1-260
173.
Searls Corporation, a merchandising company, reported the following results for July:
Number of units sold
2,700 units
Selling price per unit
$664 per unit
Unit cost of goods sold
$405 per unit
Variable selling expense per unit
$48 per unit
Total fixed selling expense
$56,500
Variable administrative expense per unit
$13 per unit
Total fixed administrative expense
$118,200
Gross margin
Cost of goods sold is a variable cost in this company.
The gross margin for July is:
1-261
174.
Searls Corporation, a merchandising company, reported the following results for July:
Number of units sold
2,700 units
Selling price per unit
$664 per unit
Unit cost of goods sold
$405 per unit
Variable selling expense per unit
$48 per unit
Total fixed selling expense
$56,500
Variable administrative expense per unit
$13 per unit
Total fixed administrative expense
$118,200
Cost of goods sold is a variable cost in this company.
The contribution margin for July is:
Variable expenses:
35,100
Contribution margin
1-262
175.
Dechico Corporation purchased a machine 3 years ago for $456,000 when it launched
product G92L. Unfortunately, this machine has broken down and cannot be repaired. The
machine could be replaced by a new model 330 machine costing $474,000 or by a new
model 260 machine costing $418,000. Management has decided to buy the model 260
machine. It has less capacity than the model 330 machine, but its capacity is sufficient to
continue making product G92L. Management also considered, but rejected, the alternative
of dropping product G92L and not replacing the old machine. If that were done, the
$418,000 invested in the new machine could instead have been invested in a project that
would have returned a total of $496,000.
In making the decision to buy the model 260 machine rather than the model 330 machine,
the differential cost was:
1-263
176.
Dechico Corporation purchased a machine 3 years ago for $456,000 when it launched
product G92L. Unfortunately, this machine has broken down and cannot be repaired. The
machine could be replaced by a new model 330 machine costing $474,000 or by a new
model 260 machine costing $418,000. Management has decided to buy the model 260
machine. It has less capacity than the model 330 machine, but its capacity is sufficient to
continue making product G92L. Management also considered, but rejected, the alternative
of dropping product G92L and not replacing the old machine. If that were done, the
$418,000 invested in the new machine could instead have been invested in a project that
would have returned a total of $496,000.
In making the decision to buy the model 260 machine rather than the model 330 machine,
the sunk cost was:
1-264
177.
Dechico Corporation purchased a machine 3 years ago for $456,000 when it launched
product G92L. Unfortunately, this machine has broken down and cannot be repaired. The
machine could be replaced by a new model 330 machine costing $474,000 or by a new
model 260 machine costing $418,000. Management has decided to buy the model 260
machine. It has less capacity than the model 330 machine, but its capacity is sufficient to
continue making product G92L. Management also considered, but rejected, the alternative
of dropping product G92L and not replacing the old machine. If that were done, the
$418,000 invested in the new machine could instead have been invested in a project that
would have returned a total of $496,000.
In making the decision to invest in the model 260 machine, the opportunity cost was:
1-265
178.
Management of Childers Corporation is considering whether to purchase a new model 380
machine costing $278,000 or a new model 230 machine costing $207,000 to replace a
machine that was purchased 3 years ago for $266,000. The old machine was used to make
product R16K until it broke down last week. Unfortunately, the old machine cannot be
repaired.
Management has decided to buy the new model 230 machine. It has less capacity than the
new model 380 machine, but its capacity is sufficient to continue making product R16K.
Management also considered, but rejected, the alternative of simply dropping product
R16K. If that were done, instead of investing $207,000 in the new machine, the money
could be invested in a project that would return a total of $305,000.
In making the decision to buy the model 230 machine rather than the model 380 machine,
the sunk cost was:
1-266
179.
Management of Childers Corporation is considering whether to purchase a new model 380
machine costing $278,000 or a new model 230 machine costing $207,000 to replace a
machine that was purchased 3 years ago for $266,000. The old machine was used to make
product R16K until it broke down last week. Unfortunately, the old machine cannot be
repaired.
Management has decided to buy the new model 230 machine. It has less capacity than the
new model 380 machine, but its capacity is sufficient to continue making product R16K.
Management also considered, but rejected, the alternative of simply dropping product
R16K. If that were done, instead of investing $207,000 in the new machine, the money
could be invested in a project that would return a total of $305,000.
In making the decision to buy the model 230 machine rather than the model 380 machine,
the differential cost was:
1-267
180.
Management of Childers Corporation is considering whether to purchase a new model 380
machine costing $278,000 or a new model 230 machine costing $207,000 to replace a
machine that was purchased 3 years ago for $266,000. The old machine was used to make
product R16K until it broke down last week. Unfortunately, the old machine cannot be
repaired.
Management has decided to buy the new model 230 machine. It has less capacity than the
new model 380 machine, but its capacity is sufficient to continue making product R16K.
Management also considered, but rejected, the alternative of simply dropping product
R16K. If that were done, instead of investing $207,000 in the new machine, the money
could be invested in a project that would return a total of $305,000.
In making the decision to invest in the model 230 machine, the opportunity cost was:
Essay Questions
1-268
181.
A number of costs are listed below.
Cost Description
Cost Object
1.
Cost of a measles vaccine administered at an outpatient clinic at a
hospital
The outpatient clinic
2.
Cost of a replacement battery installed in a car at the auto repair shop
of an automobile dealer
The auto repair shop
3.
Accounting professor’s salary
A particular class
4.
Cost of electronic navigation system installed in a yacht at a yacht
manufacturer
A particular yacht
5.
Cost of wiring used in making a personal computer
A particular personal
computer
6.
Supervisor’s wages in a computer manufacturing facility
A particular personal
computer
7.
Cost of lubrication oil used at the auto repair shop of an automobile
dealer
The auto repair shop
8.
Cost of heating a hotel run by a chain of hotels
A particular hotel guest
9.
Cost of heating a hotel run by a chain of hotels
The particular hotel
10.
Cost of tongue depressors used in 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.
1-269
1-270
182.
The Plastechnics Company began operations several years ago. The company’s product
requires materials that cost $25 per unit. The company employs a production supervisor
whose salary is $2,000 per month. Production line workers are paid $15 per hour to
manufacture and assemble the product. The company rents the equipment needed to
produce the product at a rental cost of $1,500 per month. The building is depreciated on
the straight-line basis at $9,000 per year.
The company spends $40,000 per year to market the product. Shipping costs for each unit
are $20 per unit.
The company plans to liquidate several investments in order to expand production. These
investments currently earn a return of $8,000 per year.
Required:
Complete the answer sheet below by placing an “X” under each heading that identifies the
cost involved. The “Xs” can be placed under more than one heading for a single cost, e.g., a
cost might be a sunk cost, an overhead cost, and a product cost.
Variable
Cost
Fixed
Cost
Direct
Materials
Cost
Direct
Materials
Cost
Direct
Labor
Cost
Manufacturing
Overhead
Cost
Period
Cost
Opportunity
Cost
Sunk
Cost
Materials
Production
supervisor
salary
Production
line worker
wages
Equipment
rental
Building
depreciation
Marketing
costs
Shipping
cost
Return on
present
1-271
investments
Materials
1-272
1-273
183.
A partial listing of costs incurred at Falkenberg Corporation during October appears below:
Direct materials
$195,000
Utilities, factory
$9,000
Sales commissions
$75,000
Administrative salaries
$113,000
Indirect labor
$30,000
Advertising
$119,000
Depreciation of production equipment
$28,000
Direct labor
$105,000
Depreciation of administrative equipment
$44,000
Direct materials
$195,000
Direct labor
105,000
Manufacturing overhead:
$9,000
30,000
28,000
Total product cost
$367,000
Sales commissions
$75,000
Administrative salaries
113,000
Required:
a. What is the total amount of product cost listed above? Show your work.
b. What is the total amount of period cost listed above? Show your work.
1-274