6) The allowance method of accounting for bad debts is required by GAAP because of the materiality principle. 7) The contra-account, Allowance for Doubtful Accounts, is credited when journal entries are made for estimates of bad debts. 8) The percent of sales method is the only method allowed by GAAP to estimate the amount of uncollectible accounts. 9) The net realizable value of accounts receivable is computed by subtracting the allowance for doubtful accounts from the amount in the accounts receivable control account. 10) When using the aging method, the amount calculated to be the uncollectible accounts is the amount […]

  12.2   Evaluate existing information to decide on a competitive price for a special order.   1) Special orders increase income if the revenue from the order exceeds the incremental variable and fixed costs incurred to fill the order.   2) In deciding whether to accept a special sales order, any fixed costs that would remain unchanged are considered irrelevant data.   3) A price-bidding decision for a one-time-only special order includes an analysis of A) only marketing costs. B) all cost drivers. C) all costs of each function in the value chain. D) only fixed manufacturing costs. E) indirect […]

  11) Boyd Tool Company is a tool manufacturer. Production capacity is 3,000 units per month; however, they are considering alternative ways to increase capacity to 3,500 units. One of the alternatives involves purchasing new equipment. In this alternative, there are two choices: machine A will provide increased capacity of 4,000 units per month, with unit costs of $14 at capacity; and, machine B will increase capacity to 3,600 units per month with unit costs of $15 at capacity. Both machines are adequate since Boyd's does not intend to go beyond the 3,500 units per month level for the foreseeable […]

  12.3   Apply two of three pricing methods: target pricing to set target costs and cost-plus pricing.   1) Including unit fixed costs for pricing is often used because of its simplicity.   2) Target pricing includes: (1) developing a needed product, (2) choosing a target price, (3) deriving a target cost per unit, and (4) performing value engineering.   3) When prices are set in a competitive marketplace, product costs are the most important influence on pricing decisions.   4) Companies that produce high quality products do not have to pay attention to the actions of their competitors.   […]

  8) Which of the following is the most widely used method of allocating support department costs? A) linear equation method B) step-down method C) hybrid method D) reciprocal method E) direct allocation method Use the information below to answer the following question(s).   Joe's Tire Company has two support departments, Personnel and Maintenance. The Maintenance Department costs of $80,000 are allocated on the basis of standard service hours used. The Personnel Department costs of $20,000 are allocated based on the number of employees. Costs of Departments A and B are $40,000 and $60,000, respectively.   Data on standard service […]