# Cornerstones of Cost Management Study Set 4

## Quiz 2 :Basic Cost Management Concepts

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Costs of Services Jean and Tom Perritz own and manage Happy Home Helpers, Inc. (HHH), a house-cleaning service. Each cleaning (cleaning one house one time) takes a team of three house cleaners about 1.5 hours. On average, HHH completes about 15,000 cleanings per year. The following total costs are associated with the total cleanings: Required: 1. Calculate the prime cost per cleaning. 2. Calculate the conversion cost per cleaning. 3. Calculate the total variable cost per cleaning. 4. Calculate the total service cost per cleaning. 5. What if rent on the office that Jean and Tom use to run HHH increased by $1,500? Explain the impact on the following: a. Prime cost per cleaning b. Conversion cost per cleaning c. Total variable cost per cleaning d. Total service cost per cleaning Free Essay Answer: Answer: 1. Prime cost per cleaning = Prime cost per cleaning = 33.3 2. Conversion cost per cleaning = Conversion cost per cleaning = 33.7 3. Total variable cost per cleaning = Total variable cost per cleaning = 34.3 4. Total service cost per cleaning = Total service cost per cleaning = 35.5 5. Office rent increased by$5,000, i.e. fixed overhead goes up by $5,000. The impact will be as follows: a. Prime cost per cleaning will not change as it does not include fixed overhead. b. Conversion cost per cleaning = Conversion cost per cleaning = 34.03 c. Variable cost per cleaning will not change as it does not include fixed overhead. d. Total service cost per cleaning = Total service cost per cleaning = 35.83 As per the above calculation, prime cost and total variable cost will not have any change. Conversion cost and total service cost will increases. Tags Choose question tag What does traceability mean? Free Essay Answer: Answer: Traceability means the feasibility to assign the cost to an activity or cost object directly on the basis of cause and effect relationship. The greater advantage in traceability cost is reliability factor, i.e. we can reliably assign cost to a specific event by easily tracing the cost with its casual relationship. Tags Choose question tag What is the difference between a financial accounting information system and a cost management information system? Free Essay Answer: Answer: List the Difference between financial accounting information system and cost management information system: 1. The rules and regulations for financial accounting information system are governed by SEC, FASB and IASB whereas Cost management information system rules are set within the organization to produce information relevant to the needs of the organization. 2. Financial accounting information system is concerned preparation of set of financial statements for each accounting period, which is used by the outsiders. Cost accounting information system is a management tool, designed basically to produce reports for internal purposes. 3. Financial information is needed to provide the financial position of the company whereas cost information is needed for planning, control and mainly for decision making purposes. Tags Choose question tag Product Costs Pietro Frozen Foods, Inc., produces frozen pizzas. For next year, Pietro predicts that 50,000 units will be produced, with the following total costs: Required: 1. Calculate the prime cost per unit. 2. Calculate the conversion cost per unit. 3. Calculate the total variable cost per unit. 4. Calculate the total product (manufacturing) cost per unit. 5. What if the number of units increased to 55,000 and all unit variable costs stayed the same? Explain what the impact would be on the following costs: total direct materials, total direct labor, total variable overhead, total fixed overhead, unit prime cost, and unit conversion cost. What would the product cost per unit be in this case? Essay Answer: Tags Choose question tag Explain how driver tracing works. Essay Answer: Tags Choose question tag Income Statement Jean and Tom Perritz own and manage Happy Home Helpers, Inc. (HHH), a house-cleaning service. Each cleaning (cleaning one house one time) takes a team of three house cleaners about 1.5 hours. On average, HHH completes about 15,000 cleanings per year. The following total costs are associated with the total cleanings: Next year, HHH expects to purchase$25,600 of direct materials. Projected beginning and ending inventories for direct materials are as follows: There is no work-in-process inventory and no finished goods inventory; in other words, a cleaning is started and completed on the same day. HHH expects to sell 15,000 cleanings at a price of $45 each next year. Total selling expense is projected at$22,000, and total administrative expense is projected at $53,000. Required: 1. Prepare an income statement in good form. 2. What if Jean and Tom increased the price to$50 per cleaning and no other information was affected? Explain which line items in the income statement would be affected and how.
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Define and explain the two major subsystems of the cost management information system.
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Cost of Services Sold Jean and Tom Perritz own and manage Happy Home Helpers, Inc. (HHH), a house-cleaning service. Each cleaning (cleaning one house one time) takes a team of three house cleaners about 1.5 hours. On average, HHH completes about 15,000 cleanings per year. The following total costs are associated with the total cleanings: Next year, HHH expects to purchase $25,600 of direct materials. Projected beginning and ending inventories for direct materials are as follows: There is no work-in-process inventory and no finished goods inventory; in other words, a cleaning is started and completed on the same day. Required: 1. Prepare a statement of cost of services sold in good form. 2. How does this cost of services sold statement differ from the cost of goods sold statement for a manufacturing firm? Essay Answer: Tags Choose question tag What is allocation? Essay Answer: Tags Choose question tag Systems Concepts In general, systems are described by the following pattern: (1) interrelated parts, (2) processes, and (3) objectives. Operational models of systems also identify inputs and outputs. The dishwashing system of a college cafeteria consists of the following steps. First, students dispose of any waste paper (e.g., napkins) in a trash can; then they file by an opening to the dishwashing area and drop off their trays. Persons 1 and 2 take the trays; rinse the extra food down the disposal; and stack the dishes, glasses, and silverware in heavy-duty plastic racks. These racks slide along a conveyor into the automatic dishwasher. When the racks emerge from the other end of the dishwasher, they contain clean, germ-free items. Person 3 removes the racks and, with Person 4, empties them of clean items; stacking the dishes, silverware, glasses, and trays for future use. The empty racks are returned to the starting position in front of Persons 1 and 2. The following items are associated with this dishwashing system: a. Automatic dishwasher b. Racks to hold the dirty glasses, silverware, and dishes c. Electricity d. Water e. Waste disposal f. Sinks and sprayers g. Dish detergent h. Gas heater to heat water to 180 degrees Fahrenheit i. Conveyor belt j. Persons 1, 2, 3, and 4 k. Clean, germ-free dishes l. Dirty dishes m. Half-eaten dinner n. Aprons Required: 1. What is the objective of the dishwashing system? What processes can you identify? 2. Classify the items into one of the following categories: a. Interrelated parts b. Inputs c. Outputs 3. Draw an operational model for the dishwashing system. 4. Discuss how a cost management information system is similar to and different from the dishwashing system. Essay Answer: Tags Choose question tag Cost Accounting Information System The following items are associated with a cost accounting information system: a. Usage of direct materials b. Assignment of direct materials cost to each product c. Direct labor cost incurrence d. Depreciation on production equipment e. Cost accounting personnel f. Submission of a bid, using product cost plus 25 percent g. Power cost incurrence h. Materials handling cost incurrence i. Computer j. Assignment of direct labor costs to products k. Costing out of products l. Decision to continue making a part rather than buying it m. Printer n. Report detailing individual product costs o. Assignment of overhead costs to individual products Required: 1. Classify the preceding items into one of the following categories: a. Interrelated parts b. Processes c. Objectives d. Inputs e. Outputs f. User actions 2. Draw an operational model that illustrates the cost accounting information system-with the preceding items used as examples for each component of the model. 3. Based on your operational model, identify which product cost definition is being used: value-chain, operating, or product (manufacturing). Essay Answer: Tags Choose question tag What is a direct cost? An indirect cost? Essay Answer: Tags Choose question tag What are the objectives of a cost management information system? Essay Answer: Tags Choose question tag Cost of Services Produced Jean and Tom Perritz own and manage Happy Home Helpers, Inc. (HHH), a house-cleaning service. Each cleaning (cleaning one house one time) takes a team of three house cleaners about 1.5 hours. On average, HHH completes about 15,000 cleanings per year. The following total costs are associated with the total cleanings: Next year, HHH expects to purchase$25,600 of direct materials. Projected beginning and ending inventories for direct materials are as follows: There is no work-in-process inventory; in other words, a cleaning is started and completed on the same day. Required: 1. Prepare a statement of services produced in good form. 2. What if HHH planned to purchase $30,000 of direct materials? Assume there would be no change in beginning and ending inventories of materials. Explain which line items on the statement of services produced would be affected and how (increase or decrease). Essay Answer: Tags Choose question tag What is a cost object? Give some examples. Essay Answer: Tags Choose question tag Cost of Goods Sold Refer to Cornerstone Exercise 2.2. Pietro expects to produce 50,000 units and sell 49,300 units. Beginning inventory of finished goods is$42,500, and ending inventory of finished goods is expected to be $34,000. Required: 1. Prepare a statement of cost of goods sold in good form. 2. What if the beginning inventory of finished goods decreased by$5,000? What would be the effect on the cost of goods sold?
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Income Statement Refer to Cornerstone Exercises 2.2 and 2.3. Next year, Pietro expects to produce 50,000 units and sell 49,300 units at a price of $12.50 each. Beginning inventory of finished goods is$42,500, and ending inventory of finished goods is expected to be $34,000. Total selling expense is projected at$26,000, and total administrative expense is projected at $134,000. Required: 1. Prepare an income statement in good form. Be sure to include the percent of sales column. 2. What if the cost of goods sold percentage for the past few years was 65 percent? Explain how management might react. Essay Answer: Tags Choose question tag What is an accounting information system? Essay Answer: Tags Choose question tag Cost of Goods Manufactured Refer to Cornerstone Exercise 2.1. For next year, Pietro predicts that 50,000 units will be produced, with the following total costs: Next year, Pietro expects to purchase$119,300 of direct materials. Projected beginning and ending inventories for direct materials and work in process are as follows: Required: 1. Prepare a statement of cost of goods manufactured in good form. 2. What if the ending inventory of direct materials increased by \$2,000? Which line items on the statement of cost of goods manufactured would be affected and in what direction (increase or decrease)?