Problem 1-14B (45 minutes)
1.
House Of Pianos, Inc.
Traditional Income Statement
For the Month Ended September 30
Sales (60 pianos × $3,300 per piano) ……………..
$198,000
Cost of goods sold
(60 pianos × $1,492 per piano) …………………..
89,520
Gross margin …………………………………………….
108,480
Selling and administrative expenses:
Selling expenses:
Advertising …………………………………………..
$ 955
Delivery of pianos
(60 pianos × $61 per piano)…………………..
3,660
Sales salaries and commissions
[$4,823 + (4% × $198,000)] …………………
12,743
Utilities ………………………………………………..
633
Depreciation of sales facilities …………………..
4,944
Total selling expenses ……………………………….
22,935
Administrative expenses:
Executive salaries …………………………………..
13,490
Depreciation of office equipment ……………….
943
Clerical
[$2,499 + (60 pianos × $37 per piano)] …..
4,719
Insurance …………………………………………….
719
Total administrative expenses ……………………..
19,871
Total selling and administrative expenses …………
42,806
Net operating income ………………………………….
$ 65,674
1-2 Introduction to Managerial Accounting, 6th edition
Problem 1-14B (continued)
2.
House Of Pianos, Inc.
Contribution Format Income Statement
For the Month Ended September 30
Per Unit
Sales (60 pianos × $3,300 per piano) ……………..
$3,300
Variable expenses:
Cost of goods sold
(60 pianos × $1,492 per piano) ………………..
1,492
Delivery of pianos
(60 pianos × $61 per piano) …………………….
61
Sales commissions (4% × $198,000) ……………
132
Clerical (60 pianos × $37 per piano) …………….
37
Total variable expenses …………………………...
1,722
Contribution margin …………………………………….
$1,578
Fixed expenses:
Advertising ……………………………………………..
Sales salaries …………………………………………..
Utilities …………………………………………………..
Depreciation of sales facilities ……………………..
Executive salaries …………………………………….
Depreciation of office equipment …………………
Clerical …………………………………………………..
Insurance ……………………………………………….
Total fixed expenses ……………………………………
Net operating income ………………………………….
3. Fixed costs remain constant in total but vary on a per unit basis with
changes in the activity level. For example, as the activity level increases,
Problem 1-15B (30 minutes)
1.
a.
11
b.
9
c.
3
d.
4
e.
1
f.
7
g.
10
h.
6
i.
2
2. Without an understanding of the underlying cost behavior patterns, it
would be difficult, if not impossible for a manager to properly analyze
1-4 Introduction to Managerial Accounting, 6th edition
Problem 1-16B (20 minutes)
Direct or Indirect
Cost of the Meals-
On-Wheels
Program
Direct or Indirect
Cost of Particular
Seniors Served
by the Meals-On–
Wheels Program
Variable or Fixed
with Respect to the
Number of Seniors
Served by the
Meals-On-Wheels
Program
Item
Description
Direct
Indirect
Direct
Indirect
Variable
Fixed
a.
The cost of leasing the meals-on-wheels van …..
X
X
X
b.
The cost of incidental supplies such as salt,
pepper, napkins, and so on ……………………….
X
X*
X
c.
The cost of gasoline consumed by the meals-on–
wheels van …………………………………………….
X
X
X
d.
The rent on the facility that houses Madison
Seniors Care Center, including the meals–on–
wheels program ……………………………………..
X
X*
X
e.
The salary of the part-time manager of the
meals-on-wheels program …………………………
X
X
X
f.
Depreciation on the kitchen equipment used in
the meals-on-wheels program ……………………
X
X
X
g.
The hourly wages of the caregiver who drives
the van and delivers the meals …………………..
X
X
X
h.
The costs of complying with health safety
regulations in the kitchen ………………………….
X
X
X
i.
The costs of mailing letters soliciting donations
to the meals-on-wheels program ………………..
X
X
X
1-6 Introduction to Managerial Accounting, 6th edition
Problem 1-17B (30 minutes)
1. Maintenance cost at the 63,600 machine-hour level of activity can be
isolated as follows:
Level of Activity
47,700 MH
63,600 MH
Total factory overhead cost ..
248,560
pesos
277,180
pesos
Deduct:
Indirect materials @ 1.30
pesos per MH* ……………
62,010
82,680
Rent …………………………...
135,000
135,000
Maintenance cost …………….
51,550
pesos
59,500
pesos
2. High-low analysis of maintenance cost:
Machine-Hours
Maintenance Cost
High activity level …………..
63,600
59,500
pesos
Low activity level ……………
47,700
51,550
Change observed ……………
15,900
7,950
pesos
Variable
cost
=
Change in cost
=
7,950 pesos
=
0.50 peso
per MH
Change in activity
15,900 MHs
Fixed cost element:
Total cost at the low level of activity ……………….
51,550
pesos
Less variable cost element
(47,700 MHs × 0.50 pesos per MH) ………………
23,850
Fixed cost element ……………………………………..
27,700
pesos
Problem 1-17B (continued)
3. Total factory overhead cost at 52,470 machine-hours is:
Indirect materials (52,470 MHs ×
1.30 pesos per MH) …………………..
68,211
pesos
Rent …………………………………………
135,000
Maintenance:
Variable cost element (52,470 MHs
× 0.50 peso per MH) ……………….
26,235
pesos
Fixed cost element …………………….
27,700
53,935
Total factory overhead cost ……………
257,146
pesos
1-8 Introduction to Managerial Accounting, 6th edition
Problem 1-18B (45 minutes)
1.
Cost of goods sold ………………..
Variable
Shipping expense …………………
Mixed
Advertising expense ……………..
Fixed
Salaries and commissions ………
Mixed
Insurance expense ……………….
Fixed
Depreciation expense ……………
Fixed
2. Analysis of the mixed expenses:
Units
Shipping
Expense
Salaries and
Comm. Expense
High level of activity …..
4,800
£77,300
£218,400
Low level of activity ……
1,800
41,300
104,400
Change ……………………
3,000
£36,000
£114,000
Shipping
Expense
Salaries and
Comm. Expense
Cost at high level of activity …
£77,300
£218,400
Less variable cost element:
4,800 units × £12 per unit …
57,600
4,800 units × £38 per unit …
182,400
Fixed cost element …………….
£19,700
£ 36,000
Problem 1-18B (continued)
The cost formulas are:
3.
Arnall Ltd.
Income Statement
For the Month Ended June 30
Sales revenue ……………………………………..
£835,200
Variable expenses:
Cost of goods sold
(4,800 units × £67 per unit) ………………
£321,600
Shipping expense
(4,800 units × £12 per unit) ……………..
57,600
Salaries and commissions expense
(4,800 units × £38 per unit) ………………
182,400
561,600
Contribution margin ………………………………
273,600
Fixed expenses:
Shipping expense ………………………………
19,700
Advertising ……………………………………….
70,000
Salaries and commissions …………………….
36,000
Insurance …………………………………………
9,900
Depreciation ……………………………………..
42,300
177,900
Net operating income …………………………...
£ 95,700
1-10 Introduction to Managerial Accounting, 6th edition
Problem 1-19B (45 minutes)
1. High-low method:
Number of
Ingots
Power
Cost
High activity level …………..
131
$6,282
Low activity level ……………
34
2,208
Change ………………………..
97
$4,074
Variable cost per unit = Change in cost ÷ Change in activity
Variable cost per unit = $4,074 ÷ 97 ingots = $42 per ingot
Fixed cost:
Total power cost at high activity level …….
$6,282
Less variable element:
131 ingots × $42 per ingot ……………….
5,502
Fixed cost element …………………………….
$ 780
Therefore, the cost formula is: Y = $780 + $42X.
2. Scattergraph with a straight line drawn through the high and low data
points:
Problem 1-19B (continued)
3. The high-low estimate of fixed costs is $658.20 (or $1,438.20 – $780.00)
$37.783) higher than the estimate provided by least-squares regression.
A straight line that minimized the sum of the squared errors would
Problem 1-20B (45 minutes)
1. Maintenance cost at the 73,000 machine-hour level of activity can be
isolated as follows:
Level of Activity
43,000 MH
73,000 MH
Total factory overhead cost ………….
$166,500
$238,500
Deduct:
Utilities cost @ $1.20 per MH* ……
51,600
87,600
Supervisory salaries …………………
49,000
49,000
Maintenance cost ………………………
$ 65,900
$101,900
*$51,600 ÷ 43,000 MHs = $1.20 per MH
2. High-low analysis of maintenance cost:
Machine-
Hours
Maintenance
Cost
High activity level …………..
73,000
$101,900
Low activity level ……………
43,000
65,900
Change ………………………..
30,000
$36,000
Variable cost per unit of activity:
Variable cost per unit = Change in cost ÷ Change in activity
Variable cost per unit = $36,000 ÷ 30,000 MHs = $1.20 per MH
Total fixed cost:
Total maintenance cost at the low activity level …………
$65,900
Less the variable cost element
(43,000 MHs × $1.20 per MH) …………………………….
51,600
Fixed cost element ……………………………………………..
$14,300
Therefore, the cost formula is $14,300 per month plus $1.20 per
machine-hour or:
Y = $14,300 + $1.20X
Problem 1-20B (continued)
3.
Variable Rate per
Machine-Hour
Fixed Cost
Maintenance cost …………..
$1.20
$14,300
Utilities cost ………………….
1.20
Supervisory salaries cost ….
49,000
Totals ………………………….
$2.40
$63,300
Thus, the cost formula is: Y = $63,300 + $2.40X.
4. Total overhead cost at an activity level of 48,000 machine-hours:
Fixed costs ………………………………………………….
$ 63,300
Variable costs: $2.40 per MH × 48,000 MHs……….
115,200
Total overhead costs ……………………………………..
$178,500
Problem 1-21B (30 minutes)
Note to the Instructor: There may be some exceptions to the answers below. The purpose of this
problem is to get the student to start
thinking
about cost behavior and cost purposes; try to avoid
lengthy discussions about how a particular cost is classified.
Variable or
Selling
Administrative
Manufacturing
(Product) Cost
Cost Item
Fixed
Cost
Cost
Direct
Indirect
1.
Property taxes, factory …………………………..
F
X
2.
Boxes used for packaging detergent
produced by the company …………………….
V
X
3.
Salespersons’ commissions ……………………..
V
X
4.
Supervisor’s salary, factory ……………………..
F
X
5.
Depreciation, executive autos ………………….
F
X
6.
Wages of workers assembling computers …..
V
X
7.
Insurance, finished goods warehouses ………
F
X
8.
Lubricants for production equipment …………
V
X
9.
Advertising costs …………………………………..
F
X
10.
Microchips used in producing calculators ……
V
X
11.
Shipping costs on merchandise sold ………….
V
X
12.
Magazine subscriptions, factory lunchroom …
F
X
13.
Thread in a garment factory ……………………
V
X
14.
Billing costs …………………………………………
V
X*
15.
Executive life insurance ………………………….
F
X
Problem 1-21B (continued)
Variable or
Selling
Administrative
Manufacturing
(Product) Cost
Cost Item
Fixed
Cost
Cost
Direct
Indirect
16.
Ink used in textbook production ……………….
V
X
17.
Fringe benefits, assembly-line workers ………
V
X**
18.
Yarn used in sweater production ………………
V
X
19.
Wages of receptionist, executive offices …….
F
X
Problem 1-22B (45 minutes)
1. High-low method:
Units
Sold
Shipping
Expense
High activity level …………..
47,000
$245,000
Low activity level ……………
29,000
173,000
Change ………………………..
18,000
$72,000
Total shipping expense at high activity
level ……………………………………………..
$245,000
Less variable element:
47,000 units × $4 per unit …………………
188,000
Fixed cost element …………………………….
$ 57,000
Problem 1-22B (continued)
2.
McKenzie Company
Budgeted Income Statement
For the First Quarter of Year 3
Sales (35,000 units × $56 per unit) ……………….
$1,960,000
Variable expenses:
Cost of goods sold
(35,000 units × $26 per unit) ………………….
$910,000
Shipping expense
(35,000 units × $4 per unit) …………………….
140,000
Sales commission ($1,960,000 × .07) ………….
137,200
Total variable expenses ………………………………..
1,187,200
Contribution margin …………………………………….
772,800
Fixed expenses:
Shipping expenses ……………………………………
57,000
Advertising expense ………………………………….
183,000
Administrative salaries ………………………………
93,000
Depreciation expense ………………………………..
63,000
Total fixed expenses ……………………………………
396,000
Net operating income ………………………………….
$ 376,800
Problem 1-23B (45 minutes)
1.
Selling or
Cost Behavior
Administrative
Product Cost
Cost Item
Variable
Fixed
Cost
Direct
Indirect
Direct materials used (wood, glass) …..
$431,000
$431,000
Administrative office salaries ……………
$111,000
$111,000
Factory supervision ………………………..
67,000
$ 67,000
Sales commissions …………………………
64,000
64,000
Depreciation, factory building …………..
101,000
101,000
Depreciation, admin. office equipment .
2,000
2,000
Indirect materials, factory ……………….
19,000
19,000
Factory labor (cutting and assembly) …
87,000
87,000
Advertising …………………………………..
97,000
97,000
Insurance, factory ………………………….
6,000
6,000
Administrative office supplies ……………
4,000
4,000
Property taxes, factory ……………………
16,000
16,000
Utilities, factory …………………………….
44,000
44,000
Total costs …………………………………..
$649,000
$400,000
$278,000
$518,000
$253,000
Problem 1-23B (continued)
2. The average product cost per bookcase will be:
Direct…………………………….
$518,000
Indirect ………………………….
253,000
Total …………………………..…
$771,000
$771,000 ÷ 3,900 bookcases = $198 per bookcase
3. The average product cost per bookcase would increase if the production
4. a. Yes, there probably would be a disagreement. The president is likely
to want a price of at least $198, which is the average cost per unit to
manufacture 3,900 bookcases. He may
expect an even higher price