Chapter 1 Homework

The wages of employees who assemble computers from components.

Direct labor cost

Exercise 1-3 Classifying Costs as Product or Period Costs [LO1-3] Suppose that you have been given a summer job as an intern at Issac Aircams, a company that manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its growth. The bank requires financial statements before approving the loan. Required: Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements for the bank.

(for the next question)

Exercise 1-5 Differential, Sunk, and Opportunity Costs [LO1-5] Northeast Hospital's Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It would also require less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital's management to buy a new DNA analyzer. Required: Classify each item as a differential cost, a sunk cost, or an opportunity cost in the decision to replace the old X-ray machine with a new machine. If none of the categories apply for a particular item, select "None".

(for the next question)

Exercise 1-2 Classifying Manufacturing Costs [LO1-2] The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that are incurred at the company. Required: For each cost, indicate whether it would most likely be classified as direct materials, direct labor, manufacturing overhead, selling, or an administrative cost.

(for the next 7 questions)

Exercise 1-13 Variable and Fixed Cost Behavior [LO1-4] Munchak Company's relevant range of production is 9,000-11,000 units. Last month the company produced 10,000 units. Its total manufacturing cost per unit produced was $70. At this level of activity the company's variable manufacturing costs are 40% of its total manufacturing costs. Required: Assume that next month Munchak produces 10,050 units and that its cost behavior patterns remain unchanged. Label each of the following statements as true or false with respect to next month.

(for the next question)

Exercise 1-16 Cost Classifications for Decision Making [LO1-5] Warner Corporation purchased a machine 7 years ago for $377,000 when it launched product P50. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 300 machine costing $369,300 or by a new model 200 machine costing $326,400. Management has decided to buy the model 200 machine. It has less capacity than the model 300 machine, but its capacity is sufficient to continue making product P50. Management also considered, but rejected, the alternative of dropping product P50 and not replacing the old machine. If that were done, the $326,400 invested in the new machine could instead have been invested in a project that would have returned a total of $428,000. Required: 1. What is the total differential cost regarding the decision to buy the model 200 machine rather than the model 300 machine? 2. What is the total sunk cost regarding the decision to buy the model 200 machine rather than the model 300 machine? 3. What is the total opportunity cost regarding the decision to invest in the model 200 machine?

1. Differential cost: $42,900 2. Sunk cost: $377,000 3. Opportunity cost: $428,000 Explained: 1. Differential Cost: $42,900 Differential Cost = Cost of new model 300 - Cost of a new model 200 $369,300 - $326,400 = $42,900 2. Sunk Cost: $377,000 (given) 3. Opportunity Cost: $428,000 (given)

1. Depreciation on salespersons' cars. 2. Rent on equipment used in the factory. 3. Lubricants used for machine maintenance. 4. Salaries of personnel who work in the finished goods warehouse. 5. Soap and paper towels used by factory workers at the end of a shift. 6. Factory supervisors' salaries. 7. Heat, water, and power consumed in the factory. 8. Materials used for boxing products for shipment overseas. (Units are not normally boxed.) 9. Advertising costs. 10.Workers' compensation insurance for factory employees. 11. Depreciation on chairs and tables in the factory lunchroom. 12. The wages of the receptionist in the administrative offices. 13. Cost of leasing the corporate jet used by the company's executives. 14. The cost of renting rooms at a Florida resort for the annual sales conference. 15. The cost of packaging the company's product.

1. Period Cost 2. Product Cost 3. Product Cost 4. Period Cost 5. Product Cost 6. Product Cost 7. Product Cost 8. Period Cost 9. Period Cost 10. Product Cost 11. Product Cost 12. Period Cost 13. Period Cost 14. Period Cost 15. Product Cost

1. The variable manufacturing cost per unit will remain the same as last month. 2. The total fixed manufacturing cost will be greater than last month. 3. The total manufacturing cost will be greater than last month. 4. The average fixed manufacturing cost per unit will be less than last month. 5. The total variable manufacturing cost will be less than last month. 6. The total manufacturing cost per unit will be greater than last month. 7. The variable manufacturing cost per unit will equal $28. 8. The total fixed manufacturing cost will equal $422,100. 9. The total manufacturing cost will equal $701,400. 10. The average fixed manufacturing cost per unit (rounded to the nearest cent) will equal $41.79. 11. The total variable manufacturing cost will equal $280,000. 12. The total manufacturing cost per unit (rounded to the nearest cent) will equal $69.79.

1. True 2. False 3. True 4. True 5. False 6. False 7. True 8. False 9. True 10. True 11. False 12. True

1a. Direct materials per unit Direct labor per unit Direct manufacturing cost per unit Number of units sold Total direct manufacturing cost 1b. Variable manufacturing overhead per unit Fixed manufacturing overhead per unit6 Indirect manufacturing cost per unit Number of units sold Total indirect manufacturing cost

1a. Direct materials per unit - $8.70 Direct labor per unit - $5.70 Direct manufacturing cost per unit - $14.40 Number of units sold - 28,000 Total direct manufacturing cost - $403,200 ($14.40 x 28,000 = $403,200) 1b. Variable manufacturing overhead per unit - $3.20 Fixed manufacturing overhead per unit - $6.70 Indirect manufacturing cost per unit - $9.90 Number of units sold - 28,000 Total indirect manufacturing cost - $277,200 ($9.90 x 28,000 = $277,200)

2a. Direct materials per unit Direct labor per unit Variable manufacturing overhead per unit Fixed manufacturing overhead per unit Total manufacturing cost per unit Number of units sold Total direct costs 2b. Total indirect costs

2a. Direct materials per unit - $8.70 Direct labor per unit - $5.70 Variable manufacturing overhead per unit - $3.20 Fixed manufacturing overhead per unit - $6.70 Total manufacturing cost per unit - $24.30 Number of units sold - 28,000 Total direct costs $680,400 ($24.30 x 28,000 = $680,400) 2b. Total indirect costs - $0

3a. Sales commissions per unit Number of units sold Total sales commission Fixed portion of sales representatives' compensation Total direct selling expense 3b. Total indirect selling expense

3a. Sales commissions per unit - $2.70 Number of units sold - 28,000 Total sales commission - $75,600 ($2.70 x 28,000 = $75,600) Fixed portion of sales representatives' compensation - 28,000 Total direct selling expense - $103,600 ($75,600 + 28,000 = $103,600) 3b. Total indirect selling expense - $117,600 ($4.20 x 28,000 = $117,600)

The salary of the company's accountant.

Administrative cost

Exercise 1-7 Direct and Indirect Costs [LO1-1] Kubin Company's relevant range of production is 27,000 to 29,000 units. When it produces and sells 28,000 units, its average costs per unit are as follows: Required: 1. Assume the cost object is units of production: a. What is the total direct manufacturing cost incurred to make 28,000 units? b. What is the total indirect manufacturing cost incurred to make 28,000 units? 2. Assume the cost object is the Manufacturing Department and that its total output is 28,000 units. a. How much total manufacturing cost is directly traceable to the Manufacturing Department? b. How much total manufacturing cost is an indirect cost that cannot be easily traced to the Manufacturing Department? 3. Assume the cost object is the company's various sales representatives. Furthermore, assume that the company spent $117,600 of its total fixed selling expense on advertising and the remainder of the total fixed selling expense comprised the fixed portion of the company's sales representatives' compensation. a. When the company sells 28,000 units, what is the total direct selling expense that can be readily traced to individual sales representatives? b. When the company sells 28,000 units, what is the total indirect selling expense that cannot be readily traced to individual sales representatives?

Average Cost per Unit Direct materials $8.70 Direct labor $5.70 Variable manufacturing overhead $3.20 Fixed manufacturing overhead $6.70 Fixed selling expense $5.20 Fixed administrative expense $4.20 Sales commissions $2.70 Variable administrative expense $2.20

The cost of a hard drive installed in a computer.

Direct materials cost

Ex: Cost of X-ray film used in the old machine 1. Cost of the old X-ray 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 DNA analyzer 8. Cost of electricity to run the X-ray machines

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

Depreciation on equipment used to test assembled computers before release to customers.

Manufacturing overhead cost

The salary of the assembly shop's supervisor.

Manufacturing overhead cost

Exercise 1-6 Traditional and Contribution Format Income Statements [LO1-6] Cherokee Inc. is a merchandiser that provided the following information: AmountNumber of units sold: 14,000 Selling price per unit: $17 Variable selling expense per unit: $1 Variable administrative expense per unit: $2 Total fixed selling expense: $21,000 Total fixed administrative expense: $14,000 Beginning merchandise inventory: $12,000 Ending merchandise inventory: $25,000 Merchandise purchases: $89,000 Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement.

Required 1. Cherokee, Inc. Traditional Income Statement Sales: $238,000 Cost of Goods Sold: 76,000 Gross Margin: 162,000 Selling and Administrative Expenses - Selling Expenses: 35,000 Administrative Expenses: 42,000 -- (77,000) Net Operating Income: $85,000 Required 2. Cherokee, Inc. Contribution Format Income Statement Sales : $238,000 Variable Expenses - Cost Of Goods Sold: $76,000 Selling Expenses: 14,000 Administrative Expenses: 28,000 -- (118,000) Contribution Margin: 120,000 Fixed Expenses - Selling Expenses: 21,000 Administrative Expenses: 14,000 -- (35,000) Net Operating Income: $85,000 Explained: Required 1. Cherokee, Inc. Traditional Income Statement Sales: $238,000 ($17 per unit x 14,000) [Sales = Number of units sold x selling price per unit] Cost of Goods Sold: 76,000 ($12,000 + 89,000 - 25,000) [Beg. Merchandise Inventory + Merchandise Purchases - End. Merchandise Inventory] Gross Margin: 162,000 (238,000 - 76,000 = 162,000) Selling and Administrative Expenses - Selling Expenses: 35,000 (($1 per unit x 14,000 units) + $21,000) [(Variable Selling Expense per unit x units) + Total fixed selling expense] Administrative Expenses: 42,000 (($2 per unit x 14,000 units) + $14,000) [(Variable administrative expense per unit x units) + Total fixed administrative expense] -- (35,000 + 42,000 = 77,000) Net Operating Income: $85,000 (162,000 - 77,000) Required 2. Cherokee, Inc. Contribution Format Income Statement Sales : $238,000 ($17 per unit x 14,000) [Sales = Number of units sold x selling price per unit] Variable Expenses - Cost Of Goods Sold: $76,000 ($12,000 + 89,000 - 25,000) [Beg. Merchandise Inventory + Merchandise Purchases - End. Merchandise Inventory] Selling Expenses: 14,000 ($1 per unit x 14,000 units) [Selling expenses = Variable selling expense per unit x units] Administrative Expenses: 28,000 ($2 per unit x 14,000 units) [Administrative Expenses = Variable administrative expense per unit x units] -- (76,000 + 14,000 + 28,000 = 118,000) Contribution Margin: 120,000 (238,000 - 118,000 = 120,000) Fixed Expenses - Selling Expenses: 21,000 Administrative Expenses: 14,000 -- (21,000 + 14,000 = 35,000) Net Operating Income: $85,000 (120,000 - 35,000 = 85,000)

Problem 1-19 Traditional and Contribution Format Income Statements [LO1-6] Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: Sales: $480,000 Beginning merchandise inventory: $32,000 Purchases: $320,000 Ending merchandise inventory: $16,000 Fixed selling expense: $? Fixed administrative expense: $19,200 Variable selling expense: $24,000 Variable administrative expense: $? Contribution margin: $96,000 Net operating income: $28,800 Required: 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?

Required 1. Todrick Company Contribution Format Income Statement Sales: $480,000 Variable expenses - Cost of goods sold: $336,000 Selling expense: $24,000 Administrative expense: $24,000 -- (384,000) Contribution margin: $96,000 Fixed Margin - Selling expense: $48,000 Administrative expense: $19,200 -- (67,200) Net operating income: $28,800 Required 2. Todrick Company Traditional Income Statement Sales: $480,000 Cost of goods sold: $336,000 Gross margin: $144,000 Selling and administrative expenses - Selling expense: $72,000 Administrative expense: $43,200 -- (115,200) Net operation income: $28,800 Required 3 to 5. 3. Selling price per unit: $480 4. Variable cost per unit: $384 5. Contribution margin per unit: $96 Required 6. Contribution income statement Explained: Required 1. Todrick Company Contribution Format Income Statement Sales: $480,000 Variable expenses - Cost of goods sold: $336,000 (32,000 + 320,000 - 16,000) [Beg. Merchandise Inventory + Purchases - End. Merchandise Inventory] Selling expense: $24,000 Administrative expense: $24,000 -- (384,000 = 336,000 + 24,000 + 24,000) Contribution margin: $96,000 (480,000 - 384,000) Fixed Margin - Selling expense: $48,000 Administrative expense: $19,200 -- (67,200) Net operating income: $28,800 Required 2. Todrick Company Traditional Income Statement Sales: $480,000 Cost of goods sold: $336,000 Gross margin: $144,000 Selling and administrative expenses - Selling expense: $72,000 Administrative expense: $43,200 -- (115,200) Net operation income: $28,800 Required 3 to 5 3. $480,000 / 1,000 units sold = $480 [Sales / units] 4. $384,000 / 1,000 units sold = $384 [Total variable costs / units] 5. $480 - $384 = $96 [Selling price per unit - Variable cost per unit] Required 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.

Sales commissions paid to the company's salespeople.

Selling cost

The cost of advertising in the Puget Sound Computer User newspaper.

Selling cost

Up to #8

Still need to fix the explained portion