 per month plus $6 for each machine hour used over 9,000 hours is a type of mixed cost. True False

3 Conversion costs are made up of direct labor and factory overhead True False

4 Which of the following would be classified as a variable cost?

Straight-line depreciation on production equipment

Copy lease payment of $500 per month plus $0.01 per copy

Fabric for use in quilts to be produced.

None of the above

5.Mixed costs:

have both the characteristics of fixed costs and variable costs.

change in relation to the passage of time.

cannot be accurately plotted on a graph.

None of the above

6 What is the correct formula to calculate the contribution margin ratio?

Fixed Costs / Unit Contribution Margin

(Sales - Variable Costs) / Sales

(Fixed Costs + Target Profit) / Unit Contribution Margin

None of the above

7 The budget process begins with which of the following?

Production budget

Sales budget

Cash Budget

Budgeted Income Statement

8 If the cost of materials purchased in the period is $200,000, and $185,000 is used in the manufacturing process, then:

the unused $15,000 is a period cost.

the unused $15,000 is part of work-in-process inventory in the period.

the unused $15,000 is classified as materials inventory

the unused $15,000 is part of finished goods inventory on the balance sheet.

9 Which statement(s) is True about the uses of managerial accounting?

Managerial accounting is used to support long-term planning decisions.

Managerial accounting helps a company evaluate the performance of company decisions.

Managerial accounting helps users run the day-to-day operations of the business.

All of the above

10 A budgeting system that requires managers to estimate sales and other operating expenses as though operations are being started for the first time is:

static budgeting.

flexible budgeting

zero based budgeting

None of the above

11

Fixed costs for Flag Stamp Co. are $250,000. The selling price per unit is $20.00, and variable costs are $15.00.

The contribution margin ratio is ? (state whole number only - no decimals).

12

Fixed costs for Flag Stamp Co. are $300,000. The selling price per unit is $20.00, and variable costs are $15.00. The break-even sales (in units) are ?

13

Assume sales are $750,000, variable costs are 70% of sales, and income from operations is $100,000. What is the contribution margin ratio and fixed cost, respectively?

14

The following costs were incurred in August:

Direct Materials $25,000

Direct Labor $20,000

Manufacturing (Factory) Overhead $25,000

Selling and Administrative Expenses $40,000

(1) What is the amount of the prime costs?

(2) What is the amount of the period costs?

(3) What is the amount of the conversion costs?

(4) What is the amount of the product costs?

15

If Ragged Edge Arts sells quilts and paintings, and it has estimated selling 50 quilts at $250 each and 42 paintings at $500 each, what are the estimated sales for next year?

Sun Air Boat Builders, Inc

Sun Air Boat Builders served boaters with a small, lightweightfiberglass sailboat capable of being carried on a car roof. Thoughthe firm could hardly be considered as one of the nation’sindustrial giants, its burgeoning business had required it toinstitute a formal system of cost control. Jan Larson, Sun Air’sPresident, explained:

Our seasonal demand, as opposed to a need for regular, levelproduction, means that we must keep a good line of credit at thebank. Modern cost control and inventory valuation proceduresenhance our credibility with the bankers and, more importantly,have enabled them to improve our operations. Our supervisors haverealized the value of good cost accounting, and the main officehas, In turn, become much more aware of problems in the barn.

Sun Air’s manufacturing andwarehouse facilities consisted of three historic barns converted tomake 11 -foot “silver Streak” sailboats. The company’s plansincluded the addition of 15-and 18-foot sailboats to its presentline. Longer-term plans called for adding additional sizes andstyles in the hope of becoming a major factor in the regional boatmarket.

The “Silver Streak ” was anopen--cockpit,day sailer sporting a mainsail and small jib on a17-foot,telescoping aluminum mast.It was ideally suited to the manysmall lakes and ponds of the region,and after three years it hadbecome quite popular. It was priced at $2,265 complete.

Manufacturing consisted basicallyof three processes: molding, finishing, and assembly. The moldingdepartment mixed all ingredients to make the fiberglass hull,performed the actual molding, and removed the hull from the mold.Finishing included hand additions to the hull for running andstanding rigging, reinforcement of the mast and tiller steps, andgeneral sanding of rough spots. Assembly consisted of theattachment of cleats, turnbuckles, drain plugs, tiller, and soforth, and the inspection of the boat with mast, halyards, andsails in place. The assembly department also prepared the boat forstorage or shipment.

Mixing and molding fiberglasshulls, while manually simple, required a great deal of expertise,or “eyeball,” as it was known in the trade.. Addition of too muchor too little catalyst, use of too much or too little heat, orfailure to allow proper time for curing could each cause a hull tobe discarded. Conversely, spending too much time on adjustments tomixing or molding equipment o on “personalized” supervision of eachhull could cause severe underproduction problems. Once a batch offiberglass was mixed there was no time to waste being overcautiousor it was likely to “freeze ”in its kettle..

With such a situation, and thecompany’s announced intent of expanding its product line, it becameobvious that a standard cost system would be necessary to helpcontrol costs and to provide some reference for supervisors’performance.

Randy Kern, the moldingdepartment supervisor, and Bill Schmidt, Sun Air ’s accountant,agreed after lengthy discussion to the following standardcosts:

Materials -Glass cloth 120 sq.ft @$2.00 = $240.00

-Glass mix 40lbs. .@$3.75 = 150.00

Directlabor -Mixing 0.5 hr..@$20.25 = 10.12

-Molding 1.0 hr..@$20.25 = 20.25

Indirect costs -Absorb at $24.30 per hull *= 24.30

Total cost to mold hull $444.67

* The normal volume of operationsfor overhead derivation purposes was assumed to be 450 hulls permonth.

The estimated monthly indirectcost equation was: Budget = $9.72 * hulls + $6,561

Analysis of Operations

After several additional months of operations, Bill Schmidtexpressed his disappointment about the apparent lack of attentionbeing paid to the standard costs. The molders tended to have acautious outlook toward mixing too little or “cooking” too long. Noone wanted to end up throwing away a partial hull because there wastoo little glass mix.

In reviewing the most recentmonth ’s production results, Schmidt noted the following actualcosts for production of 430 hulls:

Materials:

Purchased 60,000 sq. ft glass cloth @$1.80

20,000 lbs. glass mix @$4.09

Used 54,000 sq. ft. glass cloth

19,000 lbs. glass mix

Direct Labor: Mixing 210 hrs. @$21.37

Molding 480 hrs @$20.25

Overhead :Incurred $11,140

Before proceeding with furtheranalysis, Schmidt called Kern to arrange a discussion of variances.He also told Jan Larson, “Maybe we should look into an automatedmolding operation. Although I haven’t finished my analysis, itlooks like there will be unfavorable variances again. Kern insiststhat the standards are reasonable, then never meetsthem!”

Larson seemed disturbed and answered, “Well, some variances areinevitable. Why don’t you analyze them in some meaningful mannerand discuss your ideas with Kern, who is an expert in molding whoseopinion I respect. Then the two of you meet with me to discuss thewhole matter.”

Questions

1. Determine the molding department’sdirect cost variances and overhead variances. Why do you think theyoccurred?

2. Do you think Sun Air’s standards aremeaningful? How would you improve them?

3. Assume that the month’s actual andstandard production costs for items other than molding hullsamounted to $914.33 per boat, and that 430 boats were sold. Preparea statement of budgeted and actual gross margin for the month,assuming planned sales of 450 boats.

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