ACC-320 Chapter 3 Homework

Womble Incorporated has beginning inventory of $540 and an ending inventory of $770 for a given period in which it purchased $16,500 worth of materials. What is the dollar amount of materials used in this period?

$540 + $16,500 = $17,040 $17,040 - $770 = $16,270 Amount of materials used: $16,270

Company A has 50% of its total variable manufacturing cost in labor and the other 50% in fuel. Company B has 80% of its total variable manufacturing cost in labor and the remainder in fuel. Suppose in a given year labor costs rise 5% and fuel costs rise 10%. Required: 1. Using the information above, calculate the percentage increase in total variable cost for each company. 2. Which company has the higher percentage increase in total variable cost?

1. Company A: 7.5% Company B: 6% 2. Company A

Womble Incorporated has beginning inventory of $340 and an ending inventory of $640 for a given period in which it purchased $14,200 worth of materials. What is the dollar amount of materials used in this period?

Amount of materials used: $13,900

PhotoGraphicImages Incorporated (PGI) is an international supplier of graphic and photo images that are used in the publishing business and by a variety of firms that need graphic images for their annual reports, sales brochures, and other documents. PGI purchases the rights to these images from other sources, including photographers, publishers, and graphic artists. PGI then pays the provider of the image a royalty based on the number of times the image will be used (e.g., the number of sales brochures that will be printed with that image). PGI operates in 16 countries, with small marketing and customer service offices located in each country. PGI's operating headquarters is located in Austin, Texas, where company management is located as well as a significant portion of the computer operations that are the backbone of the company's operations. Because of increased demand, PGI has just opened an operations center in Paris. All European- and UK-area business is now handled out of Paris, while the rest of the world's demand is handled out of Austin. The company foresees that it may be necessary to locate another operations center in China if Asian demand continues to grow. The compute

1. Some examples of the volume-based costs PGI's can encounter are: (1) variable costs (changes in total in response to changes in one or more cost drivers). (2) fixed costs (the portion of the total cost that, within the relevant range, does not change with a change in the quantity of a designated cost driver). (3) mixed costs (within the relevant range, including variable and fixed cost components). (4) step costs (costs that vary with the cost driver, but in discrete steps with the relevant range; also called semi-fixed cost). (5) unit costs (total cost divided by the number of units of output. For example, materials and labor) PGI should also consider structural cost drivers, executional cost drivers, and the five steps of strategic decision-making. 2. Relevant range: The range of the cost driver in which the actual value of the cost driver is expected to fall, and for which the relationship between the cost and the cost driver is assumed to be approximately linear. It would be crucial for PGI to present demand increases. As the term describes, they must be interested in a relevant range of activity for the cost driver. For example, if PGI knows its volume-based cost driver is approximately 12,000 to 15,000 units of product output--then they know the total cost curve is approximately linear. Outside of this range, the relationship assumed may have to be altered. Since PGI operates in 16 countries--I will assume that the relevant range is well-balanced/linear. 3. PGI's total manufacturing cost can be affected by product costs, which are the costs of direct materials, direct labor, and indirect manufacturing required for the product and production process. As well as nonproduct costs which include selling, administrative, and other costs not involved in manufacturing. Considering foreign currency fluctuations can be another factor in the firm's total costs. PGI's inventory formula must then determine the cost of materials used in production, the cost of goods manufactured, the cost of goods sold for a given period, and the currency fluctuations depending on the facility expansions.

1. Assuming PGI's output volume is measured by the number of customer orders, provide some examples of the volume-based costs of this company. 2. How does the relevant range apply within this company? 3. How does the growth of PGI globally affect the firm's total costs (consider also foreign currency fluctuations)? (These are my second set of Answers guided by the professor's)

1. Some examples of volume-based costs are variable costs, fixed costs, mixed costs, step costs, and unit costs. Based on these, PGI's volume-based costs include administrative costs of management in Austin, Texas, Paris, and the 16 marketing and customer locations; the royalties paid for the images sold, the cost of computer operations personnel; the purchase of small servers as needed; and the purchase of larger computer servers as needed when demand increases. 2. Relevant Range: The range of the cost driver in which the actual value of the cost driver is expected to fall, and for which the relationship between the cost and the cost driver is assumed to be approximately linear. As it was mentioned above, PGI centers grow as demand increases. This leads to higher costs due to the cost of adding small computer servers, the cost of hiring additional staff, and indirect manufacturing. The cost of the additional support staff would increase fixed costs, but the cost of adding capacity, additional large servers, and new administrative staff would be a step cost, therefore, increasing unit costs. Because of this, I have realized that PGI's total costs increase in a non-linear demand. Since the relevant range is used to determine the level of unit variable cost and total fixed cost for a limited range of activity, PGI has a range in which there is no need for additional servers or hiring costs. 3. PGI's global growth can be affected by foreign currency fluctuations. These changes in the currency exchange rates can potentially affect the company's earnings by decreasing sales and foreign currency exchange losses. Now, if PGI continues its plan to grow in China, I would advise keeping the exchange currency on the lookout. The Chinese currency has not changed much compared to the dollar in past years. Recently, there has been some news that the Chinese yuan will be overtaking the dollar for the first time due to being the most traded currency in the world. PGI will have to update its information.

Professor Explanation of the three questions above:

1. The volume-based costs include: (a) administrative costs of management in Austin and Paris and the 16 marketing and customer service locations. (b) the royalties paid for the images sold, the cost of computer operations personnel, (c) the purchase of small servers as needed (d) purchase of larger computer servers as needed when demand increases. 2. The relevant range is applicable for PGI because PGI's operations centers must grow as demand increases. This means higher costs due to the cost of adding small computer servers and the cost of hiring additional staff, etc. Note that the cost of the additional support staff would increase fixed costs, but the cost of adding capacity - additional large servers and new administrative staff- would be a step cost, increasing unit costs. So PGI's total costs increase in a non-linear, upward-sloping manner over wide ranges of demand. The relevant range is used to determine the level of unit variable cost and total fixed cost for a limited range of activity-a range in which there is no need for additional servers or hiring costs, etc. 3. The growth of the company globally means that the company will be more exposed to the effects of foreign currency fluctuations. For example, a rising dollar relative to the euro will increase the effective cost of PGI's service to European customers, thereby potentially decreasing demand in Europe. Also, the translation of the European earnings in euros to PGI's financial statement will mean foreign currency losses, as the euro earnings are worth less with the falling dollar. The changes in the currency exchange rates can potentially and perhaps significantly affect the company's earnings in two ways, decreased sales and foreign currency exchange losses. The reverse would be true if the dollar were to depreciate relative to the euro.

Which of the following costs would be included in manufacturing overhead for a computer manufacturer?

Depreciation on assembly machinery

Which of the following is true regarding period and product costs?

Factory lease is a product cost, and sales commissions are a period cost.

Identify which, if any, of these costs has a potential harmful environmental impact.

Ink Paper

Direct materials are Manufacturing cost Prime cost Conversion cost A Yes Yes Yes B No Yes No C Yes Yes No D No No No

Option C

The costs were taken from the accounting records of the Barnwell Manufacturing Company. Classify each item as either a product cost or a period cost. Also, classify all product costs as direct or indirect, assuming that the cost object is each unit of product manufactured. 1. State income taxes 2. Insurance on the manufacturing facilities 3. Supplies used in manufacturing 4. Wages for employees in the assembly department 5. Wages for employees who deliver the product to customers 6. Interest on notes payable 7. Materials used in the production process 8. Rent for the sales outlet in Sacramento 9. Electricity for all manufacturing equipment as a group 10. Depreciation expense on delivery trucks 11. Wages for the sales staff 12. Factory supervisors' salaries 13. Company president's salary 14. Advertising expense

Product Cost or Period Cost: Period cost Product cost Product cost Product cost Period cost Period cost Product cost Period cost Product cost Period cost Period cost Product cost Period cost Period cost Direct Cost or Indirect Cost: NA Indirect cost Indirect cost Direct cost NA NA Direct cost NA Indirect cost NA NA Indirect cost NA NA

The following are the costs incurred by a printing company: Print machine setup costs Cost of complexity due to the number and variety of products Costs to train new printing staff in the use and safety features of the equipment Ink Customer service costs Paper Redesign of the print process to improve efficiency Machine operation labor Order taking Purchasing and stocking paper and other supplies Required: 1. Identify each cost as (a) activity-based costs, (b) volume-based costs, (c) structural costs, or (d) executional costs. 2. Identify each cost as either a product cost or a period cost.

Required 1: Activity-based costa Structural costs Executional costs Volume-based costs Activity-based costs Volume-based costs Executional costs Volume-based costs Activity-based costs Activity-based costs Required 2: Product cost Product cost Product cost Product cost Period cost Product cost Product cost Product cost Period cost Product cost