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Business Applications Case Essay

Chapter 1.

5. What does the statement “costs can be assets or expenses” mean? 6. Why are the salaries of production workers accumulated in an inventory account instead of being expensed on the income statement? 7. How do product costs affect the financial statements? How does the classification of product cost (as an asset vs. an expense) affect net income?

The following information was taken from the 2008 and 2009 Form 10-Ks for Dell, Inc.Required a. Explain whether each line of information in the table above would best be described as being primarily financial accounting or managerial accounting in nature. b. Provide some additional examples of managerial and financial accounting information that could apply to Dell. c. If you analyze only the data you identified as financial in nature, does it appear that Dell’s 2009 fiscal year was better or worse than its 2008 fiscal year? Explain. d. If you analyze only the data you identified as managerial in nature, does it appear that Dell’s 2009 fiscal year was better or worse than its 2008 fiscal year? Explain|

Chapter 2

10. How is the relevant range of activity related to fixed and variable cost? Give an example of how the definitions of these costs become invalid when volume is outside the relevant range. 12. When would the high-low method be appropriate for estimating variable and fixed costs? When would least-squares regression be the most desirable? 13. Which cost structure has the greater risk? Explain.

Chapter 3

6. When would the customer be willing to pay a premium price for a product or service? What pricing strategy would be appropriate under these circumstances? 7. What are three alternative approaches to determine the break-even point? What do the results of these approaches show? 8. What is the equation method for determining the break-even point? Explain how the results of this method differ from those of the contribution margin approach. Chapter 4

10. Why are some manufacturing costs not directly traceable to products? 11. What is the objective of allocating indirect manufacturing overhead costs to the product?

Chapter 5

1. Why did traditional costing systems base allocations on a single companywide cost driver? 2. Why are labor hours ineffective as a companywide allocation base in many industries today? 3. What is the difference between volume-based cost drivers and activity-based cost drivers? 4. Why do activity-based cost drivers provide more accurate allocations of overhead in an automated manufacturing environment? 5. When would it be appropriate to use volume-based cost drivers in an activity-based costing system? ATC 5-4Writing AssignmentAssessing a strategy to control quality cost Lucy Sawyer, who owns and operates Sawyer Toy Company, is a perfectionist.

She believes literally in the “zero-defects” approach to quality control. Her favorite saying is, “You can’t spend too much on quality.” Even so, in 2010 her company experienced an embarrassing breach of quality that required the national recall of a defective product. She vowed never to repeat the experience and instructed her staff to spend whatever it takes to ensure that products are delivered free of defects in 2011. She was somewhat disappointed with the 2011 year-end quality cost report shown here.

Although external failure costs had declined, they remained much higher than expected. The increased inspections had identified defects that were corrected, thereby avoiding another recall; however, the external failure costs were still too high. Ms. Sawyer responded by saying, “We will have to double our efforts.” She authorized hiring additional inspectors and instructed her production supervisors to become more vigilant in identifying and correcting errors. Required

Assume that you are the chief financial officer (CFO) of Sawyer Toy Company. Ms. Sawyer has asked you to review the company’s approach to quality control. Prepare a memo to her that evaluates the existing approach, and recommend changes in expenditure patterns that can improve profitability as well as increase the effectiveness of the quality control system.

Chapter 6
7. What is an opportunity cost? How does it differ from a sunk cost? 8. A local bank advertises that it offers a free noninterest-bearing checking account if the depositor maintains a $500 minimum balance in the account. Is the checking account truly free?


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