Exercise 2-2

Classifying Manufacturing costs are as follows:

SL
Cost
No Cost Statement Classification
:
The cost of a hard drive installed in a computer:
1.
direct materials.
The cost of advertising in the Puget Sound Computer
2.
User newspaper.
The wages of employees who assemble computers
3.
from components.
Sales commissions paid to the companys
4.
salespeople.
5. The wages of the assembly shops supervisor.
6. The wages of the companys accountant.
Depreciation on equipment used to test assembled
7.
computers before release to customers.
Rent on the facility in the industrial park: a
combination of manufacturing overhead, selling, and
8. administrative. The rent would most likely be
prorated on the basis of the amount of space
occupied by manufacturing.

Exercise 2-3
Classifications of cost as Product or Period Costs are as follows:
SL Produ Perio
No Cost Statement ct d
: Cost Cost
1. Depreciation on salespersons cars
2. Rent on equipment used in the factory
3. Lubricants used for machine maintenance
Salaries of personnel who work in the finished goods
4.
warehouse
Soap and paper towels used by factory workers at the
5.
end of a shift
6. Factory supervisors salaries
7. Heat, water, and power consumed in the factory
Materials used for boxing products for shipment
8.
overseas (units are not normally boxed)
9. Advertising costs
10. Workers compensation insurance for factory employees
Depreciation on chairs and tables in the factory
11.
lunchroom
The wages of the receptionist in the administrative
12.
offices
13. Cost of leasing the corporate jet used by the company's
 executives
The cost of renting rooms at a Florida resort for the
14.
annual sales conference
15. The cost of packaging the companys product
 Exercise 2-15
Classifications of cost as Variable or Fixed cost and Product or Period
Costs are as follows:
Cost Behavior Selling and
SL Produ
VARIAB FIXE Administrat
N COST ITEM ct
LE D ive
o: Cost
Cost
1. Hamburger buns at a Wendys outlet
2. Advertising by a dental office
Apples processed and canned by Del
3.
Monte
Shipping canned apples from a Del Monte
4.
plant to customers
Insurance on a Bausch & Lomb factory
5.
producing contact lenses
Insurance on IBMs corporate
6.
headquarters
Salary of a supervisor overseeing
7.
production of printers at Hewlett-Packard
Commissions paid to automobile
8.
salespersons
Depreciation of factory lunchroom
9.
facilities at a General Electric plant
10
Steering wheels installed in BMWs
.

Exercise 2-8
1. High low Method analysis is as follows:
Kilometers Total Annual
Driven Cost*
High level of activity
Low level of activity
Chang
e =

Total cost at 105,000 kilometers

Less variable portion:
105,000 kilometers $0.074 per kilometer
Fixed cost per
year =

2.

3.
Fixed cost
Variable cost:
80,000 kilometers $0.074 per kilometer
Total annual cost =
 Exercise 2-7
Classifications of cost as Differential Cost, Opportunity Cost and Sunk Cost
are as follows:
SL Sun
Differenti Opportuni
No ITEMs k
al Cost ty Cost
: Cost
1. Cost of the old X-ray machine
The salary of the head of the Radiology
2.
Department
The salary of the head of the Pediatrics
3.
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

Exercise 2-11
High low Method and scattergraph
analysis is as follows:

1. The scattergraph appears below:

2.

Units Shipping
Shipped Expense
High activity level (June)
Low activity level (July)

Change =

Shipping expense at high activity level

Less variable cost element ($250 per unit
8 units)
Total fixed cost
=
 Exercise 2-14
1.
Guest-Days Custodial Supplies
Expense
High activity level (July)
Low activity level (March)

Change =

Custodial supplies expense at high

activity level
Less variable cost element:
12,000 guest-days $0.75 per
guest-day

Total fixed cost =

2. Custodial supplies expense for 11,000 guest-days:

Variable cost:
11,000 guest-days $0.75 per guest-
day
Fixed cost

Total cost =
3. The scattergraph appears below.

5. Expected custodial supplies expensefor11000 guest-days:

Variable cost: 11,000 guest-days $0.77 per day

Fixed cost

Total cost =

Problem 4-18A
.
 Exercise 10-3
QUILCENE OYSTERIA
Revenue and Spending Variances
For the Month Ended August 31
Revenue and
Actual Flexible
Spending
Results Budget
Variances
Pounds
Revenue ($4.00q)
Expenses:
Packing supplies
Oyster bed maintenance
Wages and salaries
Shipping
Utilities
Other
Total expense
Net operating income
=

Exercise 10-3
1. VULCAN FLYOVERS
Flexible Budget Performance Report
For the Month Ended July 31
Actual Revenue Flexibl Activity Plannin
Results and e Variance g
Spending Budge s Budget
Variances t
Flights
Revenue
Expenses:
Wages and salaries
Fuel
Airport fees
Aircraft depreciation
Office expenses
Total expense
Net operating income
=
 Exercise 12-2
1.

Current Total If Difference:

Total Racing Net
Bikes Are Operating
Dropped Income
Sales
Variable expenses
Contribution margin
Fixed expenses:
Advertising, traceable
Depreciation on special
equipment*
Salaries of product managers
Common allocated costs
Total fixed expenses
Net operating income

2.
Total Dirt Mounta Racing
Bikes in Bikes
Bikes
Sales
Variable manufacturing and
selling expenses
Contribution margin
Traceable fixed expenses:
Advertising
Depreciation of special
equipment
Salaries of the product line
managers
Total traceable fixed expenses
Product line segment margin
Common fixed expenses
Net operating income
 Exercise 13-3
1.
Per Unit
Differential 15,000 units
Costs
Bu
Make Make Buy
y
Cost of purchasing
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead,
traceable1
Fixed manufacturing overhead,
common
Total costs
Difference in favor of continuing
to make the carburetors
2.
Make Buy
Cost of purchasing (part 1)
Cost of making (part 1)
Opportunity costsegment margin
foregone on a potential new product line
Total cost
Difference in favor of purchasing from the
outside supplier

Exercise 13-4

Per Total for 20

Unit Bracelets
Incremental revenue
Incremental costs:
Variable costs:
Direct materials
Direct labor
Variable manufacturing overhead
Special filigree
Total variable cost
Fixed costs:
Purchase of special tool
Total incremental cost
Incremental net operating income
 Exercise 13-5
1.
A B C
Contribution margin per unit
Direct material cost per unit
Direct material cost per pound
Pounds of material required per unit
Contribution margin per pound

2.
A B C
Contribution margin per pound
(above)
Pounds of material available
Total contribution margin
 Exercise 13-6

A B C
Selling price after further processing

Selling price at the split-off point

Incremental revenue per pound or gallon

Total quarterly output in pounds or
gallons
Total incremental revenue

Total incremental processing costs

Total incremental profit or loss

Exercise 13-7

Per Unit 30,000 Units

Differential
Costs
Mak Buy Make Buy
e
Cost of purchasing
Cost of making:
Direct materials
Direct labor
Variable overhead
Fixed overhead
Total cost

Make Buy
Total cost, as above
Rental value of the space (opportunity
cost)
Total cost, including opportunity cost
Net advantage in favor of buying
 Exercise 13-9

Contribution margin lost if the line is dropped

Fixed costs that can be avoided:
Advertising
Salary of the product line manager
Insurance on inventories
Net disadvantage of dropping the line

Keep Drop Difference: Net

Product Line Product Operating Income
Line Increase or
(Decrease)
Sales
Variable expenses:
Variable manufacturing
expenses
Sales commissions
Shipping
Total variable expenses
Contribution margin
Fixed expenses:
Advertising
Depreciation of equipment
General factory overhead
Salary of product line
manager
Insurance on inventories
Purchasing department
Total fixed expenses
Net operating loss

Exercise 13-11

Sales value after further processing

Sales value at the split-off point

Incremental revenue from further

processing
Cost of further processing
Profit from further processing
 Exercise 13-12

Produc Produc Produc

tA t t
B C
Direct materials required per unit
Cost per pound
Pounds required per unit
Contribution margin per unit
Contribution margin per pound of
materials used

Exercise 13-13
1.

Per 15,000
Unit Units
Incremental sales
Incremental costs:
Direct materials
Direct labor
Variable manufacturing overhead
Variable selling and administrative
Total incremental costs
Incremental profits
 Exercise 13-14
Contribution margin lost if the Linens Department is dropped:
Lost from the Linens Department

Lost from the Hardware Department

Total lost contribution margin

Fixed costs that can be avoided

Decrease in profits for the company as a whole

Exercise 13-15

Cost Differential Explanation

Per Costs

Unit Mak Buy

e
Direct materials
Direct labor
Variable
manufacturing
overhead
Supervision
Depreciation
Rent
Outside purchase
price
Total cost