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PROBLEM 2-21 Cost Classification (L02-1, LO2-3, L02-4] Listed below are costs found in various organizations. 1. Property taxes, factory. 2. Boxes used for packaging detergent produced by the company. 3. Salespersons' commissions 4. Supervisor's salary, factory. 5. Depreciation, executive autos. 6. Wages of workers assembling computers. 7. Insurance, finished goods warehouses. 8. Lubricants for production equipment. 9. Advertising costs. 10. Microchips used in producing calculators. 11. Shipping costs on merchandise sold. 12. Magazine subscriptions, factory lunchroom. 13. Thread in a garment factory. 14. Billing costs. 15. Executive life insurance. 16. Ink used in textbook production. 17. Fringe benefits, assembly-line workers. 18. Yarn used in sweater production. 19. Wages of receptionist, executive offices. Required: Prepare an answer sheet with column headings as shown below. 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 illustration. Variable or Fixed Selling Cost Administrative Cost Manufacturing (Product) Cost Direct Indirect Cost Item Direct labor ............. Executive salaries .. Factory rent ........... TI TI
PROBLEM 6-22 Prepare and Reconcile Variable Costing Statements (L06-1, L06-2, L06-3] Denton Company manufactures and sells a single product. Cost data for the product are given below: Variable costs per unit: Direct materials ..., Direct labor ...... Variable manufacturing overhead .......... Variable selling and administrative ........ Total variable cost per unit .............. Fixed costs per month: Fixed manufacturing overhead ............ Fixed selling and administrative ... Total fixed cost per month ............... ""31 $315,000 245,000 $560,000 The product sells for $60 per unit. Production and sales data for July and August, the first two months of operations, follow: Units Produced Units Sold July ....... ..... August ....... 17,500 17,500 15,000 20,000 The company's Accounting Department has prepared absorption costing income statements for July and August as presented below: ........ Sales ...... Cost of goods sold .... Gross margin Selling and administrative expenses . . . . . . . . . . Net operating income .......... ......... July $900,000 600,000 300,000 290,000 $ 10,000 August $1,200,000 800,000 400,000 305,000 $ 95,000 Required: 1. Determine the unit product cost under: a. Absorption costing. b. Variable costing. 2. Prepare contribution format variable costing income statements for July and August 3. Reconcile the variable costing and absorption costing net operating income figures. 4. The company's Accounting Department has determined the company's break-even point to be 16,000 units per month, computed as follows: Fixed cost per month $560,000 16,000 units Unit contribution margin $35 per unit "I'm confused," said the president. "The accounting people say that our break-even point is 16,000 units per month, but we sold only 15,000 units in July, and the income statement they prepared shows a $10,000 profit for that month. Either the income statement is wrong or the break-even point is wrong." Prepare a brief memo for the president, explaining what happened on the July absorption costing income statement.
EXERCISE 2-7 Differential, Opportunity, and Sunk Costs [LO2-7] Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics. The hospital's Radiology Department is consider- ing 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: For each of the items below, indicate by placing an X in the appropriate column whether it should be considered a differential cost, an opportunity cost, or a sunk 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, leave all columns blank. Differential Cost Opportunity Cost Sunk Cost Item 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 Pediatrics 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 ........ ......
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