HW Ch1

Texas Memorial Hospital is a world renowed hospital for geriatric care services, covering over 20 specialties and employing over 1,000 physicians and 5,000 staff. Required: For each of the following costs incurred at Texas Memorial Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object. Ex. Catered Food Served to Patient (Cost - C) A particular patient (Cost Object - CO) Direct Cost (Direct Cost/Indirect Cost - DC/IC) 1. The wages of pediatric nurses (C) The pediatric department (CO) ________ 2. Prescription Drugs (C) A particular department (CO) ________ 3. Heating the hospital (C) The pediatric department (CO) ________ 4. The salary of the head of pediatrics (C) The pediatric department (CO) ________ 5. The salary fo the head of pediatric (C) A particular pediatric patient (CO) ________ 6. Hospital chaplain's salary (C) A particular patient (CO) ________ 7. Lab tests by outside contractor (C) A particular patient (CO) ________ 8. Lab tests by outside contractor (C) A particular department (CO) ________

1. DC 2. DC 3. IC 4. DC 5. IC 6. IC 7. DC 8. DC

Computer Concepts Corporation located in Phoenix, Arizona manufactures a variety of computers. Following is a list of the costs that are incurred at Computer Concepts. Required: For each cost, indicate whether it would most likely be classified as direct materials, direct labor, manufacturing overhead, selling, or an administrative cost. 1. The cost of a hard drive installed in a computer. 2. The cost of advertising in the Phoenix Sun Computer newspaper. 3. The wages of employees who assemble computers from components. 4. Sales commissions paid to the company's salespeople. 5. The salary of the assembly shop's supervisor. 6. The salary of the company's accountant. 7. Depreciation on equipment used to test assembled computers before release to customers.

1. Direct materials cost 2. Selling cost 3. Direct labor cost 4. Selling cost 5. Manufacturing overhead cost 6. Administrative cost 7. Manufacturing overhead cost

Mercy Hospital is located in a large metropolitan city. The Radiology Department is investigating purchasing a new updated ultrasound machine and replacing an older ultrasound machine. The new ultrasound machine would provide lower costs and higher quality ultrasounds. It would also use a new laser printer to produce clear images and require less power. Instead of investing the funds in the new ultrasound machine, the Laboratory Department is persuading the hospital's management to buy a new X-ray machine. Required: Classify each item as a differential cost, a sunk cost, or an opportunity cost in the decision to replace the old ultrasound machine with a new machine. If none of the categories apply for a particular item, select "None". 1. Cost of the old ultrasound machine 2. The salary of the head of the Radiology Department 3. The salary of the head of the Laboratory Department 4. Cost of the new color laser printer 5. Rent on the space occupied by Radiology 6. The cost of maintaining the old machine 7. Benefits from a new x-ray machine 8. Cost of electricity to run the ultrasound machines

1. Sunk Cost 2. None 3. None 4. Differential Cost 5. None 6. Differential Cost 7. Opportunity Cost 8. Differential Cost

4. For financial accounting purposes, what is the total amount of period costs incurred to sell 23,000 units?

Period Cost = Fixed Selling Expenses + Fixed Administrative Expenses + Variable Administrative Expenses + Sales Commission = 292,100 FSE = Units x Cost per Units = 23,000 * 4.80 FAE = Units x Cost per unit = 23,000 * 3.80 VAE = Units x Cost per units = 23,000 * 2.30 SC = Units x Cost per units = 23,000 * 1.80

2. For financial accounting purposes, what is the total amount of period costs incurred to sell 25,250 units?

Period Costs = Fixed Selling Expenses + Fixed Administrative Expenses + Variable Administrative Expenses + Sales Commission = 320,675 FSE = Units x Cost per Units = 25,250 * 4.80 FAE = Units x Cost per unit = 25,250 * 3.80 VAE = Units x Cost per units = 25,250 * 2.30 SC = Units x Cost per units = 25,250 * 1.80

3. For financial accounting purposes, what is the total amount of product costs incurred to make 27,500 units?

Product Cost = Direct Materials + Direct labor + Variable MOH + Fix MOH = 610,075 DM = #'s of units x average cost per unit = 27,500 * 8.30 DL = #'s of units x average cost per unit = 27,500 * 5.30 VMOH = #'s of units x average cost per unit = 27,500 * 2.80 FMOH = #'s of unit x average cost per unit = 25,250 * 6.30

The Busy Bean has three coffee shops in Rapid City, South Dakota. The coffee shop incurs a fixed weekly expense of $700 and the variable cost per cup of coffee served is $0.42. Required: 1. Fill in the following table with your estimates of the company's total cost and average cost per cup of coffee at the indicated levels of activity. 2. 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? Required 1 Fixed Cost Variable Cost Total Cost Average Cost Per Cup of Coffee Served

Required 1 Cups of Coffee Served in a Week 1,800 1,900 2,000 FC - 700 700 700 VC - 756 798 840 TC - 1456 1498 1540 AS - 0.809 0.788 0.770 VC = 0.42 x Cups of Coffee Served AS = TC / Cups of Coffee Served Required 2 Decrease

Quince Products is a merchandiser that sells specialty fruit jams. The following information is provided by Quince Products: Amount Number of units sold 13,000 Selling price per unit$18 Variable selling expense per unit $2 Variable administrative expense per unit $1 Total fixed selling expense$20,000 Total fixed administrative expense $14,000 Beginning merchandise inventory $12,000 Ending merchandise inventory $24,000 Merchandise purchases $89,000 Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement.

Required 1 Sale - Debit 234,000 Cost of Goods Sold - Debit 77,000 Gross margin - Debit 157,000 Selling Expenses - Credit 46,000 Administrative Expenses - Credit 27,000 Net Operation Income - 84,000 Required 2 Sale - Credit 234,000 Cost of Goods Sold - Debit 77,000 Selling Expenses - Debit 26,000 Administrative Expenses - Debit 13,000 Contribution Margin - Credit 118,000 Selling Expenses - Debit 20,000 Administrative Expenses - Debit 14,000 ______ Credit 84,000

The relevant range of production for Hallergan Corporation is 23,000 to 27,500 units. When Hallergan Corporation produces and sells 25,250 units, its average costs per unit are as follows: Average Cost per Unit Direct materials$8.30 Direct labor$5.30 Variable manufacturing overhead$2.80 Fixed manufacturing overhead$6.30 Fixed selling expense$4.80 Fixed administrative expense$3.80 Sales commissions$2.30 Variable administrative expense$1.80 Required: 1. For financial accounting purposes, what is the total amount of product costs incurred to make 25,250 units?

Total Amount of Product Costs Product Costs = Direct Material + Direct Labor + Variable Manufacturing Overhead + Fix Manufacturing Overhead 209,575 + 133,825 + 70,700 + 159,075 = 573, 175 DM = #'s of units x average cost per unit = 25,250 * 8.30 DL = #'s of units x average cost per unit = 25,250 * 5.30 VMOH = #'s of units x average cost per unit = 25,250 * 2.80 FMOH = #'s of unit x average cost per unit = 25,250 * 6.30