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129. Using the high-low method, the estimate of the fixed component of electrical cost per
month is closest to:
The following data have been provided by a retailer that sells a single product.
Chapter 02 – Managerial Accounting and Cost Concepts
130. What is the best estimate of the company’s variable selling and administrative expense
per unit?
131. What is the best estimate of the company’s total fixed selling and administrative expense
per year?
Chapter 02 – Managerial Accounting and Cost Concepts
132. What is the best estimate of the company’s contribution margin for this year?
Chapter 02 – Managerial Accounting and Cost Concepts
Nikkel Corporation, a merchandising company, reported the following results for July:
133. The gross margin for July is:
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134. The contribution margin for July is:
Holzhauer Corporation, a merchandising company, reported the following results for March:
Cost of goods sold is a variable cost in this company.
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135. The gross margin for March is:
136. The contribution margin for March is:
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Fiene Sales, Inc., a merchandising company, reported sales of 2,200 units in June at a selling
price of $600 per unit. Cost of goods sold, which is a variable cost, was $364 per unit.
Variable selling expenses were $23 per unit and variable administrative expenses were $33
per unit. The total fixed selling expenses were $30,500 and the total administrative expenses
were $55,300.
137. The contribution margin for June was:
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138. The gross margin for June was:
Getchman Marketing, Inc., a merchandising company, reported sales of $592,500 and cost of
goods sold of $305,000 for April. The company’s total variable selling expense was $37,500;
its total fixed selling expense was $16,000; its total variable administrative expense was
$35,000; and its total fixed administrative expense was $38,900. The cost of goods sold in this
company is a variable cost.
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139. The contribution margin for April is:
140. The gross margin for April is:
Chapter 02 – Managerial Accounting and Cost Concepts
Salvadore Inc., a local retailer, has provided the following data for the month of September:
141. The cost of goods sold for September was:
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142. The net operating income for September was:
The following cost data pertain to the operations of Swestka Department Stores, Inc., for the
month of July.
The Northridge Store is just one of many stores owned and operated by the company. The
Cosmetics Department is one of many departments at the Northridge Store. The central
warehouse serves all of the company’s stores.
Chapter 02 – Managerial Accounting and Cost Concepts
143. What is the total amount of the costs listed above that are direct costs of the Cosmetics
Department?
144. What is the total amount of the costs listed above that are NOT direct costs of the
Northridge Store?
Chapter 02 – Managerial Accounting and Cost Concepts
The following cost data pertain to the operations of Mancia Department Stores, Inc., for the
month of February.
The Brentwood Store is just one of many stores owned and operated by the company. The
Shoe Department is one of many departments at the Brentwood Store. The central warehouse
serves all of the company’s stores.
145. What is the total amount of the costs listed above that are direct costs of the Shoe
Department?
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146. What is the total amount of the costs listed above that are NOT direct costs of the
Brentwood Store?
Management of Modugno Corporation is considering whether to purchase a new model 370
machine costing $441,000 or a new model 240 machine costing $387,000 to replace a
machine that was purchased 7 years ago for $429,000. The old machine was used to make
product M25A until it broke down last week. Unfortunately, the old machine cannot be
repaired.
Management has decided to buy the new model 240 machine. It has less capacity than the
new model 370 machine, but its capacity is sufficient to continue making product M25A.
Management also considered, but rejected, the alternative of simply dropping product M25A.
If that were done, instead of investing $387,000 in the new machine, the money could be
invested in a project that would return a total of $430,000.
Chapter 02 – Managerial Accounting and Cost Concepts
147. In making the decision to buy the model 240 machine rather than the model 370
machine, the sunk cost was:
148. In making the decision to buy the model 240 machine rather than the model 370
machine, the differential cost was:
Chapter 02 – Managerial Accounting and Cost Concepts
149. In making the decision to invest in the model 240 machine, the opportunity cost was:
Temblador Corporation purchased a machine 7 years ago for $319,000 when it launched
product E26T. Unfortunately, this machine has broken down and cannot be repaired. The
machine could be replaced by a new model 330 machine costing $323,000 or by a new model
230 machine costing $285,000. Management has decided to buy the model 230 machine. It
has less capacity than the model 330 machine, but its capacity is sufficient to continue making
product E26T. Management also considered, but rejected, the alternative of dropping product
E26T and not replacing the old machine. If that were done, the $285,000 invested in the new
machine could instead have been invested in a project that would have returned a total of
$386,000.
150. In making the decision to buy the model 230 machine rather than the model 330
machine, the differential cost was:
Chapter 02 – Managerial Accounting and Cost Concepts
151. In making the decision to buy the model 230 machine rather than the model 330
machine, the sunk cost was:
152. In making the decision to invest in the model 230 machine, the opportunity cost was:
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Essay Questions
153. Bill Pope has developed a new device that is so exciting he is considering quitting his job
in order to produce and market it on a large-scale basis. Bill will rent a garage for $300 per
month for production purposes. Utilities will cost $40 per month. Bill has already taken an
industrial design course at the local community college to help prepare for this venture. The
course cost $300. Bill will rent production equipment at a monthly cost of $800. He estimates
the material cost per unit will be $5, and the labor cost will be $3. He will hire workers and
spend his time promoting the product. To do this he will quit his job which pays $3,000 per
month. Advertising and promotion will cost $900 per month.
Required:
Complete the chart below by placing an “X” under each heading that helps to identify the cost
involved. There can be “Xs” 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; there would be an “X” placed
under each of these headings opposite the cost.
* Between the alternatives of going into business to make the device or not going into
business to make the device.
Chapter 02 – Managerial Accounting and Cost Concepts