CHAPTER 2: Cost terms, concepts and classifications

Problem - 1
Variable Cost ! % & ) * + , "#e cost o$ #ard drive installed in a computer Sales commission paid to t#e compan sales people "#e 'ages o$ assembl s#op(s supervisor Depreciation on sales person(s car Materials used $or boxing products $or s#ipment overseas Propert tax on $actor building -nstead o$ producing products. t#e compan can rent its $actor space $or /*0.000 per ear 2lectricit cost o$ t#e $actor 3/% per mac#ine #ours4 Fixed Cost Period Selling and Administrative Cost Product Cost Direct Direct MOH Material Labor Sunk Cost Opportunit Cost

Problem 2
!5 "#e $ollo'ing cost and inventor data are taken $rom t#e accounting records o$ 6M6 $or t#e ear 7ust completed8 Costs -ncurred8 Direct Labor Cost Purc#ases o$ ra' materials -ndirect Labor Maintenance. $actor 29uipment Advertising 2xpense -nsurance. $actor e9uipment Sales Salaries ;ent3Production uses +*<. Administrative and sales use t#e rest4 Supplies Depreciation. O$$ice 29uipment Depreciation. Factor 29uipment -nventories ;a' Materials ?ork in process Finis#ed goods =eginning o$ t#e >ear /,.*00 /!0.000 /%0.000 2nd o$ t#e >ear /!*.000 /*.000 /&*.000 / ,0.000 /!!1.000 / &0.000 / +.000 / :0.000 / 100 / *0.000 / %0.000 / ).%00 / &.000 / !:.000

;e9uired8 a. Prepare a sc#edule o$ cost o$ goods manu$actured b. Prepare t#e cost o$ goods sold section o$ 6M6(s income statement $or t#e ear

Problem 3
"#e $ollo'ing selected account balances $or t#e ear ended December &! are provided $or V@ Compan 8 Selling and administrative salaries -nsurance. Factor Atilities. Factor Purc#ase o$ ;a' Material -ndirect Labor Direct Labor !!0000 1000 )*000 %:0000 +0000 B

Advertising 2xpense Cleaning Supplies. Factor Sales Commissions ;ent. Factor =uilding Maintenance. Factor -nventor balances at t#e beginning and end o$ August 'ere8

10000 ,000 *0000 !%0000 &0000

Be innin Endin ;a' material /)0.000 /!0.000 ?ork in process B &*.000 Finis#ed goods *0.000 B "otal manu$acturing costs $or t#e ear 'ere /+1&.000C t#e goods available $or sale totaled /,)0.000C and t#e cost o$ goods sold totaled /++0.0005 Re!"ired: #a$ Prepare a sc#edule o$ cost o$ goods manu$actured and t#e cost o$ goods sold section o$ t#e compan (s income statement $or t#e ear5 #b$ Assume t#at t#e dollar amounts given above are t#e e9uivalent o$ )0.000 units produced during t#e ear5 Compute t#e average cost per unit o$ direct materials used and t#e average cost per unit $or rent on t#e $actor building5 #c$ Assume t#at t#e $ollo'ing ear t#e compan expects to produce *0.000 units5 ?#at average cost per unit and total cost 'ould ou expect to be incurred $or direct materials and rent on t#e $actor buildingB As t#e manager in c#arge o$ production cost. explain to t#e president t#e reason $or an di$$erence in average cost per unit bet'een 3b4 and 3c4 above5

Problem %
Case ! Direct Materials Direct Labor Manu$acturing Over#ead "otal Manu$acturing Cost =eg. ?-P 2nding. ?-P Sales =eg. F6 CO6M 6oods Available $or Sale 2nding. F6 CO6S 6ross Margin Operating 2xpense Det Operating -ncome / ).*00 B / *.000 / !1.*00 / %.*00 B / &0.000 / !.000 / !1.000 B B / !,.000 / !&.000 B / ).000 % / &.000 / ).000 / :.000 B B / &.000 / )0.000 / %.000 / !,.*00 B / &.*00 B B B / :.000

Problem &
Visic Corporation. a manu$acturing compan . produces a single product5 "#e $ollo'ing in$ormation #as been taken $rom t#e compan (s production8 Production in units Sales in units 2nding Finis#ed 6oods inventor in units Sales in dollar Costs8 Advertising 2ntertainment and travel Direct labor -ndirect Labor / / / / !0*.000 )0.000 :0.000 1*.000 / %:.000 B B / !.&00.000

;a' Materials purc#ased =uilding ;ent3Production uses 10< o$ t#e spaceC administrative and sales o$$ices use t#e rest4 Atilities. Factor ;o alt paid $or use o$ production patent. /!5*0 per unit produced Maintenance. Factor ;ent $or special production e9uipment./,000 plus /05&0 per unit produced Selling and administrative salaries Ot#er $actor over#ead costs Ot#er selling and administrative expenses Be innin /%0.000 *0.000 0 Endin /&0.000 )0.000 B

/ / / / / / /

)10.000 )0.000 !01.000 B :.000 B %!0.000 +1.000 !,.000

;a' material ?ork in process Finis#ed goods

;e9uired8 !5 Prepared a sc#edule o$ cost o$ goods manu$actured $or t#e ear5 %5 Compute t#e $ollo'ing8 a5 "#e number o$ units in t#e $inis#ed goods inventor at t#e end o$ t#e ear5 b5 "#e cost o$ units in t#e $inis#ed goods inventor at t#e end o$ t#e ear5 &5 Prepare an income statement $or t#e ear5 Problem E + "#e $ollo'ing cost data $or t#e ear 7ust ended pertain to Across t#e Miles. -nc5 a greeting card manu$acturer8 Direct Materials Advertising expense Depreciation to $actor building Direct Labor. ?ages Cost o$ $inis#ed goods inventor at ear end -ndirect Labor. ?ages Production supervisor(s salar Service department cost Direct Labor8 Fringe =ene$its -ndirect Labor8 Fringe =ene$its Fringe bene$its $or production supervisor "otal over#ead premium paid Cost o$ idle time8 Production 2mplo ees Administrative costs ;ental o$ o$$ice space $or sales personnel Sales commission Product promotion costs %!00000 ::000 !!*000 )1*000 !!*000 !)0000 )*000 !00000 :*000 &0000 :000 **000 )0000 !*0000 !*000 *000 !0000

FFAll services are provided to manu$acturing departments GG"#e rental o$ sales space 'as made necessar '#en t#e sales o$$ices 'ere converted to storage space $or ra' materials5 ;e9uired8 !5 Compute eac# o$ t#e $ollo'ing costs $or t#e ear 7ust ended8 a4 "otal prime cost b4 "otal Manu$acturing over#ead cost c4 "otal conversion cost d4 "otal product cost e4 "otal period cost %5 One o$ t#e costs listed above is an opportunit cost5 -denti$ t#e cost and explain '# it is an opportunit cost5

&5 One o$ t#e costs listed above is a Sunk cost5 -denti$ t#e cost and explain '# it is a Sunk cost5