Chapter 02 – Managerial Accounting and Cost Concepts
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154. Laco Company acquired its factory building about 20 years ago. For a number of years
the company has rented out a small, unused part of the building. The renter’s lease will expire
soon. Rather than renewing the lease, Laco Company is considering using the space itself to
manufacture a new product. Under this option, the unused space will continue to be
depreciated on a straight-line basis, as in past years.
Direct materials and direct labor cost for the new product would be $50 per unit. In order to
have a place to store finished units of the new product, the company would have to rent a
small warehouse nearby. The rental cost would be $2,000 per month. It would cost the
company an additional $4,000 each month to advertise the new product. A new production
supervisor would be hired to oversee production of the new product who would be paid
$3,000 per month. The company would pay a sales commission of $10 for each unit of
product that is sold.
Required:
Complete the chart below by placing an “X” under each column heading that helps to identify
the costs listed to the left. There can be “X’s” placed under more than one heading for a single
cost. For example, a cost might be a product cost, an opportunity cost, and a sunk cost; there
would be an “X” placed under each of these headings on the answer sheet opposite the cost.
*Between the alternatives of (1) renting the space out again or (2) using the space to produce
the new product.
Chapter 02 – Managerial Accounting and Cost Concepts
Chapter 02 – Managerial Accounting and Cost Concepts
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155. Lettman Corporation has provided the following partial listing of costs incurred during
November:
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.
Chapter 02 – Managerial Accounting and Cost Concepts
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156. A partial listing of costs incurred at Starr Corporation during June appears below:
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.
Chapter 02 – Managerial Accounting and Cost Concepts
157. The following information summarizes the company’s cost structure:
Required:
Estimate the following costs at the 40,000 unit level of activity:
a. Total variable cost.
b. Total fixed cost.
c. Variable cost per unit.
d. Fixed cost per unit.
Chapter 02 – Managerial Accounting and Cost Concepts
158. Corio Corporation reports that at an activity level of 3,800 units, its total variable cost is
$221,464 and its total fixed cost is $94,848.
Required:
For the activity level of 3,900 units, compute: (a) the total variable cost; (b) the total fixed
cost; (c) the total cost; (d) the average variable cost per unit; (e) the average fixed cost per
unit; and (f) the average total cost per unit. Assume that this activity level is within the
relevant range.
Chapter 02 – Managerial Accounting and Cost Concepts
159. At an activity level of 5,900 units, Haas Corporation’s total variable cost is $347,982 and
its total fixed cost is $284,321.
Required:
For the activity level of 6,100 units, compute: (a) the total variable cost; (b) the total fixed
cost; (c) the total cost; (d) the average variable cost per unit; (e) the average fixed cost per
unit; and (f) the average total cost per unit. Assume that this activity level is within the
relevant range.
Chapter 02 – Managerial Accounting and Cost Concepts
160. A number of costs and measures of activity are listed below.
Required:
For each item above, indicate whether the cost is MAINLY fixed or variable with respect to
the possible measure of activity listed next to it.
Chapter 02 – Managerial Accounting and Cost Concepts
161. A number of costs and measures of activity are listed below.
Required:
For each item above, indicate whether the cost is MAINLY fixed or variable with respect to
the possible measure of activity listed next to it.
Chapter 02 – Managerial Accounting and Cost Concepts
162. Slonaker Inc. has provided the following data concerning its maintenance costs:
Management believes that maintenance cost is a mixed cost that depends on machine-hours.
Required:
Estimate the variable cost per machine-hour and the fixed cost per month using the high-low
method. Show your work!
Chapter 02 – Managerial Accounting and Cost Concepts
163. Utility costs at one of Helker Corporation’s factories are listed below:
Management believes that utility cost is a mixed cost that depends on machine-hours.
Required:
Estimate the variable cost per machine-hour and the fixed cost per month using the high-low
method. Show your work! Round off all calculations to the nearest whole cent.
Chapter 02 – Managerial Accounting and Cost Concepts
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164. The management of Harrigill Corporation would like to have a better understanding of
the behavior of its inspection costs. The company has provided the following data:
Management believes that inspection cost is a mixed cost that depends on direct labor-hours.
Required:
Estimate the variable cost per direct labor-hour and the fixed cost per month using the high–
low method. Show your work! Round off all calculations to the nearest whole cent.
Chapter 02 – Managerial Accounting and Cost Concepts
165. In October, Patnode Inc., a merchandising company, had sales of $294,000, selling
expenses of $27,000, and administrative expenses of $35,000. The cost of merchandise
purchased during the month was $211,000. The beginning balance in the merchandise
inventory account was $38,000 and the ending balance was $34,000.
Required:
Prepare a traditional format income statement for October.
Chapter 02 – Managerial Accounting and Cost Concepts
166. Whitman Corporation, a merchandising company, reported sales of 7,400 units for May
at a selling price of $677 per unit. The cost of goods sold (all variable) was $441 per unit and
the variable selling expense was $54 per unit. The total fixed selling expense was $155,600.
The variable administrative expense was $24 per unit and the total fixed administrative
expense was $370,400.
Required:
a. Prepare a contribution format income statement for May.
b. Prepare a traditional format income statement for May.
Chapter 02 – Managerial Accounting and Cost Concepts
167. Donmoyer Sales Corporation, a merchandising company, reported total sales of
$2,230,200 for May. The cost of goods sold (all variable) was $1,518,300, the total variable
selling expense was $214,200, the total fixed selling expense was $86,700, the total variable
administrative expense was $119,700, and the total fixed administrative expense was
$138,400.
Required:
a. Prepare a contribution format income statement for May.
b. Prepare a traditional format income statement for May.
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168. Pittman Corporation, a merchandising company, reported the following results for
September:
Required:
a. Prepare a traditional format income statement for September.
b. Prepare a contribution format income statement for September.
Chapter 02 – Managerial Accounting and Cost Concepts
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169. Honey Corporation, a merchandising company, reported the following results for
January:
Cost of goods sold is a variable cost in this company.
Required:
a. Prepare a traditional format income statement for January.
b. Prepare a contribution format income statement for January.
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170. A number of costs are listed below.
Chapter 02 – Managerial Accounting and Cost Concepts
Required:
For each item above, indicate whether the cost is direct or indirect with respect to the cost
object listed next to it.