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McGrawhill connect homework chapter 1
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Exercise 1-1 Classifying Manufacturing Costs [LO1]
Required:
1 The wages of employees who build the sailboats. 2 The cost of advertising in the local newspapers.
Direct labor cost Direct labor cost
Direct materials cost Direct materials cost
Manufacturing overhead cost Manufacturing overhead cost
Marketing and selling cost Marketing and selling cost
Administrative cost Administrative cost
3 The cost of an aluminum mast installed in a sailboat. 4 The wages of the assembly shop’s supervisor.
Direct labor cost Direct labor cost
Direct materials cost Direct materials cost
Manufacturing overhead cost Manufacturing overhead cost
Marketing and selling cost Marketing and selling cost
Administrative cost Administrative cost
5 Rent on the boathouse. 6 The wages of the company’s bookkeeper.
Direct labor cost Direct labor cost
Direct materials cost Direct materials cost
Manufacturing overhead cost Manufacturing overhead cost
Marketing and selling cost Marketing and selling cost
Administrative cost Administrative cost
7 Sales commissions paid to the company’s salespeople. 8 Depreciation on power tools.
Direct labor cost Direct labor cost
Direct materials cost Direct materials cost
Manufacturing overhead cost Manufacturing overhead cost
Marketing and selling cost Marketing and selling cost
Administrative cost Administrative cost
Your Boat, Inc., assembles custom sailboats from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a Gig Harbor, Washington, boathouse. Below are listed some of the costs that are incurred at the company.
For each cost, indicate whether it would most likely be classified as direct labor, direct materials, manufacturing overhead, selling, or an administrative cost. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)
The cost of advertising in the local newspapers.
Direct labor cost
Direct materials cost
Manufacturing overhead cost
Marketing and selling cost
Administrative cost
The wages of the assembly shop’s supervisor.
Direct labor cost
Direct materials cost
Manufacturing overhead cost
Marketing and selling cost
Administrative cost
The wages of the company’s bookkeeper.
Direct labor cost
Direct materials cost
Manufacturing overhead cost
Marketing and selling cost
Administrative cost
Depreciation on power tools.
Direct labor cost
Direct materials cost
Manufacturing overhead cost
Marketing and selling cost
Administrative cost
Your Boat, Inc., assembles custom sailboats from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a Gig Harbor, Washington, boathouse. Below
For each cost, indicate whether it would most likely be classified as direct labor, direct materials, manufacturing overhead, selling, (You may select more than one answer. Single click the box with the question mark to produce a
check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)
Exercise 1-2 Classification of Costs as Period or Product Costs [LO2]
Cost
Suppose that you have been given a summer job at Fairwings Avionics, a company that manufactures sophisticated radar sets for commercial aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its tremendous growth. The bank requires financial statements before approving such a loan.
Required:
Classify each cost listed below as either a product cost or a period cost for purposes of preparing the financial statements for the bank.
1. The cost of the memory chips used in a radar set.2. Factory heating costs.3. Factory equipment maintenance costs.4. Training costs for new administrative employees.5. The cost of the solder that is used in assembling the radar sets.6. The travel costs of the company’s salespersons.7. Wages and salaries of factory security personnel.8. The cost of air-conditioning executive offices.9. Wages and salaries in the department that handles billing customers.
10. Depreciation on the equipment in the fitness room used by factory workers.11. Telephone expenses incurred by factory management.12. The costs of shipping completed radar sets to customers.13. The wages of the workers who assemble the radar sets.14. The president’s salary.15. Health insurance premiums for factory personnel.
Exercise 1-2 Classification of Costs as Period or Product Costs [LO2]
Product/PeriodProductProductProductPeriod
ProductPeriod
ProductPeriodPeriod
ProductProductPeriod
ProductPeriod
Product
Suppose that you have been given a summer job at Fairwings Avionics, a company that manufactures sophisticated radar sets for commercial aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its tremendous growth. The bank requires financial statements before
Classify each cost listed below as either a product cost or a period cost for purposes of preparing the
Required:
Cups of Coffee Served in a Week1,800 1,900 2,000
Fixed Cost $ 1,100 $ 1,100 $ 1,100 Variable cost $ 468 $ 494 $ 520
Total cost $ 1,568 $ 1,594 $ 1,620
Average cost per cup of coffee served $ 0.87 $ 0.84 $ 0.81
2
IncreasesDecreasesRemains the same
Explanation:
Average cost per cup of coffee served = Total cost ÷ Cups of coffee served in a week
2
Koffee Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,100 and the variable cost per cup of coffee served is $0.26.
Fill in the following table with your estimates of total costs and average cost per cup of coffee at the indicated levels of activity for a coffee stand. (Round the "Average cost per cup of coffee" to 3 decimal places.)
Does the average cost per cup of coffee served increase, decrease, or remain the same as the number of cups of coffee served in a week increases?
1.
The average cost of a cup of coffee served declines as the number of cups of coffee served increases because the fixed cost is spread over more cups of coffee.
Koffee Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand
4Exercise 1-4 High-Low Method [LO4]
MonthOccupancy- Electrical
Days Costs
Required:1
Fixed Cost $1,364 per monthVariable Cost $1.87 per occupancy-day
2
Seasonal factors like winter or summer.Systematic factors like guests, switching off fans and lights.Number of days present in a month.Fixed salary paid to hotel receptionist.Income taxes paid on hotel income.
The Edelweiss Hotel in Vail, Colorado, has accumulated records of the total electrical costs of the hotel and the number of occupancy-days over the last year. An occupancy-day represents a room rented out for one day. The hotel's business is highly seasonal, with peaks occurring during the ski season and in the summer.
January 2,604 $ 6,257 February 2,856 $ 6,550 March 3,534 $ 7,986 April 1,440 $ 4,022 May 540 $ 2,289 June 1,116 $ 3,591 July 3,162 $ 7,264 August 3,608 $ 8,111 September 1,260 $ 3,707 October 186 $ 1,712 November 1,080 $ 3,321 December 2,046 $ 5,196
Using the high-low method, estimate the fixed cost of electricity per month and the variable cost of electricity per occupancy-day. (Round the "Variable cost per occupancy-day" to 2 decimal places and the "Fixed cost" to the nearest dollar amount.)
What other factors other than occupancy-days are likely to affect the variation in electrical costs from month to month? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)
Explanation:
Variable cost
2
The Edelweiss Hotel in Vail, Colorado, has accumulated records of the total electrical costs of the hotel and the number of occupancy-days over the last year. An occupancy-day represents a room rented out for one day. The hotel's business is highly
1.
High activity level (August)
Low activity level (October)
Change
Total cost (August)
Variable cost element
($1.87 per occupancy-day × 3,608 occupancy-days)
Fixed cost element
Using the high-low method, estimate the fixed cost of electricity per month and the variable cost of (Round the "Variable cost per occupancy-day" to 2 decimal places
Electrical costs may reflect seasonal factors other than just the variation in occupancy days. For example, common areas such as the reception area must be lighted for longer periods during the winter. This will result in seasonal effects on the fixed electrical costs.
Additionally, fixed costs will be affected by how many days are in a month. In other words, costs like the costs of lighting common areas are variable with respect to the number of days in the month, but are fixed with respect to how many rooms are occupied during the month.
What other factors other than occupancy-days are likely to affect the variation in electrical costs from (You may select more than one answer. Single click the box with the question
mark to produce a check mark for a correct answer and double click the box with the question
Other, less systematic, factors may also affect electrical costs such as the frugality of individual guests. Some guests will turn off lights when they leave a room. Others will not.
Occupancy- Electrical
Days Costs
$ 3,608 $ 8,111
$ 186 $ 1,712
$ 3,422 $ 6,399
= Change in cost ÷ Change in activity= $6,399 ÷ 3,422 occupancy-days
= $1.87 per occupancy-day
$ 6,747
$ 1,364
$ 8,111
Electrical costs may reflect seasonal factors other than just the variation in occupancy days. For example, common areas such as the reception area must be lighted for longer periods during the winter. This will result in seasonal effects on the fixed electrical costs.
Additionally, fixed costs will be affected by how many days are in a month. In other words, costs like the costs of lighting common areas are variable with respect to the number of days in the month, but are fixed with respect to how many rooms are occupied during the month.
Other, less systematic, factors may also affect electrical costs such as the frugality of individual guests. Some guests will turn off lights when they leave a room. Others will not.
Exercise 1-5 Traditional and Contribution Format Income Statements [LO5]Redhawk, Inc., is a merchandiser that provided the following information:
Number of units sold $ 10,000.00 Selling price per unit $ 15.00 Variable selling expense per unit $ 2.00 Variable administrative expense per unit $ 1.00 Total fixed selling expense $ 20,000.00 Total fixed administrative expense $ 15,000.00 Merchandise inventory, beginning balance $ 12,000.00 Merchandise inventory, ending balance $ 22,000.00 Merchandise purchases $ 90,000.00
Required:
1
Redhawk, Inc.Tradiotional Income Statement
Sale $ 150,000 Cost of goods sold $ (80,000)
Gross margin $ 70,000
Selling and administrative expenses:
Selling expense $ 40,000 Administrative expenses $ 25,000 $ (65,000)
Net operating income $ 5,000
2
Redhawk, Inc.Contribution Format Income Statement
Sales $ 150,000
Variable expenses:
cost of goods sold $ $ 80,000
selling expenses $ 20,000 administrative expenses $ 10,000 $ (110,000)
Prepare a traditional income statement. (Input all amounts as positive values except losses which should be indicated by a minus sign.)
Prepare a contribution format income statement. (Input all amounts as positive values except losses which should be indicated by a minus sign.)
contribution margin $ 40,000
Fixed Expenses:
selling expenses $ 20,000 administrative expenses $ 15,000 $ 35,000
Net operating income $ 5,000
Explanation:
1
Sales: ($15 per unit × 10,000 units) = $150,000
Cost of goods sold: ($12,000 + $90,000 – $22,000) = $80,000
Selling expenses: (($2 per unit × 10,000 units) + $20,000) = $40,000
Administrative expenses: (($1 per unit × 10,000 units) + $15,000) =$25,000
2
Cost of goods sold: ($12,000 + $90,000 – $22,000) = $80,000
Selling expenses: ($2 per unit × 10,000 units) = $20,000
Administrative expenses: ($1 per unit × 10,000 units) = $10,000
Exercise 1-6 Identifying Direct and Indirect Costs [LO6]The Empire Hotel is a four-star hotel located in downtown Seattle.
Required:
Cost Cost ObjectEx. A particular hotel guest1 The hotel’s restaurant2 A particular restaurant customer3 A particular hotel guest4 A particular hotel guest5 A particular hotel guest6 The housecleaning department7 The hotel's gym8 The hotel's gym
For each of the following costs incurred at the Empire Hotel, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object.
Room service beverages The salary of the head chef The salary of the head chef Room cleaning supplies Flowers for the reception desk The wages of the doorman Room cleaning supplies Fire insurance on the hotel building Towels used in the gym
Indirect CostIndirect CostIndirect CostIndirect Cost
Indirect Cost
For each of the following costs incurred at the Empire Hotel, indicate whether it would most likely be a
Direct Cost / Indirect Cost
Direct cost Direct cost
Direct cost
Direct cost
Exercise 1-7 Differential, Opportunity, and Sunk Costs [LO7]
Required:
Item CostEx. Cost of electricity to run the terminals Differential Cost1 Cost of the new flat-panel displays Differential Cost2 Cost of the old computer terminals Sunk cost3 Rent on the space occupied by the registration desk None4 Wages of registration desk personnel None5 Benefits from a new freezer Opportunity Cost6 Costs of maintaining the old computer terminals Differential Cost7 Cost of removing the old computer terminals Differential Cost8 Cost of existing registration desk wiring Sunk cost
The Sorrento Hotel is a four-star hotel located in downtown Seattle. The hotel’s operations vice president would like to replace the hotel’s antiquated computer terminals at the registration desk with attractive state-of-the-art flat-panel displays. The new displays would take less space, would consume less power than the old computer terminals, and would provide additional security since they can only be viewed from a restrictive angle. The new computer displays would not require any new wiring. The hotel’s chef believes the funds would be better spent on a new bulk freezer for the kitchen.
Classify each item as a differential cost, an opportunity cost, or a sunk cost in the decision to replace the old computer terminals with new flat-panel displays. If none of the categories apply for a particular item, select "None".
The Sorrento Hotel is a four-star hotel located in downtown Seattle. The hotel’s operations vice president would like to replace the hotel’s antiquated computer terminals at the registration desk with attractive state-of-the-art flat-panel displays. The new displays would take less space, would consume less power than the old computer terminals, and would provide additional security since they can only be viewed from a restrictive angle. The new computer displays would not require any new wiring. The hotel’s chef believes the funds would be better spent on a new bulk freezer for the
Exercise 1-8 Cost Behavior; Contribution Format Income Statement [LO3, LO5]Parker Company manufactures and sells a single product.
Required:1
Units Produced and Sold
total cost:Variable costs $ 150,000 $ $Fixed costs $ 360,000
Total costs $ 510,000 $ $
Cost per unit:Variable cost $ $ $Fixed cost
Total cost per unit $ $ $
2
Parker CompanyContribution Format Income Statement
$
$
A partially completed schedule of the company's total and per unit costs over a relevant range of 60,000 to 100,000 units produced and sold each year is given below. Complete the schedule of the company's total and unit costs. (Round the "Cost per unit" to 2 decimal places.)
60,000 80,000 100,000
Assume that the company produces and sells 90,000 units during the year at the selling price of $7.50 per unit. Prepare a contribution format income statement for the year. (Input all amounts as positive values except losses which should be indicated by a minus sign.)
(Click to select)
(Click to select)
(Click to select)
(Click to select)
(Click to select)
Exercise 1-8 Cost Behavior; Contribution Format Income Statement [LO3, LO5]Parker Company manufactures and sells a single product.
A partially completed schedule of the company's total and per unit costs over a relevant range of 60,000 to 100,000 units produced and sold each year is given below. Complete the schedule of the company's total and unit
Assume that the company produces and sells 90,000 units during the year at the selling price of $7.50 per unit. (Input all amounts as positive values except losses
Exercise 1-9 Cost Classification [LO1, LO2, LO3, LO7]
Required:
Cost BehaviorName of the Cost1 None none2 Variable cost Direct materials 3 Fixed cost Manu. Overhead4 Variable cost Direct labor5 Fixed cost none6 Fixed cost Manu. Overhead7 Fixed cost Manu. Overhead8 Fixed cost none9 Variable cost none
10 Variable cost Manu. Overhead11 None none
Several years ago, Medex Company purchased a small building adjacent to its manufacturing plant in order to have room for expansion when needed. Since the company had no immediate need for the extra space, the building was rented out to another company for rental revenue of $40,000 per year. The renter’s lease will expire next month, and rather than renewing the lease, Medex Company has decided to use the building itself to manufacture a new product.
Direct materials cost for the new product will total $40 per unit. It will be necessary to hire a supervisor to oversee production. Her salary will be $2,500 per month. Workers will be hired to manufacture the new product, with direct labor cost amounting to $18 per unit. Manufacturing operations will occupy all of the building space, so it will be necessary to rent space in a warehouse nearby in order to store finished units of product. The rental cost will be $1,000 per month. In addition, the company will need to rent equipment for use in producing the new product; the rental cost will be $3,000 per month. The company will continue to depreciate the building on a straight-line basis, as in past years. Depreciation on the building is $10,000 per year.
Advertising costs for the new product will total $50,000 per year. Costs of shipping the new product to customers will be $10 per unit. Electrical costs of operating machines will be $2 per unit.
To have funds to purchase materials, meet payrolls, and so forth, the company will have to liquidate some temporary investments. These investments are presently yielding a return of $6,000 per year.
For each of the costs associated with the new product decision, indicate whether it would be variable or fixed. If it is a product cost, indicate whether it would be direct materials, direct labor or a manufacturing overhead cost. If applicable, indicate whether it is a period, opportunity or a sunk cost. Select "None" if none of the categories apply for a particular item. NOTE: Opportunity cost is a special category, and to avoid confusion, do not attempt to classify the cost in any other way except as an opportunity cost.
Product Cost Classification
Rental revenue forgone, $40,000 per year
Direct materials cost, $40 per unit
Supervisor's salary, $2,500 per month
Direct labor cost, $18 per unit
Rental cost of warehouse, $1,000 per month
Rental cost of equipment, $3,000 per month
Depreciation of the building, $10,000 per year
Advertising cost, $50,000 per year
Shipping cost, $10 per unit
Electrical costs, $2 per unit
Return earned on investments, $6,000 per year
Exercise 1-9 Cost Classification [LO1, LO2, LO3, LO7]
Opportunity cost
None
None
None
Period cost
None
Sunk cost
Period cost
Period cost
None
Opportunity cost
Several years ago, Medex Company purchased a small building adjacent to its manufacturing plant in order to have room for expansion when needed. Since the company had no immediate need for the extra space, the building was rented out to another company for rental revenue of $40,000 per year. The renter’s lease will expire next month, and rather than renewing the lease, Medex Company has decided to use the building itself to manufacture a new product.
Direct materials cost for the new product will total $40 per unit. It will be necessary to hire a supervisor to oversee production. Her salary will be $2,500 per month. Workers will be hired to manufacture the new product, with direct labor cost amounting to $18 per unit. Manufacturing operations will occupy all of the building space, so it will be necessary to rent space in a warehouse nearby in order to store finished units of product. The rental cost will be $1,000 per month. In addition, the company will need to rent equipment for use in producing the new product; the rental cost will be $3,000 per month. The company will continue to depreciate the building on a straight-line basis, as in
Advertising costs for the new product will total $50,000 per year. Costs of shipping the new product to customers will be $10 per
To have funds to purchase materials, meet payrolls, and so forth, the company will have to liquidate some temporary investments.
For each of the costs associated with the new product decision, indicate whether it would be variable or fixed. If it is a product cost, indicate whether it would be direct materials, direct labor or a manufacturing overhead cost. If applicable, indicate whether it is a period, opportunity or a sunk cost. Select "None" if none of the categories apply for a particular item. NOTE: Opportunity cost is a special category, and to avoid confusion, do not attempt to classify the cost in any other way except as an opportunity cost.
Other Cost Classification
Exercise 1-10 High-Low Method; Scattergraph Analysis [LO4]
4752368
Required:2-a.
Y= 800 + 350 X
4
�� Distance traveled� Sales commissions��
Zerbel Company, a wholesaler of large, custom-built air-conditioning units for commercial buildings, has noticed considerable fluctuation in its shipping expense from month to month, as shown below:
Units Shipped
Total Shipping Expense
January $2,200 February $3,100 March $2,600 April $1,500 May $2,200 June $3,000 July $3,600
Using the high-low method, estimate the cost formula for shipping expense where X is the number of units shipped.
What factors, other than the number of units shipped, are likely to affect the company's total shipping expense?' (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)
Weight of the units shipped
Trade discounts given to repeat Express shipping to meet a deadline
Exercise 1-11 Traditional and Contribution Format Income Statements [LO5]Haaki Shop, Inc., is a large retailer of surfboards. The company assembled the information shown below for the quarter ended May 31:
Amount $ 800,000 $ 400 $ 50 $ 20 $ 150,000 $ 120,000 $ 80,000 $ 100,000 $ 320,000
Required:1
Haaki Shop, InkTraditional Income statement
$
Selling and administrative expense:$
$
2
Redhawk, Inc.Contribution Format Income Statement
$
Variable expenses:
$
Fixed Expenses:
Total sales revenue Selling price per surfboard Variable selling expense per surfboard Variable administrative expense per surfboard Total fixed selling expense Total fixed administrative expense Merchandise inventory, beginning balance Merchandise inventory, ending balance Merchandise purchases
Prepare a traditional income statement for the quarter ended May 31. (Input all amounts as positive values except losses which should be indicated by a minus sign.)
Prepare a contribution format income statement for the quarter ended May 31. (Input all amounts as positive values except losses which should be indicated by a minus sign.)
$
3 What was the contribution toward fixed expenses and profits for each surfboard sold during the quarter?
Contribution towards fixed expenses and profits $ per surfboard
Exercise 1-11 Traditional and Contribution Format Income Statements [LO5]Haaki Shop, Inc., is a large retailer of surfboards. The company assembled the information shown below for the quarter ended May 31:
(Input all amounts as positive values
(Input all amounts as positive values
What was the contribution toward fixed expenses and profits for each surfboard sold during the quarter?
Exercise 1-12 Cost Behavior; High-Low Method [LO3, LO4]
Required:1
Variable cost $ 0.076 per mile
Fixed cost $ 4,800 per year
2
Y= $ 4,800 + $ 0.076 X
3
Total annual cost $ 12,400
Speedy Parcel Service operates a fleet of delivery trucks in a large metropolitan area. A careful study by the company’s cost analyst has determined that if a truck is driven 120,000 miles during a year, the average operating cost is 11.6 cents per mile. If a truck is driven only 80,000 miles during a year, the average operating cost increases to 13.6 cents per mile.
Using the high-low method, estimate the variable and fixed cost elements of the annual cost of truck operation. (Round the "Variable cost per mile" to 3 decimal places and the "Fixed cost" to the nearest dollar amount.)
Express the variable and fixed costs in the form Y = a + bX. (Round the "Variable cost per mile" to 3 decimal places and the "Fixed cost" to the nearest dollar amount.)
If a truck were driven 100,000 miles during a year, what total cost would you expect to be incurred?(Round the "Variable cost per mile" to 3 decimal places. Round your intermediate and final answers to the nearest dollar amount.)
Exercise 1-12 Cost Behavior; High-Low Method [LO3, LO4]Speedy Parcel Service operates a fleet of delivery trucks in a large metropolitan area. A careful study by the company’s cost analyst has determined that if a truck is driven 120,000 miles during a year, the average operating cost is 11.6 cents per mile. If a truck is driven only 80,000 miles during a year, the average operating cost increases to 13.6 cents per mile.
Using the high-low method, estimate the variable and fixed cost elements of the annual cost of truck (Round the "Variable cost per mile" to 3 decimal places and the "Fixed cost" to the nearest dollar
(Round the "Variable cost per mile" to 3 decimal places and the
If a truck were driven 100,000 miles during a year, what total cost would you expect to be incurred?(Round the "Variable cost per mile" to 3 decimal places. Round your intermediate and final answers to the nearest dollar
Problem 1-16A Variable and Fixed Costs; Subtleties of Direct and Indirect Costs [LO3, LO6]
Required:
Item Description
Ex. The cost of polio immunization tablets.a The salary of the head nurse in the Immunization Center.b Costs of incidental supplies consumed in the Immunization Center, such as paper towels.c The cost of lighting and heating the Immunization Center.d The cost of disposable syringes used in the Immunization Center.e The salary of the Central Area Well-Baby Clinic's Information Systems manager.f The costs of mailing letters soliciting donations to the Central Area Well-Baby Clinic.g The wages of nurses who work in the Immunization Center. (paid fixed amount every monh The cost of medical malpractice insurance for the Central Area Well-Baby Clinic.i Depreciation on the fixtures and equipment in the Immunization Center.
The Central Area Well-Baby Clinic provides a variety of health services to newborn babies and their parents. The clinic is organized into a number of departments, one of which is the Immunization Center.
A number of costs of the clinic and the Immunization Center are listed below. For each cost listed below, indicate whether it is a direct or indirect cost of the Immunization Center, whether it is a direct or indirect cost of immunizing particular patients, and whether it is variable or fixed with respect to the number of immunizations administered.
Direct Direct VariableDirect Indirect Fixed
Direct Indirect Variable
Direct Indirect Fixed
Direct Direct Variable
Indirect Indirect Fixed
Indirect Indirect Fixed
Direct Indirect Fixed
Indirect Indirect Fixed
Direct Indirect Fixed
A number of costs of the clinic and the Immunization Center are listed below. For each cost listed below, indicate whether it is a direct or indirect cost of the Immunization Center, whether it is a direct or indirect cost of immunizing particular patients, and whether it is variable or fixed with respect to the number of immunizations
Direct or Indirect Cost of the
Immunization Center
Direct or Indirect Cost of Particular
Patients
Respect to the # of Immunizations Administered
Problem 1-18A Cost Behavior; High-Low Method; Contribution Format Income Statement [LO3, LO4, LO5]
Frankel Ltd.Comparative Income Statements
For the Three Months Ended June 30April May June
Required:1 Identify each of the company’s expenses (including cost of goods sold) as either variable, fix
Expenses ClassificationCost of goods sold variableShipping Expense mixedAdvertising expense fixedSalaries and commissions mixedInsurance Expense fixedDepreciation expense fixed
2
Variable Cost Fixed Cost
Shipping expense £ 8 per unit £ 20,000
salaries and commissions £ 24 per unit £ 35,000
Frankel Ltd., a British merchandising company, is the exclusive distributor of a product that is gaining rapid market acceptance. The company’s revenues and expenses (in British pounds) for the last three months are given below:
Sales in units 3,000 3,750 4,500
Sales revenue £ 420, 000
£ 525,000
£ 630,000
Cost of goods sold 168,000 210,000 252,000
Gross margin 252,000 315,000 378,000
Selling and administrative expenses: Shipping expense 44,000 50,000 56,000 Advertising expense 70,000 70,000 70,000 Salaries and commissions 107,000 125,000 143,000 Insurance expense 9,000 9,000 9,000 Depreciation expense 42,000 42,000 42,000 Total selling and administrative expenses
272,000 296,000 320,000
Net operating income (loss) £ (20,000)
£ 19,000 £ 58,000
(Note: Frankel Ltd.’s income statement has been recast in the functional format common in the United States. The British currency is the pound, denoted by £.)
Using the high-low method, separate each mixed expense into variable and fixed elements. State the cost formula for each mixed expense. (Enter mixed expenses in the order of company expenses provided under question.)
3
Frankel Ltd.Income Statement
For Month Ended June 30
sales revenue £ 630,000
Variable expenses:
cost of good sold £ 252,000
shipping expenses 36,000
sales commisions 108,000 396,000
Contribution Margin 234,000 Fixed Expenses:
shipping expenses 20,000
advertising expenses 70,000
sales salaries 35,000 insurance expenses 9,000 depreciation expenses 42,000 (176,000)
net operating income £ 58,000
Redo the company’s income statement at the 4,500-unit level of activity using the contribution format.(Input all amounts as positive values except losses which should be indicated by a minus sign.)
Problem 1-18A Cost Behavior; High-Low Method; Contribution Format Income Statement [LO3, LO4, LO5]Explanation:
Analysis of the mixed expenses:
Units
Shipping expense
Variable cost element:
Change in cost
Change in activity
Shipping expense: =£12,000
1,500 units
£36,001
Salaries and commissions: 1,500 units
Fixed cost element:
shipping expenscost at high level of activit £ 56,000 £ 143,000less variable cost element:
4,500 units x £8 per uni 36,0004,500 units x £24 per unit 108,000
Fixed cost element £ 20,000 £ 35,000
Identify each of the company’s expenses (including cost of goods sold) as either variable, fixThe cost formulas are:Shipping expense: £20,000 per month plus £8 per unit or
Salaries and Commissions: £35,000 per month plus £24 per unit or
3Cost of goods sold: (4,500 units × £56 per unit) = £252,000Shipping expense: (4,500 units × £8 per unit) = £36,000Sales commissions: (4,500 units × £24 per unit) = £108,000
Formula
Y= £ ### + £ 8 X
Y= £ ### + £ 24 X
Frankel Ltd., a British merchandising company, is the exclusive distributor of a product that is gaining rapid market acceptance. The company’s revenues and expenses (in
2.
High level of activity 4,500 £ 56,000
Low level of activity 3,000 44,000
Change 1,500 £ 12,000
Variable cost per unit =
= £8 per unit
= £24 per unit
salaries & commissions
(Note: Frankel Ltd.’s income statement has been recast in the functional format common in
Y = £20,000 + £8X.
Y = £35,000 + £24X.
Using the high-low method, separate each mixed expense into variable and fixed elements. State the cost formula for each mixed expense. (Enter mixed expenses in
Redo the company’s income statement at the 4,500-unit level of activity using the contribution format.(Input all amounts as positive values except losses which should
Analysis of the mixed expenses:
Salaries and Commissions: £35,000 per month plus £24 per unit or
Cost of goods sold: (4,500 units × £56 per unit) = £252,000
Sales commissions: (4,500 units × £24 per unit) = £108,000
Salaries and Commissions
£ 143,000
107,000
£ 36,000
Problem 1-21A Cost Classification [LO2, LO3, LO6]
Cost Item
Ex. Direct labor Variable
Executive salaries Fixed
Factory rent Fixed
Depreciation, executive jet Fixed
Costs of shipping finished goods to customers Variable
Wood used in manufacturing furniture Variable
Sales manager’s salary Fixed
Electricity used in manufacturing furniture Variable
Secretary to the company president Fixed
Aerosol attachment placed on a spray can produced by the company Variable
Billing costs Variable
Packing supplies for shipping products overseas Variable
Sand used in manufacturing concrete Variable
Supervisor’s salary, factory Fixed
Executive life insurance Fixed
Sales commissions Variable
Fringe benefits, assembly-line workers Variable
Advertising costs Fixed
Property taxes on finished goods warehouses Fixed
Lubricants for production equipment Variable
Listed below are costs found in various organizations. For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it would typically be treated as a direct cost or an indirect cost with respect to units of product. Three sample answers are provided for
Variable or Fixed
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
Direct Indirect
No No Yes No
No Yes No No
No No No Yes
No Yes No No
Yes No No No
No No Yes No
Yes No No No
No No No Yes
No Yes No No
No No Yes No
Yes Yes No No
Yes No No No
No No Yes No
No No No Yes
No Yes No No
Yes No No No
No No Yes Yes
Yes No No No
Yes No No No
No No No Yes
Listed below are costs found in various organizations. For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it would typically be treated as a direct cost or an indirect cost with respect to units of product. Three sample answers are provided for
Manufacturing (Product) Cost
Selling Cost
Administrative Cost
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