Chapter 02 – Cost Concepts and Behavior
2-21
2-44. (continued)
d. Full cost: $21.00 + $24.00 + $12.00 + ($135,000 ÷ 30,000 units) + $5.00 +
2-45. (20 Min.) Gross Margin and Contribution Margin Income Statements:
Larcker Manufacturing.
Gross Margin Income Statement
Contribution Margin Income Statement
Sales revenue(a) ………….
………………………………….
$2,370,000
Sales revenue …………………
$2,370,000
Variable manufacturing
costs (b) ……………………..
1,710,000
Variable manufacturing
costs ……………………………..
1,710,000
Fixed manufacturing
overhead costs …………….
………………………………….
………………………………….
135,000
Variable marketing and
administrative costs …………
150,000
Gross margin ……………….
$525,000
Contribution margin ………….
$510,000
Variable marketing and
administrative costs (c) ….
150,000
Fixed manufacturing
overhead costs ………………..
135,000
Fixed marketing and
administrative costs ………
117,000
Fixed marketing and
administrative costs …………
117,000
Operating profit ……………
$258,000
Operating profit ……………….
$258,000
(a) $79 x 30,000 units = $2,370,000
(b) $57 x 30,000 units = $1,710,000; $57 = ($21 direct material + $24 direct labor + $12
variable manufacturing overhead).
(c) $5 x 30,000 units = $150,000
Chapter 02 – Cost Concepts and Behavior
2-22
2-46. (20 Min.) Gross Margin and Contribution Margin Income Statements:
Fremont Products.
Gross Margin Income Statement
Contribution Margin Income Statement
Sales revenue …………….
$132,000
Sales revenue …………………
$132,000
Variable manufacturing
costsa …………………………
59,500
Variable manufacturing
costs ………………………………
59,500
Fixed manufacturing
costs …………………
22,000
Variable marketing and
administrative costs ………….
6,800
Gross margin ……………….
$ 50,500
Contribution margin ………….
$ 65,700
Variable marketing and
administrative costs ………
6,800
Fixed manufacturing costs…
22,000
Fixed marketing and
administrative costs ………
16,000
Fixed marketing and
administrative costs ………….
16,000
Operating profit ……………
$ 27,700
Operating profit ………………..
$ 27,700
a Variable manufacturing costs = $34,000 + $17,000 + $8,500 = $59,500
2-47. (20 Min.) Gross Margin and Contribution Margin Income Statements:
Carmen Beverages.
Gross Margin Income Statement
Contribution Margin Income Statement
Sales revenuea ………………….
$60,160
Sales revenue ……………………
$60,160
Variable manufacturing
costsb ………………………………
7,896
Variable manufacturing
costs ………………………………..
7,896
Fixed manufacturing
overhead costsc ………………..
17,296
Variable marketing and
administrative costs ……………
9,024
Gross margin …………………….
$34,968
Contribution margin ……………
$43,240
Variable marketing and
administrative costsd ………….
9,024
Fixed manufacturing
overhead costs ………………….
17,296
Fixed marketing and
administrative costse ………….
18,800
Fixed marketing and
administrative costs ……………
18,800
Operating profit …………………
$7,144
Operating profit ………………….
$7,144
a Revenue = $3.20 x 18,800 = $60,160
b Variable manufacturing costs = ($0.20 + $0.16 + $0.06) x 18,800 = $7,896
c Fixed manufacturing overhead costs = $0.92 x 18,800 = $17,296
d Variable marketing and administrative costs = $0.48 x 18,800 = $9,024
e Fixed marketing and administrative costs = $1.00 x 18,800 = $18,800
Chapter 02 – Cost Concepts and Behavior
2-23
2-48. (30 min.) Value Income Statement: Greg’s Diner.
a.
Greg’s Diner
Value Income Statement
For the year 2 ending December 31
Nonvalue-
added
activities
Value-
added
activities
Total
Sales revenue ………………………………….
$2,000,000
$2,000,000
Cost of merchandise …………………………
Cost of food serveda ……………………..
$ 105,000
595,000
700,000
Gross margin …………………………………..
$ (105,000)
$ 1,405,000
$ 1,300,000
Operating expenses ………………………….
Employee salaries and wagesb ……….
75,000
425,000
500,000
Managers’ salariesc ……………………….
40,000
160,000
200,000
Building costsd ……………………………..
60,000
240,000
300,000
Operating income (loss) …………………….
$(280,000)
$ 580,000
$ 300,000
a 15% nonvalue-added activities (= 5% not used + 10% incorrectly prepared)
b 15% nonvalue-added activities
c 20% nonvalue-added activities
d 20% unused and nonvalue-added activities
b. The information in the value income statement enables Greg to identify nonvalue–
Chapter 02 – Cost Concepts and Behavior
2-24
2-49. (30 min.) Value Income Statement: Paul’s Limo Service.
a.
b. The information in the value income statement enables Paul to identify nonvalue–
Chapter 02 – Cost Concepts and Behavior
2-25
Solutions to Problems
2-50. (30 min.) Cost Concepts: Santa Inez, Inc.
a.
Prime costs = direct materials + direct labor
Direct materials
=
beginning inventory + purchases – ending inventory
=
$12,000 + $160,000 – $10,000
=
$162,000
Direct labor is given as $128,000
Prime costs
=
$162,000 + $128,000
=
$290,000
b.
Conversion costs = Direct labor + Manufacturing overhead
Conversion costs = $128,000 + $168,000 = $296,000
c.
Total manufacturing costs
=
Direct materials + Direct labor + Manufacturing
overhead
=
$162,000 (from a above) + $128,000 + $168,000
=
$458,000
d.
Cost of goods
manufactured
=
Beginning Work In Process + Total manufacturing costs
– Ending Work In Process
=
$6,000 + $458,000 (from c above) – $4,000
=
$460,000
e.
Cost of
Goods
Sold
=
Cost of
Goods
Manufactured
+
Beginning
Finished
Goods
Inventory
–
Ending
Finished
Goods
Inventory
=
$460,000
+
$36,000
–
$48,000
(from d above)
=
$448,000
Chapter 02 – Cost Concepts and Behavior
2-51. (30 Minutes) Cost Concepts: Emporia Precision Parts.
a. $87,000.
Prime costs
=
Direct materials used + Direct labor costs
Direct materials used
=
Prime costs – Direct labor costs
=
$147,000 – $60,000
=
$87,000
Direct materials used
=
Beginning inventory + purchases – ending inventory
Direct materials,
beginning inventory
=
Direct materials used – purchases + ending inventory
$87,000 – $84,000 + $15,000
=
$18,000
=
$267,000 – $147,000 + $60,000
=
$180,000
$9,000 + $267,000 – $270,000
=
$6,000
Conversion cost
=
Direct labor costs + Manufacturing overhead
Manufacturing overhead
=
Conversion costs – Direct labor costs
Chapter 02 – Cost Concepts and Behavior
2-51. (continued)
f. $14,000.
Cost of goods sold
=
Finished goods, beginning + Cost of goods
manufactured – Finished goods, ending
Finished goods,
beginning
=
Cost of goods sold – Cost of goods manufactured +
Finished goods, ending
$212,000 – $270,000 + $72,000
=
$14,000
2-52. (30 minutes) Cost Concepts: Princeton Fabrication, Inc.
a. Amounts per unit:
(1) $434.
Variable manufacturing
cost
=
Manufacturing overhead + Direct labor + Direct
materials
=
$140 + $70 + $224
=
$434
Unit fixed manufacturing = ($100,800 ÷ 1,200 units) = $84
=
=
$28 + $140 + $70 + $224
=
$462
Full absorption cost
=
Fixed and variable manufacturing overhead + Direct labor +
direct materials
=
=
=
$294
Chapter 02 – Cost Concepts and Behavior
2-28
2-52. (continued)
(6) $294.
Conversion cost
=
Direct labor + Manufacturing overhead
=
$70 + ($140 + $84)
=
$294
Profit margin
=
Sales price – Full cost
=
$896 – $658
=
$238
Contribution margin
=
Sales price – Variable costs
=
$896 – $462
=
$434
Gross margin
=
Sales price – Full absorption cost
=
$896 – $518
=
$378
b. As the number of units decreases (reflected in the denominator), fixed
manufacturing cost per unit increases. The numerator (i.e., total fixed costs) remains
the same.
Chapter 02 – Cost Concepts and Behavior
2-29
2-53. (30 min.) Prepare Statements for a Manufacturing Company: Pioneer
Parts.
Pioneer Parts
Statement of Cost of Goods Sold
For the Year Ended December 31
($000)
Work in process, Jan. 1 ……………………………………
$ 24
Manufacturing costs:
Direct materials:
Beginning inventory, Jan. 1 ………………………..
$ 18
Add material purchases …………………………….
1,640
Direct materials available …………………………..
1,658
Less ending inventory, Dec. 31 …………………..
16
Direct materials used ………………………………..
$ 1,642
Direct labor …………………………………………………
2,120
Manufacturing overhead:
Indirect factory labor …………………………………
560
Indirect materials and supplies ……………………
140
Factory supervision …………………………………..
420
Factory utilities …………………………………………
180
Factory and machine depreciation ………………
2,320
Property taxes on factory …………………………..
56
Total manufacturing overhead …………………
3,676
Total manufacturing costs ……………………
7,438
Total cost of work in process during the year ………
7,462
Less work in process, Dec. 31 ……………………….
28
Costs of goods manufactured during the year
7,434
Beginning finished goods, Jan. 1 ………………………
328
Finished goods inventory available for sale ………..
7,762
Less ending finished goods inventory, Dec. 31 ……
294
Cost of goods sold ………………………………………….
$7,468
Chapter 02 – Cost Concepts and Behavior
2-30
2-53. (continued)
Pioneer Parts
Income Statement
For the Year Ended December 31
($000)
Sales revenue …………………………………………….…………
$9,080
Less: Cost of goods sold ……………………………..……………………
7,468
Gross margin ……………………………………………..………..
$1,612
Administrative costs …………………………………….…………………
$720
Marketing costs …………………………………………..…………..
300
Total marketing and administrative costs ………..…………………
1,020
Operating profit …………………………………………..…………..
$ 592