OC userin Accounting·12 Nov 2017PROBLEM 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
OC userin Accounting·11 Nov 2017PROBLEM 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.
OC userin Accounting·11 Nov 2017EXERCISE 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 ........ ......
OC userin Accounting·4 Nov 2017EXERCISE 7-8 Computing and Interpreting Activity Rates [LO7-3] (This exercise is a continuation of Exercise 7–7; it should be assigned only if Exercise 7-7 is also assigned.) The manager of the Westfield branch of Security Home Bank has provided the follow- ing data concerning the transactions of the branch during the past year: Total Activity at the Westfield Branch Activity Opening accounts ......... Processing deposits and withdrawals ..... Processing other customer transactions ... 500 new accounts opened 100,000 deposits and withdrawals processed 5,000 other customer transactions processed The lowest costs reported by other branches for these activities are displayed below: Lowest Cost among All Security Home Bank Branches Activity Opening accounts ..................... Processing deposits and withdrawals ...... Processing other customer transactions .... $26.75 per new account $1.24 per deposit or withdrawal $11.86 per other customer transaction Required: 1. Using the first-stage allocation from Exercise 7-7 and the above data, compute the activity rates for the activity-based costing system. (Use Exhibit 7-7 as a guide.) Round all computa- tions to the nearest whole cent. 2. What do these results suggest to you concerning operations at the Westfield branch?
OC userin Accounting·6 Nov 20172-1 What are the three major elements of product costs in a manufacturing company?
OC userin Accounting·2 Nov 20172-5 What effect does an increase in volume have on- a. Unit fixed costs? b. Unit variable costs? C. Total fixed costs? d. Total variable costs?
OC userin Accounting·31 Oct 2017EXERCISE 12-14 Identification of Relevant Costs [L012-1] Kristen Lu purchased a used automobile for $8,000 at the beginning of last year and incurred the following operating costs: Depreciation ($8,000 = 5 years) Insurance ..... Garage rent .......... Automobile tax and license ............ Variable operating cost .......... $1,600 $1,200 $360 $40 $0.14 per mile The variable operating cost consists of gasoline, oil, tires, maintenance, and repairs. Kristen esti- mates that, at her current rate of usage, the car will have zero resale value in five years, so the annual straight-line depreciation is $1,600. The car is kept in a garage for a monthly fee. Required: 1. Kristen drove the car 10,000 miles last year. Compute the average cost per mile of owning and operating the car. 2 Kristen is unsure about whether she should use her own car or rent a car to go on an extended cross-country trip for two weeks during spring break. What costs above are relevant in this decision? Explain. 3. Kristen is thinking about buying an expensive sports car to replace the car she bought last year. She would drive the same number of miles regardless of which car she owns and would rent the same parking space. The sports car's variable operating costs would be roughly the same as the variable operating costs of her old car. However, her insurance and automobile tax and license costs would go up. What costs are relevant in estimating the incremental cost of owning the more expensive car? Explain.
OC userin Accounting·30 Oct 2017PROBLEM 7-19 Second Stage Allocations and Product Margins [LO7-4, L07-5] Pixel Studio, Inc., is a small company that creates computer-generated animations for films and television. Much of the company's work consists of short commercials for television, but the com- pany also does realistic computer animations for special effects in movies The young founders of the company have become increasingly concerned with the eco- nomics of the business particularly since many competitors have sprung up recently in the local area. To help understand the company's cost structure, an activity-based costing system has been designed. Three major activities are carried out in the company: animation concept, animation production, and contract administration. The animation concept activity is carried out at the contract proposal stage when the company bids on projects. This is an intensive activity that involves individuals from all parts of the company in creating story boards and prototype stills to be shown to the prospective client. Once a project is accepted by the client, the anima- tion goes into production and contract administration begins. Almost all of the work involved in animation production is done by the technical staff, whereas the administrative staff is largely responsible for contract administration. The activity cost pools and their activity measures are listed below: Activity Cost Pool Activity Measure Activity Rate Animation concept ............. Animation production Contract administration .......... Number of proposals Minutes of completed animation Number of contracts $6,040 per proposal $7,725 per minute $6,800 per contract These activity rates include all of the company's costs, except for the costs of idle capacity and organization-sustaining costs. There are no direct labor or direct materials costs. Preliminary analysis using these activity rates has indicated that the local commercial seg- ment of the market may be unprofitable. This segment is highly competitive. Producers of local commercials may ask three or four companies like Pixel Studio to bid, which results in an unusu- ally low ratio of accepted contracts to bids. Furthermore, the animation sequences tend to be much shorter for local commercials than for other work. Since animation work is billed at fairly standard rates according to the running time of the completed animation, this means that the revenues from these short projects tend to be below average. Data concerning activity in the local commercial market appear below: Local Commercials Activity Measure Number of proposals .... Minutes of completed animation ... Number of contracts .. Doa The total sales from the 10 contracts for local commercials was $180,000. Required: 1. Determine the cost of serving the local commercial market. 2. Prepare a report showing the margin earned serving the local commercial market. (Remem- ber, this company has no direct materials or direct labor costs.) 3. What would you recommend to management concerning the local commercial market?
OC userin Accounting·29 Oct 2017EXERCISE 15-12 Selected Financial Measures for Assessing Liquidity (L015-2] Norsk Optronics, ALS, of Bergen, Norway, had a current ratio of 2.5 on June 30 of the current year. On that date, the company's assets were: Cash ......... ..... Accounts receivable, net ........... Inventory .. Prepaid expenses..................... Plant and equipment, net .............. Total assets $ 90,000 260,000 490,000 10,000 800,000 $1,650,000 Required: 1. What was the company's working capital on June 302 2. What was the company's acid-test ratio on June 302 3. The company paid an account payable of $40,000 immediately after June 30. a. What effect did this transaction have on working capital? Show computations b. What effect did this transaction have on the current ratio? Show computations
OC userin Accounting·27 Oct 2017PROBLEM 12-19 Dropping or Retaining a Segment [L012-2] Jackson County Senior Services is a nonprofit organization devoted to providing essential ser- vices to seniors who live in their own homes within the Jackson County area. Three services are provided for seniors-home nursing, Meals On Wheels, and housekeeping. Data on revenue and expenses for the past year follow: Home Nursing Meals On Wheels House- keeping Total $900,000 490,000 410,000 $260,000 120.000 140,000 $400,000 210,000 190,000 $240,000 160,000 80,000 Revenues ..... Variable expenses ............ Contribution margin ..... Fixed expenses: Depreciation ..... Liability insurance....... .. Program administrators' salaries ... General administrative overhead" ...... Total fixed expenses ........ ...... Net operating income (loss) ............. "Allocated on the basis of program revenues. 68,000 42,000 115,000 180.000 8,000 20,000 40.000 52.000 40,000 7,000 38,000 80,000 165,000 $ 25,000 20.000 15,000 37,000 48,000 120,000 $140,000 405,000 $ 5,000 120,000 $ 20,000 The head administrator of Jackson County Senior Services, Judith Miyama, is concerned about the organization's finances and considers the net operating income of $5,000 last year to be razor-thin. (Last year's results were very similar to the results for previous years and are represen- tative of what would be expected in the future.) She feels that the organization should be building its financial reserves at a more rapid rate in order to prepare for the next inevitable recession. After seeing the above report, Ms. Miyama asked for more information about the financial advisability of perhaps discontinuing the housekeeping program. The depreciation in housekeeping is for a small van that is used to carry the housekeepers and their equipment from job to job. If the program were discontinued, the van would be donated to a charitable organization. None of the general administrative overhead would be avoided if the housekeeping program were dropped, but the liability insurance and the salary of the program administrator would be avoided. Required: 1. Should the Housekeeping program be discontinued? Explain. Show computations to support your answer. 2. Recast the above data in a format that would be more useful to management in assessing the long-run financial viability of the various services.
OC userin Accounting·26 Oct 2017EXERCISE 2-13 Traditional and Contribution Format Income Statements [LO2-6] The Alpine House, Inc., is a large retailer of snow skis. The company assembled the information shown below for the quarter ended March 31: Amount $150,000 $750 $50 Total sales revenue .............. Selling price per pair of skis ...... Variable selling expense per pair of skis ........ Variable administrative expense per pair of skis Total fixed selling expense. Total fixed administrative expense .... Beginning merchandise inventory Ending merchandise inventory ...... Merchandise purchases ... $10 $20,000 $20,000 $30,000 $40,000 $100,000 Required: 1. Prepare a traditional income statement for the quarter ended March 31. 2. Prepare a contribution format income statement for the quarter ended March 31. 3. What was the contribution toward fixed expenses and profits for each pair of skis sold during the quarter? (State this figure in a single dollar amount per pair of skis.)
