Problem 1Preston Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. Preston allocates overhead based on yards of direct materials. The company's performance report includes the following selected data:Static Budget (1,000 recliners)Actual Results (980 recliners)Sales (1,000 recliners X $495)$495,000 (980 recliners X $475)$465,500Variable manufacturing costs: Direct materials (6,000 yds @ $8.80/yard)52,800 (6,150 yds @ $8.60/yard)52,890 Direct labor (10,000 hrs @ $9.20/hour)92,000 (9,600 hrs @ $9.30/hour)89,280Variable overhead (6,000 yds @ $5.00/yard)30,000 (6,510 yds @ $6.40/yard)39,360Fixed manufacturing costs: Fixed overhead60,00062,000Total cost of goods sold$234,800$243,530Gross profit$260,200$221,970Requirements:1. Prepare a flexible budget based on the actual number of recliners sold.2. Compute the price variance and the efficiency variance for direct materials and for direct labor. For manufacturing overhead, compute the variable overhead spending, variable overhead efficiency, fixed overhead spending, and fixed overhead volume variances.3. Have Preston's managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?4. Describe how Preston's managers can benefit from the standard costing system. Problem 2AllTalk Technologies manufactures capacitors for cellular base stations and other communications applications. The company's January 2012 flexible budget income statement shows output levels of 6,500, 8,000, and 10,000 units. The static budget was based on expected sales of 8,000 units.ALLTALK TECHNOLOGIES Flexible Budget Income Statement Month Ended January 31, 2012Per UnitBy Units (Capacitors)6,5008,00010,000Sales revenue$24$156,000$192,000$240,000Variable expenses$1065,00080,000100,000Contribution margin$91,000$112,000$140,000Fixed expenses53,00053,00053,000Operating income$38,000$59,000$87,000The company sold 10,000 units during January, and its actual operating income was as follows:ALLTALK TECHNOLOGIES Income Statement Month Ended January 31, 2012Sales revenue$246,000Variable expenses104,500Contribution margin$141,500Fixed expenses54,000Operating income$87,500Requirements:1. Prepare an income statement performance report for January.2. What was the effect on AllTalk's operating income of selling 2,000 units more than the static budget level of sales?3. What is AllTalk's static budget variance? Explain why the income statement performance report provides more useful information to AllTalk's managers than the simple static budget variance. What insights can AllTalk's managers draw from this performance report? Problem 3Java manufacturers coffee mugs that it sells to other companies for customizing with their own logos. Java prepares flexible budgets and uses a standard cost system to control manufacturing costs. The standard unit.

1. Problem 1Preston Recliners manufactures leather recliners and
uses flexible budgeting and a standard cost system. Preston
allocates overhead based on yards of direct materials. The
company's performance report includes the following selected
data:Static Budget
(1,000 recliners)Actual Results
(980 recliners)Sales (1,000 recliners X $495)$495,000
(980 recliners X $475)$465,500Variable manufacturing costs:
Direct materials (6,000 yds @ $8.80/yard)52,800
(6,150 yds @ $8.60/yard)52,890 Direct labor (10,000 hrs @
$9.20/hour)92,000 (9,600 hrs @
$9.30/hour)89,280Variable overhead (6,000 yds @
$5.00/yard)30,000 (6,510 yds @
$6.40/yard)39,360Fixed manufacturing costs: Fixed
overhead60,00062,000Total cost of goods
sold$234,800$243,530Gross
profit$260,200$221,970Requirements:1. Prepare a flexible
budget based on the actual number of recliners sold.2. Compute
the price variance and the efficiency variance for direct
materials and for direct labor. For manufacturing overhead,
compute the variable overhead spending, variable overhead
efficiency, fixed overhead spending, and fixed overhead volume
variances.3. Have Preston's managers done a good job or a poor
job controlling materials, labor, and overhead costs? Why?4.
Describe how Preston's managers can benefit from the standard
costing system.
Problem 2AllTalk Technologies manufactures capacitors for
cellular base stations and other communications applications.
The company's January 2012 flexible budget income statement
shows output levels of 6,500, 8,000, and 10,000 units. The
static budget was based on expected sales of 8,000
units.ALLTALK TECHNOLOGIES
Flexible Budget Income Statement
Month Ended January 31, 2012Per UnitBy Units

2. (Capacitors)6,5008,00010,000Sales
revenue$24$156,000$192,000$240,000Variable
expenses$1065,00080,000100,000Contribution
margin$91,000$112,000$140,000Fixed
expenses53,00053,00053,000Operating
income$38,000$59,000$87,000The company sold 10,000 units
during January, and its actual operating income was as
follows:ALLTALK TECHNOLOGIES
Income Statement
Month Ended January 31, 2012Sales revenue$246,000Variable
expenses104,500Contribution margin$141,500Fixed
expenses54,000Operating income$87,500Requirements:1.
Prepare an income statement performance report for January.2.
What was the effect on AllTalk's operating income of selling
2,000 units more than the static budget level of sales?3. What is
AllTalk's static budget variance? Explain why the income
statement performance report provides more useful information
to AllTalk's managers than the simple static budget variance.
What insights can AllTalk's managers draw from this
performance report?
Problem 3Java manufacturers coffee mugs that it sells to other
companies for customizing with their own logos. Java prepares
flexible budgets and uses a standard cost system to control
manufacturing costs. The standard unit cost of a coffee mug is
based on static budget volume of 60,200 coffee mugs per
month:Direct materials (0.2 lbs @ $0.25 per lb)$0.05Direct
labor (3 minutes @ $0.12 per minute)0.36Manufacturing
overhead: Variable (3 minutes @ $0.05 per minute)$0.15
Fixed (3 minutes @ $0.14 per minute)0.420.57Total cost per
coffee mug$0.98Actual cost and production information for July
2012 follow:a. Actual production and sales were 62,900 coffee
mugs.b. Actual direct materials usage was 10,000 lbs., at an
actual price of $0.17 per lb.c. Actual direct labor usage was
202,000 minutes at a total cost of $30,300.d. Actual overhead
cost was $10,000 variable and $30,500 fixed.e. Marketing and
administrative costs were $115,000.Requirements:1. Compute

3. the price and efficiency variances for direct materials and direct
labor.2. Journalize the usage of direct materials and the
assignment of direct labor, including the related variances.3.
For manufacturing overhead, compute the variable overhead
spending and efficiency variances and the fixed overhead
spending and volume variances.4. Journalize the actual
manufacturing overhead and the applied manufacturing
overhead. Journalize the movement of all production from WIP.
Journalize the closing of the manufacturing overhead account.5.
Java intentionally hired more-skilled workers during July. How
did this decision affect the cost variances? Overall, was the
decision wise?
I need an 8-10 page research paper from an interesting topic in
managerial accounting with the questions covered included in
the attachment and in APA format.
Requirements for the Research Paper
APA Style:Prepare all term papers according to the APA style
manual. Information regarding this format may be found on the
library website.
References:The APA style manual should be used in citations.
Be aware that rules for proper attribution require short
quotations be incorporated (fewer than forty words) into text
and enclose the quotation with double quotation marks. Display
a quotation of forty or more words in a freestanding block of
typewritten lines, and omit the quotation marks. Start such a
block quotation on a new line, and indent the block and ½ in.
(or five spaces) from the left margin. If there are additional
paragraphs within the quotation, indent the first line of each an
additional ½ in. The entire quotation should be double spaced.
Library Databases:A number of data bases are available through
the Texas A&M University-Commerce library website. Your
primary source of information of material for your research

4. paper should be from these sources. Information regarding
these databases may be found on the library website. If
information is retrieved from an aggregated database, providing
the name of the database is sufficient: no address is needed.
Internet References:A plethora of information is available on
the internet and they often provide excellent information for
inclusion in your term paper. However, only 25% of your
information should come from web sites. The primary
references should be from referred academic journals. If you
use a web site the web address in your reference must be cited
according to the APA style manual guidelines and be currently
viewable. If information is obtained from a document on the
Internet, provide the Internet address for the document at the
end of the retrieval. Information available through the AICPA
web site is generally considered credible. Additional
information regarding the credibility of these sources is
available on the library website.
Example: Psychological Methods, 4, 100-116. Retrieved
February 20, 2004, from
http://www.apa.org/journals/webref.html
Occasionally you will have a reference that you do not find an
example for in the APA Manual. If this occurs look over the
general forms and choose the example that is most like your
source and follow the format. When in doubt, provide more
information rather than less. Keep in mind one of the purposes
of listing references is to enable readers to retrieve and use the
sources. (Plagiarism will not be tolerated. It is the same as
stealing to use another person’s thoughts as your own. This
does not mean change a few words but to write the paper in
your own words. If you use another’s words you should give
credit where credit is due.) Each entry should contain author,
year of publication, title, and publishing data.

5. Organization:You should begin with an introduction that
summarizes what you are going to say, a body of the paper
which presents the information in a logical, interesting style
with fully developed paragraphs, and conclude with a summary
of the points you have made.
You may choose to make use of headings and sub-headings as
well as bold face type and italics in order to organize your
paper. For longer papers, a Table of Contents should be used.
Choose an interesting topic relating to Managerial Accounting,
organize your thoughts, and use proper grammar.
Proofing:Spell Check is a wonderful tool but it does not catch
all mistakes. Don’t use spell check as your only editing tool. It
is a good idea to have someone proof your paper. You might
wish to exchange papers with a classmate and proof before final
submission. Ask the person proofing your paper to check for
spelling, grammar, and how they feel the paper flows.
Pet Peeves: I am not an English professor but I do have some
rules I would like you to follow:
No misspelled words
No sentence fragments
Do not end a sentence in a preposition
Do not overwork a word (find a synonym)
Write in an active voice not passive
Avoid the use of first person in a formal paper
Don’t begin a sentence with the word “I”, “It”, or “There”
Don’t ask questions
Be professional

6. Include the following in this research:
History of CEO pay over the last 20 years.
Executive compensation has increased over the last 20 years in
relation to the average worker.

7. Was a target performance set for the executives? Did they
reach the targets? If not did they still receive the
compensation?
What are some of the types of compensation that CEO’s
receive?
What information has to be filed with the SEC regarding
executive compensation?
In July 2006 SEC adopted changes to the rules requiring
disclosure of executive and director compensation. Discuss
disclosures, where they can be found, and what were the
intentions of the changes.
Some companies that used heavy doses of performance based
pay to compensate their CEOs have also been involved in
accounting scandals. Give 3 examples of companies that are in
this category. What type of compensation did the CEOs
receive?
Did these companies restate their earnings? In what year? How
did the restatement affect the company’s bottom line?
Does CEO compensation have a direct effect on employee
compensation at lower levels?
Does CEO compensation impact employee retention?
Is shareholder value being lost at the expense of CEO
compensation?
Is compensation pay in the best interest of the shareholders?
What reason is given for the high compensation package for

8. CEO?
What action would tend to lower executive compensation?
Why does the Board of Directors seem to be incapable of
controlling escalating CEO compensation when they are the
only group determining CEO pay?
How well does executive compensation work? Does it
encourage dysfunctional behaviors?
What source provides the majority of executive compensation?
What is the current median CEO compensation in the largest
companies?
Could executive compensation be improved?
Due date for the paper is October 31. Document your paper
using APA.
Problem 1Thumbtack's March 31, 2012, budgeted balance sheet
follows:THUMBTACK OFFICE SUPPLY
Budgeted Balance Sheet
March 31, 2012AssetsLiabilitiesCurrent assets:Current
liabilities: Cash$18,000 Accounts payable$12,500
Accounts receivable12,000 Salary and commissions
payable1,400 Inventory16,000 Total liabilities$13,900
Prepaid insurance2,200 Total current
assets$48,200Stockholder's EquityPlant assets:Common
stock16,000 Equipment and fixtures45,000Retained
earnings33,300 Less: Accumulated depreciation30,000Total
stockholders' equity$49,300 Total plant assets$15,000Total
assets$63,200Total liabilities and stockholders'
equity$63,200The budget committee of Thumbtack Office
Supply has assembled the following data.a. Sales in April were

9. $40,000. You forecast that monthly sales will increase 2% over
April's sales in May. June's sales will increase 4% over April's
sales. July's sales will increase 20% over April's sales.
Collections are 80% in the month of sales and 20% in the month
following sale.b. Thumbtack maintains inventory of $11,000
plus 2.5% of the COGS budgeted for the following month.
COGS = 50% of sales revenue. Purchases are paid 30% in the
month of purchase and 70% in the month following the
purchase.c. Monthly salaries amount to $7,000. Sales
commissions equal 5% of sales for that month. Salaries and
commissions are paid 30% in the month incurred and 70% in the
following month.d. Other monthly expenses are as follows:Rent
expense$2,400, paid as incurredDepreciation
expense$200Insurance expense$100, expiration of prepaid
amountIncome tax20% of operating income, paid as
incurredRequirements:1. Prepare Thumbtack's sales budget for
April and May, 2012. Round all amounts to the nearest $1.2.
Prepare Thumbtack's inventory, purchases, and cost of goods
sold budget for April and May.3. Prepare Thumbtack's operating
expenses budget for April and May. 4. Prepare Thumbtack's
budgeted income statement for April and May.5. Prepare the
schedule of budgeted cash collections from customers for April
and May.6. Prepare the schedule of budgeted cash payments for
purchases for April and May.7. Prepare the schedule of
budgeted cash payments for operating expenses for April and
May.8. Prepare the cash budget for April and May. Assume no
financing took place.9. Prepare a budgeted balance sheet as of
May 31, 2012.10. Prepare the budgeted statement of cash flows
for the two months ended May 31, 2012. (Note: You should
omit sections of the cash flows statements where the company
has no activity.)Assume the following changes to the original
facts:a. Collections of receivables are 60% in the month of sale,
38% in the month following the sale, and 2% are never
collected. Assume the March receivables balance is net of the
allowance for uncollectibles.b. Minimum required inventory
levels are $8,000 plus 30% of next month's COGS.c. Purchases

10. of inventory will be paid 20% in the month of purchase, 80% in
the month following purchase.d. Salaries and commissions are
paid 60% in the month incurred and 40% in the following
month.Requirements:1. Prepare Thumbtack's revised sales
budget for April and May. Round all calculations to the nearest
dollar.2. Prepare Thumbtack's revised inventory, purchases, and
cost of goods sold budget for April and May.3. Prepare
Thumbtack's revised operating expenses budget for April and
May.4. Prepare Thumbtack's revised budgeted income statement
for April and May.
Problem 2Refer to the original data and the revisions presented
in Problem 1.Requirements:1. Prepare the schedule of budgeted
cash collections from customers for April and May.2. Prepare
the schedule of budgeted cash payments for purchases for April
and May.3. Prepare the schedule of budgeted cash payments for
operating expenses for April and May.4. Prepare the cash
budget for April and May. Assume no financing took place.
Problem 3Jalapenos! is based in Pleasant Hill, California. The
merchandising company has three divisions: Clothing, Food,
and Spices. The Clothing division has two main product lines:
T-shirts and sweatshirts. The company uses a shared
warehousing facility. There are $50,000 in fixed warehousing
costs each month, of which $40,000 are traceable to the three
divisions based on the amount of square feet used. There is
100,000 square feet of warehouse space in the facility. The
clothing division uses 60,000 square feet of the space, but 5,000
of that space isn't traceable to t-shirts or sweatshirts. Facts
related to the divisions and products for the month ended
October 31, 2012, follow:ClothingFoodSpicesT-
shirtsSweatshirtsSquare feet
used40,00015,00030,00010,000Sales
revenue$300,000$100,000$150,000$80,000COGS
(variable)$210,000$60,000$60,000$32,000Fixed selling
expenses$7,000$5,000$3,000$1,000Variable selling
expenses$9,000$8,500$11,000$2,500Requirements:1. Calculate
the rate per square foot for Warehousing. Calculate the

11. traceable fixed costs for each division and for each product in
the Clothing division. 2. Prepare an income statement for the
company using the contribution margin approach. Calculate net
income for the company, divisional segment margin for both
divisions, and product segment margin for both products.
Problem 1Consider the following statements about capital
budgeting.a. _______ is (are) more appropriate for long-term
investments.b. _______ highlights risky investments.c. _______
shows the effect of the investment on the company's accrual-
based income.d. _______ is the interest rate that makes the NPV
of an investment equal to zero.e. In capital rationing decisions,
management must identify the discount rate when the _______
method is used.f. _______ provides management with
information on how fast the cash invested will be recouped.g.
_______ is the rate of return, using discounted cash flows, a
company can expect to earn by investing in the asset.h. _______
does not consider the asset's profitability.i. _______ uses
accrual accounting rather than net cash inflows in its
computation.Requirement:1. Fill in each statement with the
appropriate capital budgeting method: Payback period, ROR,
NPV, or IRR.
Problem 2Water Planet is considering purchasing a water park
in Atlanta, Georgia, for $1,870,000. The new facility will
generate annual net cash inflows of $460,000 for eight years.
Engineers estimate that the facility will remain useful for eight
years and have no residual value. The company uses straight-
line depreciation, and its stockholders demand an annual return
of 10% on investments of this nature.Requirements:1. Compute
the payback period, the ROR, the NPV, the IRR, and the
profitability index of this investment.2. Recommend whether
the company should invest in this project.
Problem 1Green Thumb operates a commercial plant nursery
where it propagates plants for garden centers throughout the
region. Green Thumb has $4,800,000 in assets. Its yearly fixed

12. costs are $600,000, and the variable costs for the potting soil,
container, label, seedling, and labor for each gallon-size plant
total $1.35. Green Thumb's volume is currently 470,000 units.
Competitors offer the same plants, at the same quality, to
garden centers for $3.60 each. Garden centers then mark them
up to sell to the public for $9 to $12, depending on the type of
plant.Requirements:1. Green Thumb's owners want to earn a
10% return on the company's assets. What is Green Thumb's
target full cost?2. Given Green Thumb's current costs, will its
owners be able to achieve their target profit?3. Assume Green
Thumb has identified ways to cut its variable costs to $1.20 per
unit. What is its new target fixed cost? Will this decrease in
variable costs allow the company to achieve its target profit?4.
Green Thumb started an aggressive advertising campaign
strategy to differentiate its plants from those grown by other
nurseries. Monrovia Plants made this strategy work, so Green
Thumb has decided to try it too. Green Thumb does not expect
volume to be affected, but it hopes to gain more control over
pricing. If Green Thumb has to spend $115,000 this year to
advertise, and its variable costs continue to be $1.20 per unit,
what will its cost-plus price be? Do you think Green Thumb will
be able to sell its plants to garden centers at the cost-plus price?
Why or why not?
Problem 2Members of the board of directors of Safe Zone has
received the following operating income data for the year ended
May 31, 2012:SAFE ZONE
Income Statement
For the Year Ended May 31, 2012Product LineTotalIndustrial
SystemsHousehold
SystemsSales revenue$370,000$390,000$760,000Cost of goods
sold: Variable36,00042,00078,000
Fixed260,00065,000325,000 Total cost of goods
sold$296,000$107,000$403,000 Gross
profit$74,000$283,000$357,000Marketing and administrative
expenses: Variable66,00075,000141,000
Fixed44,00024,00068,000 Total marketing and administrative

13. exp.$110,000$99,000$209,000Operating income
(loss)$(36,000)$184,000$148,000Members of the board are
surprised that the industrial systems product line is losing
money. They commission a study to determine whether the
company should drop the line. Company accountants estimate
that dropping industrial systems will decrease fixed cost of
goods sold by $84,000 and decrease fixed marketing and
administrative expenses by $14,000.Requirements:1. Prepare an
incremental analysis to show whether Safe Zone should drop the
industrial systems product line.2. Prepare contribution margin
income statements to show Safe Zone's total operating income
under the two alternatives: (a) with the industrial systems line
and (b) without the line. Compare the difference between the
two alternatives' income numbers to your answer to
Requirement 1.3. What have you learned from the comparison in
Requirement 2?
Problem 3Outdoor Life manufactures snowboards. Its cost of
making 2,000 bindings is as follows:Direct
materials$17,550Direct labor3,400Variable overhead2,040Fixed
overhead6,300Total manufacturing cost for 2,000
bindings$29,290Suppose Lancaster will sell bindings to
Outdoor Life for $14 each. Outdoor Life would pay $3 per unit
to transport the bindings to its manufacturing plant, where it
would add its own logo at a cost of $0.70 per
binding.Requirements:1. Outdoor Life's accountants predict that
purchasing the bindings from Lancaster will enable the company
to avoide $2,100 of fixed overhead. Prepare an analysis to show
whether Outdoor Life should make or buy the bindings.
Problem 4Smith Petroleum has spent $204,000 to refine 62,000
gallons of petroleum distillate, which can be sold for $6.40 a
gallon. Alternatively, Smith can process the distillate further
and produce 56,000 gallons of cleaner fluid. The additional
processing will cost $1.75 per gallon of distillate. The cleaner
fluid can be sold for $9.00 a gallon. To sell the cleaner fluid,
Smith must pay a sales commission of $0.13 a gallon and a
transportation charge of $0.18 a gallon.Requirements:1.

14. Diagram Smith's decision alternatives.2. Identify the sunk cost.
Is the sunk cost relevant to Smith's decision?3. Should Smith
sell the petroleum distillate or process it into cleaner fluid?
Show the expected net revenue difference between the two
alternatives.
Problem 1England Productions performs London shows. The
average show sells 1,300 tickets at $60 per ticket. There are 150
shows a year. No additional shows can be held as
the theater is also used by other production companies. The
average show has a cast of 65, each earning a net average of
$340 per show. The cast is paid after each
show. The other variable cost is a program-printing cost of $8
per guest. Annual fixed costs total $728,000.Requirements:1.
Compute revenue and variable costs for each show.2. Use the
income statement equation approach to compute the number of
shows England Productions must perform each year to break
even.3. Use the contribution margin approach to compute the
number of shows needed each year to earn a profit of
$5,687,500. Is this profit goal realistic? Give your reasoning.4.
Prepare England Productions' contribution margin income
statement for 150 shows performed in 2012. Report only two
categories of costs: variable and fixed.
Problem 2The contribution margin income statement of
Delectable Donuts for August 2012 follows:DELECTABLE
DONUTS
Contribution Margin Income Statement
For the Month of August 2012Sales revenue$150,000Variable
costs: Cost of goods sold$41,000 Marketing costs15,000
General and administrative costs4,00060,000Contribution
margin$90,000Fixed costs: Marketing costs37,800 General
and administrative costs12,60050,400Operating
income$39,600Delectable sells four dozen plain donuts for
every dozen custard-filled donuts. A dozen plain donuts sells
for $4, with total variable cost of $1.60 per dozen. A dozen
custard-filled donuts sells for $5, with total variable cost of $2

15. per dozen.Requirements:1. Calcuate the weighted-average
contribution margin.2. Determine Delectable's monthly
breakeven point in dozens of plain donuts and custard-filled
donuts. Prove your answer by preparing a summary
contribution.
Problem 1The budgets of four companies yield the following
information:CompanyBlueRedGreenYellowSales
revenue$960,000$(4)$770,000$(10)Variable costs
(1)132,000462,000162,000Fixed
costs(2)145,000220,000(11)Operating income
(loss)$32,000$(5)$(7)$93,000Units
sold160,00011,000(8)(12)Contribution margin per
unit$2.70$(6)$77.00$16.00Contribution margin
ratio(3)0.70(9)0.40Requirements:1. Fill in the blanks for each
missing value. (Round the contribution margin per unit to the
nearest cent.)2. Which company has the lowest break-even point
in sales dollars?3. What causes the low break-even point?
Problem 2Kincaid Company sells flags with team logos. Kincaid
has fixed costs of $583,200 per year plus variable costs of $4.80
per flag. Each flag sells for $12.00.Requirements:1. Use the
income statement equation approach to compute the number of
flags Kincaid must sell each year to break even.2. Use the
contribution margin ratio CVP formula to compute the dollar
sales Kincaid needs to earn $33,000 in operating income for
2012. (Round the
contribution margin to two decimal places.)3. Prepare Kincaid's
contribution margin income statement for the year ended
December 31, 2012, for sales of 72,000 flags. Cost of goods
sold is 70% of variable costs. Operating costs make up the rest
of variable costs and all of fixed costs. (Round your final
answers to the nearest whole number.)4. The company is
considering an expansion that will increase fixed costs by 21%
and variable costs by $0.60 per flag. Compute the new break-
even point in units and in dollars. Should Kincaid undertake the
expansion? Give your reasoning. Round your final answers to

16. the nearest whole number.
Problem 1High Point produces fleece jackets. The company uses
JIT costing for its JIT production system.
High Point has two inventory accounts: Raw and in-process
inventory and Finished goods inventory. On February 1, 2012,
the account balances were Raw and in-process inventory,
$7,000; Finished goods inventory, $2,200.
The standard cost of a jacket is $37, comprised of $13 direct
materials plus $24 conversion costs. Data for February's
activities follow:
Number of jackets completed20,000Direct materials
purchased$257,500Number of jackets sold19,600Conversion
costs incurred $580,000Requirements:1. What are the major
features of a JIT production system such as that of High
Point?2. Prepare summary journal entries for February. Under-
or over-allocated conversion costs are closed to Cost of goods
sold monthly.3. Use a T-account to determine the February 29,
2012, balance of Raw and in-process inventory.
Problem 2Christi, Inc., is using a costs-of-quality approach to
evaluate design engineering efforts for a new skateboard.
Christi's senior managers expect the engineering work to reduce
appraisal,
internal failure, and external failure activities. The predicted
reductions in activities over the 2-year life of the skateboards
follow. Also shown are the cost allocation rates for each
activity.ActivityPredicted Reduction
in Activity UnitsActivity Cost Allocation
Rate Per UnitInspection of incoming materials420$37Inspection
of finished goods42026Number of defective units
discovered in-house1,40056Number of defective units
discovered by customers32575Lost sales to dissatisfied
customers150103Requirements:1. Calculate the predicted
quality cost savings from the design engineering work.2. Christi

17. spent $103,000 on design engineering for the new skateboard.
What is the net benefit of this "preventive" quality activity?3.
What major difficulty would Christi's managers have in
implementing this cost-of-quality approach? What alternative
approach could they use to measure quality improvement?