ACCT 2102 HW1

Milden Company is a merchandiser that plans to sell 12,000 units during the next quarter at a selling price of $100 per unit. The company also gathered the following cost estimates for the next quarter: Cost Cost Formula Cost of good sold $35 per unit sold Advertising expense $210,000 per quarter Sales commissions 6% of sales Shipping expense $28,000 per quarter + $9.10 per unit sold Administrative salaries $145,000 per quarter Insurance expense $9,000 per quarter Depreciation expense $76,000 per quarter

1. Sales (12,000 units × $100 per unit) = $1,200,000 Cost of goods sold (12,000 units × $35 per unit) = $420,000 Sales commission (6% × $1,200,000) = $72,000 Shipping expense (12,000 units × $9.10 per unit) = $109,200 Sales $1,200,000 Variable expenses: Cost of goods sold $420,000 Sales commission 72,000 Shipping expense 109,200 Total variable expenses 601,200 Contribution margin 598,800 Fixed expenses: Advertising expense $210,000 Shipping expense 28,000 Administrative salaries 145,000 Insurance expense 9,000 Depreciation expense 76,000 Total fixed expenses 468,000 Net operating income $130,800 2. Sales (12,000 units × $100 per unit) = $1,200,000 Cost of goods sold (12,000 units × $35 per unit) = $420,000 Sales commission (6% × $1,200,000) = $72,000 Shipping expense [$28,000 + (12,000 units × $9.10 per unit)] = $137,200 Sales $1,200,000 Cost of goods sold 420,000 Gross margin 780,000 Selling and administrative expenses: Advertising expense $210,000 Sales commission 72,000 Shipping expense 137,200 Administrative salaries 145,000 Insurance expense 9,000 Depreciation expense 76,000 Total selling and administrative expenses 649,200 Net operating income $130,800

Marwick's Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $2,450 per unit and then sells them to retail customers for an average price of $3,125 each. The company's selling and administrative costs for a typical month are presented below: Costs Cost Formula Selling: Advertising $ 700 per month Sales salaries and commissions $ 950 per month, plus 8% of sales Delivery of pianos to customers $ 30 per piano sold Utilities $ 350 per month Depreciation of sales facilities $ 800 per month Administrative: Executive salaries $ 2,500 per month Insurance $ 400 per month Clerical $ 1,000 per month, plus $20 per piano sold Depreciation of office equipment $ 300 per month During August, Marwick's Pianos, Inc., sold and delivered 40 pianos. Required: 1. Prepare a traditional format income statement for August. 2. Prepare a contribution format income statement for August. Show costs and revenues on both a total and a per unit basis down through contribution margin.

1. Sales: (40 pianos × $3,125 per piano) = $125,000 Cost of goods sold: (40 pianos × $2,450 per piano) = $98,000 Sales salaries and commissions: [$950 + (8% × $125,000)] = $10,950 Delivery of pianos: (40 pianos × $30 per piano) = $1,200 Clerical: [$1,000 + (40 pianos × $20 per piano)] = $1,800 2. Sales: (40 pianos × $3,125 per piano) = $125,000 Cost of goods sold: (40 pianos × $2,450 per piano) = $98,000 Sales salaries and commissions: (8% × $125,000) = $10,000 Delivery of pianos: (40 pianos × $30 per piano) = $1,200 Clerical: (40 pianos × $20 per piano) = $800 Sales $125,000 Cost of goods sold 98,000 Gross margin 27,000 Selling and administrative expenses: Selling expenses: Advertising $700 Sales salaries and commissions 10,950 Delivery of pianos 1,200 Utilities 350 Depreciation of sales facilities 800 Total selling expenses 14,000 Administrative expenses: Executive salaries 2,500 Insurance 400 Clerical 1,800 Depreciation of office equipment 300 Total administrative expenses 5,000 Total selling and administrative expenses 19,000 Net operating income $8,000 Sales $125,000 $3,125 Variable expenses: Cost of goods sold 98,000 2,450 Sales salaries and commissions 10,000 250 Delivery of pianos 1,200 30 Clerical 800 20 Total variable expenses 110,000 2,750 Contribution margin $15,000 $375 Fixed expenses: Advertising 700 Sales salaries and commissions 950 Utilities 350 Depreciation of sales facilities 800 Executive salaries 2,500 Insurance 400 Clerical 1,000 Depreciation of office equipment 300 Total fixed expenses 7,000 Net operating income $8,000

Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: Sales $ 300,000 Beginning merchandise inventory $ 20,000 Purchases $ 200,000 Ending merchandise inventory $ 7,000 Fixed selling expense $ ? Fixed administrative expense $ 12,000 Variable selling expense $ 15,000 Variable administrative expense $ ? Contribution margin $ 60,000 Net operating income $ 18,000 1. Prepare a contribution format income statement. 2. Prepare a traditional format income statement. 3. Calculate the selling price per unit. 4. Calculate the variable cost per unit. 5. Calculate the contribution margin per unit. 6. Which income statement format (traditional format or contribution format) would be more useful to managers in estimating how net operating income will change in responses to changes in unit sales?

1. Cost of goods sold ($20,000 + $200,000 - $7,000) = $213,000 The variable administrative expense shown above ($12,000) is computed as follows: Sales (a) $ 300,000 Contribution margin (b) $ 60,000 Total variable costs (a) ‒ (b) $ 240,000 Total variable costs (a) $ 240,000 Cost of goods sold $ 213,000 Variable selling expense 15,000 Cost of goods sold plus variable selling expense (b) $ 228,000 Variable administrative expense (a) ‒ (b) $12,000 The fixed selling expense shown above ($30,000) is computed as follows: Contribution margin (a) $ 60,000 Net operating income (b) $ 18,000 Total fixed costs (a) ‒ (b) $ 42,000 Total fixed costs (a) $ 42,000 Fixed administrative expense (b) $ 12,000 Fixed selling expense (a) ‒ (b) $ 30,000 2. Cost of goods sold ($20,000 + $200,000 - $7,000) = $213,000 Selling expense ($15,000 + $30,000) = $45,000 Administrative expense ($12,000 + $12,000) = $24,000 3. The selling price per unit is $300,000 ÷ 1,000 units sold = $300. 4. The variable cost per unit is $240,000 ÷ 1,000 units sold = $240. 5. The contribution margin per unit is $300 - $240 = $60. 6. The contribution format is more useful because it organizes costs based on their cost behavior. The contribution format enables managers to quickly calculate how variable costs will change in response to changes in unit sales.

The following cost data pertain to the operations of Montgomery Department Stores, Inc., for the month of July. Corporate legal office salaries $56,000 Apparel Department cost of sales—Evendale Store $90,000 Corporate headquarters building lease $48,000 Store manager's salary—Evendale Store$12,000 Apparel Department sales commission—Evendale Store $7,000 Store utilities—Evendale Store $11,000 Apparel Department manager's salary—Evendale Store $8,000 Central warehouse lease cost $15,000 Janitorial costs—Evendale Store $9,000 The Evendale Store is just one of many stores owned and operated by the company. The Apparel Department is one of many departments at the Evendale Store. The central warehouse serves all of the company's stores. 1. What is the total amount of the costs listed above that are direct costs of the Apparel Department? 2. What is the total amount of the costs listed above that are direct costs of the Evendale Store? 3. What is the total amount of the Apparel Department's direct costs that are also variable costs with respect to total departmental sales?

1. The direct costs of the Apparel Department are as follows: Apparel Department cost of sales—Evendale Store $90,000 Apparel Department sales commission—Evendale Store 7,000 Apparel Department manager's salary—Evendale Store 8,000 Total direct costs for the Apparel Department $105,000 2. The direct costs of the Evendale Store are as follows: Apparel Department cost of sales—Evendale Store $90,000 Store manager's salary—Evendale Store 12,000 Apparel Department sales commission—Evendale Store 7,000 Store utilities—Evendale Store 11,000 Apparel Department manager's salary—Evendale Store 8,000 Janitorial costs—Evendale Store9,000 Total direct costs for the Evendale Store $137,000 3.The direct costs in the Apparel Department that are also variable with respect to departmental sales is computed as follows: Apparel Department cost of sales—Evendale Store $90,000 Apparel Department sales commission—Evendale Store 7,000 Total direct costs for the Apparel Department that are also variable costs $97,000

Miller Company's total sales are $120,000. The company's direct labor cost is $15,000, which represents 30% of its total conversion cost and 40% of its total prime cost. Its total selling and administrative expense is $18,000 and its only variable selling and administrative expense is a sales commission of 5% of sales. The company maintains no beginning or ending inventories and its manufacturing overhead costs are entirely fixed costs. Required: 1. What is the total manufacturing overhead cost? 2. What is the total direct materials cost? 3. What is the total manufacturing cost? 4. What is the total variable selling and administrative cost? 5. What is the total variable cost? 6. What is the total fixed cost? 7. What is the total contribution margin?

1. The total manufacturing overhead cost is computed as follows: Direct labor cost (a) $ 15,000 Direct labor as a percentage of total conversion costs (b) 30% Total conversion cost (a) ÷ (b) $ 50,000 Total conversion cost (a) $ 50,000 Direct labor cost (b) 15,000 Total manufacturing overhead cost (a) ‒ (b) $ 35,000 2. The total direct materials cost is computed as follows: Direct labor cost (a) $ 15,000 Direct labor as a percentage of total prime costs (b) 40% Total prime cost (a) ÷ (b) $ 37,500 Total prime cost $ 37,500 Direct labor cost 15,000 Total direct materials cost (a) ‒ (b) $ 22,500 3. The total amount of manufacturing cost is computed as follows: Direct materials cost $ 22,500 Direct labor cost 15,000 Manufacturing overhead cost 35,000 Total manufacturing cost $ 72,500 4. The total variable selling and administrative cost is computed as follows: Total sales(a) $ 120,000 Sales commission percentage (b) 5% Total variable selling and administrative cost (a) × (b) $ 6,000 5. The total variable cost is computed as follows: Direct materials cost $ 22,500 Direct labor cost 15,000 Sales commissions 6,000 Total variable cost $ 43,500 6. The total fixed cost is computed as follows: Total selling and administrative expenses (a) $ 18,000 Sales commissions (b) $ 6,000 Total fixed selling and administrative expense (a) ‒ (b) $ 12,000 Total fixed manufacturing overhead 35,000 Total fixed cost $ 47,000 7. The total contribution margin is calculated as follows: Sales (a) $ 120,000 Variable costs (b) $ 43,500 Contribution margin (a) ‒ (b) $ 76,500

Dozier Company produced and sold 1,000 units during its first month of operations. It reported the following costs and expenses for the month: Direct materials $69,000 Direct labor $35,000 Variable manufacturing overhead $15,000 Fixed manufacturing overhead 28,000 Total manufacturing overhead $43,000 Variable selling expense $12,000 Fixed selling expense 18,000 Total selling expense $30,000 Variable administrative expense $4,000 Fixed administrative expense 25,000 Total administrative expense $29,000 1. With respect to cost classifications for preparing financial statements: a. What is the total product cost? b. What is the total period cost? 2. With respect to cost classifications for assigning costs to cost objects: a. What is total direct manufacturing cost? b. What is the total indirect manufacturing cost? 3. With respect to cost classifications for manufacturers: a. What is the total manufacturing cost? b. What is the total nonmanufacturing cost? c. What is the total conversion cost and prime cost? 4. With respect to cost classifications for predicting cost behavior: a. What is the total variable manufacturing cost? b. What is the total fixed cost for the company as a whole? c. What is the variable cost per unit produced and sold? 5. With respect to cost classifications for decision making: a. If Dozier had produced 1,001 units instead of 1,000 units, how much incremental manufacturing cost would it have incurred to make the additional unit?

1a. The total product cost is computed as follows: Direct materials $ 69,000 Direct labor 35,000 Total manufacturing overhead 43,000 Total product cost $ 147,000 1b. The total period cost is computed as follows: Total selling expense $ 30,000 Total administrative expense 29,000 Total period cost $ 59,000 2a. The total direct manufacturing cost is computed as follows: Direct materials $ 69,000 Direct labor 35,000 Total direct manufacturing cost $ 104,000 2b. The total indirect manufacturing cost is computed as follows: Variable manufacturing overhead $ 15,000 Fixed manufacturing overhead 28,000 Total indirect manufacturing cost $ 43,000 3a. The total manufacturing cost is computed as follows: Direct materials $ 69,000 Direct labor 35,000 Total manufacturing overhead 43,000 Total manufacturing cost $ 147,000 3b. The total nonmanufacturing cost is computed as follows: Total selling expense $ 30,000 Total administrative expense 29,000 Total nonmanufacturing cost $ 59,000 3c. The total conversion cost is computed as follows: Direct labor $ 35,000 Total manufacturing overhead 43,000 Total conversion cost $ 78,000 The total prime cost is computed as follows: Direct materials $ 69,000 Direct labor 35,000 Total prime cost $ 104,000 4a. The total variable manufacturing cost is computed as follows: Direct materials $ 69,000 Direct labor 35,000 Variable manufacturing overhead 15,000 Total variable manufacturing cost $ 119,000 4b. The total amount of fixed cost for the company as a whole is computed as follows: Fixed manufacturing overhead $ 28,000 Fixed selling expense 18,000 Fixed administrative expense 25,000 Total fixed cost $ 71,000 4c. The variable cost per unit produced and sold is computed as follows: Direct materials $ 69,000 Direct labor 35,000 Total variable manufacturing overhead 15,000 Variable selling expense 12,000 Variable administrative expense 4,000 Total variable cost (a) $ 135,000 Number of units produced and sold (b) 1,000 Variable cost per unit produced and sold (a) ÷ (b) $ 135 5a. The incremental manufacturing cost is computed as follows: Direct materials $ 69,000 Direct labor 35,000 Variable manufacturing overhead 15,000 Total incremental cost (a) $ 119,000 Number of units produced and sold (b) 1,000 Incremental cost per unit produced (a) ÷ (b) $ 119

Madison Seniors Care Center is a nonprofit organization that provides a variety of health services to the elderly. The center is organized into a number of departments, one of which is the Meals-On-Wheels program that delivers hot meals to seniors in their homes on a daily basis. Required: A number of costs of the center and the Meals-On-Wheels program are listed below. For each cost listed below, indicate whether it is a direct or indirect cost of the Meals-On-Wheels program, whether it is a direct or indirect cost of particular seniors served by the program, and whether it is variable or fixed with respect to the number of seniors served. a. The cost of leasing the Meals-On-Wheels van b. The cost of incidental supplies such as salt, pepper, napkins, and so on c. The cost of gasoline consumed by the Meals-On-Wheels van d. The rent on the facility that houses Madison Seniors Care Center, including the Meals-On-Wheels program e. The salary of the part-time manager of the Meals-On-Wheels program f. Depreciation on the kitchen equipment used in the Meals-On-Wheels program g. The hourly wages of the caregiver who drives the van and delivers the meals h. The costs of complying with health safety regulations in the kitchen i. The costs of mailing letters soliciting donations to the Meals-On-Wheels program

D/I for D/I for V/F MOW Seniors a D I F b D D V c D I V d I I F e D I F f D I F g D I V h D I F i D I F