258) Dominik Corporation purchased a machine 5 years ago for $527,000 when it launched
product M08Y. Unfortunately, this machine has broken down and cannot be repaired. The
machine could be replaced by a new model 310 machine costing $545,000 or by a new model
240 machine costing $450,000. Management has decided to buy the model 240 machine. It has
less capacity than the model 310 machine, but its capacity is sufficient to continue making
product M08Y. Management also considered, but rejected, the alternative of dropping product
M08Y and not replacing the old machine. If that were done, the $450,000 invested in the new
machine could instead have been invested in a project that would have returned a total of
$532,000.
In making the decision to buy the model 240 machine rather than the model 310 machine, the
sunk cost was:
A) $545,000
B) $450,000
C) $527,000
D) $532,000
182
259) Dominik Corporation purchased a machine 5 years ago for $527,000 when it launched
product M08Y. Unfortunately, this machine has broken down and cannot be repaired. The
machine could be replaced by a new model 310 machine costing $545,000 or by a new model
240 machine costing $450,000. Management has decided to buy the model 240 machine. It has
less capacity than the model 310 machine, but its capacity is sufficient to continue making
product M08Y. Management also considered, but rejected, the alternative of dropping product
M08Y and not replacing the old machine. If that were done, the $450,000 invested in the new
machine could instead have been invested in a project that would have returned a total of
$532,000.
In making the decision to invest in the model 240 machine, the opportunity cost was:
A) $545,000
B) $450,000
C) $532,000
D) $527,000
183
260) Management of Plascencia Corporation is considering whether to purchase a new model
370 machine costing $360,000 or a new model 220 machine costing $340,000 to replace a
machine that was purchased 7 years ago for $348,000. The old machine was used to make
product I43L until it broke down last week. Unfortunately, the old machine cannot be repaired.
Management has decided to buy the new model 220 machine. It has less capacity than the new
model 370 machine, but its capacity is sufficient to continue making product I43L.
Management also considered, but rejected, the alternative of simply dropping product I43L. If
that were done, instead of investing $340,000 in the new machine, the money could be invested
in a project that would return a total of $411,000.
In making the decision to buy the model 220 machine rather than the model 370 machine, the
sunk cost was:
A) $348,000
B) $340,000
C) $360,000
D) $411,000
184
261) Management of Plascencia Corporation is considering whether to purchase a new model
370 machine costing $360,000 or a new model 220 machine costing $340,000 to replace a
machine that was purchased 7 years ago for $348,000. The old machine was used to make
product I43L until it broke down last week. Unfortunately, the old machine cannot be repaired.
Management has decided to buy the new model 220 machine. It has less capacity than the new
model 370 machine, but its capacity is sufficient to continue making product I43L.
Management also considered, but rejected, the alternative of simply dropping product I43L. If
that were done, instead of investing $340,000 in the new machine, the money could be invested
in a project that would return a total of $411,000.
In making the decision to buy the model 220 machine rather than the model 370 machine, the
differential cost was:
A) $20,000
B) $8,000
C) $12,000
D) $63,000
185
262) Management of Plascencia Corporation is considering whether to purchase a new model
370 machine costing $360,000 or a new model 220 machine costing $340,000 to replace a
machine that was purchased 7 years ago for $348,000. The old machine was used to make
product I43L until it broke down last week. Unfortunately, the old machine cannot be repaired.
Management has decided to buy the new model 220 machine. It has less capacity than the new
model 370 machine, but its capacity is sufficient to continue making product I43L.
Management also considered, but rejected, the alternative of simply dropping product I43L. If
that were done, instead of investing $340,000 in the new machine, the money could be invested
in a project that would return a total of $411,000.
In making the decision to invest in the model 220 machine, the opportunity cost was:
A) $348,000
B) $340,000
C) $360,000
D) $411,000
186
263) Bolka Corporation, a merchandising company, reported the following results for October:
Sales
$
4,096,400
Cost of goods sold (all variable)
$
2,194,500
Total variable selling expense
$
238,700
Total fixed selling expense
$
144,700
Total variable administrative expense
$
238,700
Total fixed administrative expense
$
282,900
The gross margin for October is:
A) $1,424,500
B) $1,901,900
C) $996,900
D) $3,668,800
Sales
Cost of goods sold
Gross margin
187
264) Bolka Corporation, a merchandising company, reported the following results for October:
Sales
$
4,096,400
Cost of goods sold (all variable)
$
2,194,500
Total variable selling expense
$
238,700
Total fixed selling expense
$
144,700
Total variable administrative expense
$
238,700
Total fixed administrative expense
$
282,900
The contribution margin for October is:
A) $1,424,500
B) $3,191,400
C) $1,901,900
D) $996,900
Sales
$
Variable expenses:
Cost of goods sold
Total variable selling expense
Total variable administrative expense
Contribution margin
$
188
265) Streif Inc., a local retailer, has provided the following data for the month of June:
Merchandise inventory, beginning balance
$
46,000
Merchandise inventory, ending balance
$
52,000
Sales
$
260,000
Purchases of merchandise inventory
$
128,000
Selling expense
$
13,000
Administrative expense
$
40,000
The cost of goods sold for June was:
A) $128,000
B) $181,000
C) $122,000
D) $134,000
189
266) Streif Inc., a local retailer, has provided the following data for the month of June:
Merchandise inventory, beginning balance
$
46,000
Merchandise inventory, ending balance
$
52,000
Sales
$
260,000
Purchases of merchandise inventory
$
128,000
Selling expense
$
13,000
Administrative expense
$
40,000
The net operating income for June was:
A) $132,000
B) $126,000
C) $85,000
D) $79,000
190
267) Boersma Sales, Inc., a merchandising company, reported sales of 7,100 units in September
at a selling price of $682 per unit. Cost of goods sold, which is a variable cost, was $317 per unit.
Variable selling expenses were $44 per unit and variable administrative expenses were $22 per
unit. The total fixed selling expenses were $157,200 and the total administrative expenses were
$338,000.
The contribution margin for September was:
A) $3,878,400
B) $2,122,900
C) $2,591,500
D) $1,627,700
191
268) Boersma Sales, Inc., a merchandising company, reported sales of 7,100 units in September
at a selling price of $682 per unit. Cost of goods sold, which is a variable cost, was $317 per unit.
Variable selling expenses were $44 per unit and variable administrative expenses were $22 per
unit. The total fixed selling expenses were $157,200 and the total administrative expenses were
$338,000.
The gross margin for September was:
A) $2,122,900
B) $2,591,500
C) $1,627,700
D) $4,347,000
192
269) Delongis Corporation, a merchandising company, reported the following results for June:
Number of units sold
1,200
units
Selling price per unit
221
per unit
Unit cost of goods sold
97
per unit
Variable selling expense per unit
12
per unit
Total fixed selling expense
7,300
Variable administrative expense per unit
8
per unit
Total fixed administrative expense
15,300
The gross margin for June is:
A) $242,600
B) $148,800
C) $124,800
D) $102,200
Sales (1,200 units × $221 per unit)
265,200
Cost of goods sold (1,200 units × $97 per unit)
116,400
Gross margin
148,800
193
270) Delongis Corporation, a merchandising company, reported the following results for June:
Number of units sold
1,200
units
Selling price per unit
221
per unit
Unit cost of goods sold
97
per unit
Variable selling expense per unit
12
per unit
Total fixed selling expense
7,300
Variable administrative expense per unit
8
per unit
Total fixed administrative expense
15,300
The contribution margin for June is:
A) $148,800
B) $102,200
C) $218,600
D) $124,800
Sales (1,200 units × $221 per unit)
265,200
Variable expenses:
Cost of goods sold (1,200 units × $97 per unit)
unit)
$8 per unit)
9,600
140,400
Contribution margin
124,800
194
271) Salomon Marketing, Inc., a merchandising company, reported sales of $1,555,500 and cost
of goods sold of $1,025,100 for December. The company’s total variable selling expense was
$96,900; its total fixed selling expense was $34,300; its total variable administrative expense was
$71,400; and its total fixed administrative expense was $100,100. The cost of goods sold in this
company is a variable cost.
The contribution margin for December is:
A) $530,400
B) $227,700
C) $1,252,800
D) $362,100
195
272) Salomon Marketing, Inc., a merchandising company, reported sales of $1,555,500 and cost
of goods sold of $1,025,100 for December. The company’s total variable selling expense was
$96,900; its total fixed selling expense was $34,300; its total variable administrative expense was
$71,400; and its total fixed administrative expense was $100,100. The cost of goods sold in this
company is a variable cost.
The gross margin for December is:
A) $530,400
B) $227,700
C) $362,100
D) $1,421,100
196
273) A number of costs are listed below.
Cost Description
Cost Object
1.
Wages of carpenters on a home building site
A particular home
2.
Cost of wiring used in making a personal computer
A particular personal
computer
3.
Manager’s salary at a hotel run by a chain of hotels
A particular hotel
guest
4.
Manager’s salary at a hotel run by a chain of hotels
The particular hotel
5.
Cost of aluminum mast installed in a yacht at a yacht
manufacturer
A particular yacht
6.
Monthly lease cost of X-ray equipment at a hospital
The Radiology (X-
Ray) Department
7.
Cost of screws used to secure wood trim in a yacht at a
yacht manufacturer
A particular yacht
8.
Cost of electronic navigation system installed in a yacht
at a yacht manufacturer
A particular yacht
9.
Cost of a replacement battery installed in a car at the auto
repair shop of an automobile dealer
The auto repair shop
10.
Cost of a measles vaccine administered at an outpatient
clinic at a hospital
A particular patient
Required:
For each item above, indicate whether the cost is direct or indirect with respect to the cost object
listed next to it.
197
Answer:
198
274) Dobosh Corporation has provided the following information:
Cost per
Unit
Cost per Period
Direct materials
$7.05
Direct labor
$3.65
Variable manufacturing overhead
$1.60
Fixed manufacturing overhead
$113,400
Sales commissions
$1.50
Variable administrative expense
$0.55
Fixed selling and administrative expense
$36,450
Required:
a. For financial reporting purposes, what is the total amount of product costs incurred to make
9,000 units?
b. For financial reporting purposes, what is the total amount of period costs incurred to sell 9,000
units?
c. If 10,000 units are sold, what is the variable cost per unit sold?
d. If 10,000 units are sold, what is the total amount of variable costs related to the units sold?
e. If 10,000 units are produced, what is the total amount of manufacturing overhead cost
incurred?
f. If the selling price is $21.60 per unit, what is the contribution margin per unit sold?
g. If 8,000 units are produced, what is the total amount of direct manufacturing cost incurred?
h. If 8,000 units are produced, what is the total amount of indirect manufacturing costs incurred?
i. What incremental manufacturing cost will the company incur if it increases production from
9,000 to 9,001 units?
f.