SOLUTION
(20 min.) Total costs and unit costs
Number of attendees 0 50 100 175 200
Variable cost per attendee
(Materials $35 + Food, $75
Fixed Costs per session
(Trainer, $11,000 + Materials,
$2,500 + Catering, $5,000 −
Variable costs (number of
1.
0 50 100 150 200
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
50000
Fixe d Variable Total
Number of Aendees
Costs
2.
Number of attendees 0 50 100 175 200
Total costs
$17,50
$31,00
As shown in the table above, for 100 attendees the total cost will be $31,000, and the cost per
attendee will be $310.00.
2. As shown in the table in requirement 2, for 175 attendees, the total cost will be $41,125, and
3. National Training should charge customers based on the number of attendees. As the number
2-1
would be spread over a larger number of attendees. For 100 attendees, the fixed catering cost
Alternatively, National Training could charge a flat fee of $20,000 plus $150 per
attendee. This would provide a margin of $15.00 per guest plus a $2,500 markup on the fixed
2-32 Total and unit cost, decision making. Gayle’s Glassworks makes glass flanges for
scientific use. Materials cost $1 per flange, and the glass blowers are paid a wage rate of $28 per
hour. A glass blower blows 10 flanges per hour. Fixed manufacturing costs for flanges are
$28,000 per period. Period (nonmanufacturing) costs associated with flanges are $10,000 per
period and are fixed.
Required:
1. Graph the fixed, variable, and total manufacturing cost for flanges, using units (number of
flanges) on the x-axis.
2. Assume Gayle’s Glassworks manufactures and sells 5,000 flanges this period. Its competitor,
Flora’s Flasks, sells flanges for $10 each. Can Gayle sell below Flora’s price and still make a
profit on the flanges?
3. How would your answer to requirement 2 differ if Gayle’s Glassworks made and sold 10,000
flanges this period? Why? What does this indicate about the use of unit cost in decision
making?
SOLUTION
(25 min.) Total and unit cost, decision making.
1.
2-2
2. The inventoriable (manufacturing) cost per unit for 5,000 flanges is
$3.80 × 5,000 + $28,000 = $47,000
Alternatively,
At Flora’s price of $10 per flange:
Revenue $10 × 5,000 = $50,000
3. If Gayle’s Glassworks produces 10,000 units, then total inventoriable cost will be:
2-3
Average (unit) inventoriable (manufacturing) cost will be $66,000 ÷ 10,000 units = $6.60 per flange
Unit total cost including both inventoriable and period costs will be
flanges for less than Flora’s price of $10 per flange and still make a profit.
Alternatively,
At Flora’s price of $10 per flange:
Gayle’s Glassworks can sell at a price below $10 per flange and still make a profit. The
The reason the unit cost decreases significantly is that inventoriable (manufacturing) fixed costs
and fixed period (non-manufacturing) costs remain the same regardless of the number of units
2-33 Inventoriable costs versus period costs. Each of the following cost items pertains to one
of these companies: Best Buy (a merchandising-sector company), KitchenAid (a
manufacturing-sector company), and HughesNet (a service-sector company):
a. Cost of phones and computers available for sale in Best Buy’s electronics department
b. Electricity used to provide lighting for assembly-line workers at a KitchenAid manufacturing
plant
c. Depreciation on HughesNet satellite equipment used to provide its services
d. Electricity used to provide lighting for Best Buy’s store aisles
e. Wages for personnel responsible for quality testing of the KitchenAid products during the
assembly process
f. Salaries of Best Buy’s marketing personnel planning local-newspaper advertising campaigns
g. Perrier mineral water purchased by HughesNet for consumption by its software engineers
h. Salaries of HughesNet area sales managers
i. Depreciation on vehicles used to transport KitchenAid products to retail stores
Required:
1. Distinguish between manufacturing-, merchandising-, and service-sector companies.
2. Distinguish between inventoriable costs and period costs.
3. Classify each of the cost items (a–i) as an inventoriable cost or a period cost. Explain your
answers.
2-4
SOLUTION
(20–30 min.) Inventoriable costs versus period costs.
1. Manufacturing-sector companies purchase materials and components and convert them
into different finished goods.
2. Inventoriable costs are all costs of a product that are regarded as an asset when they are
incurred and then become cost of goods sold when the product is sold. These costs for a
3. (a) Phones and computers purchased for resale by Best Buy—inventoriable cost of a
(b) Electricity used for lighting at KitchenAid plant—inventoriable cost of a
(c) Depreciation on HughesNet satellite equipment used to provide its services—period
(d) Electricity used to provide lighting for Best Buy’s store aisles—period cost of a
(e) Wages for personnel responsible for quality testing of the KitchenAid products during
(f) Salaries of Best Buy’s marketing personnel—period cost of a merchandising
(g) Perrier mineral water consumed by HughesNet’s software engineers—period cost of a
(h) Salaries of HughesNet’s marketing personnel—period cost of a service company.
2-5
(i) Depreciation on vehicles used to transport KitchenAid products to retail stores—
2-34 Computing cost of goods purchased and cost of goods sold. The following data are for
Marvin Department Store. The account balances (in thousands) are for 2017.
Marketing, distribution, and customer-service costs $ 37,000
Merchandise inventory, January 1, 2017 27,000
Utilities 17,000
General and administrative costs 43,000
Merchandise inventory, December 31, 2017 34,000
Purchases 155,000
Miscellaneous costs 4,000
Transportation-in 7,000
Purchase returns and allowances 4,000
Purchase discounts 6,000
Revenues 280,000
Required:
1. Compute (a) the cost of goods purchased and (b) the cost of goods sold.
2. Prepare the income statement for 2017.
SOLUTION
(20 min.) Computing cost of goods purchased and cost of goods sold.
1a. Marvin Department Store
Schedule of Cost of Goods Purchased
For the Year Ended December 31, 2017
(in thousands)
Purchases $155,000
1b. Marvin Department Store
Schedule of Cost of Goods Sold
2-6
For the Year Ended December 31, 2017
(in thousands)
Beginning merchandise inventory 1/1/2017 $ 27,000
2. Marvin Department Store
Income Statement
Year Ended December 31, 2017
(in thousands)
Revenues $280,000
Operating costs
Marketing, distribution, and customer
2-35 Cost of goods purchased, cost of goods sold, and income statement. The following data
are for Arizona Retail Outlet Stores. The account balances (in thousands) are for 2017.
Marketing and advertising costs $ 55,200
Merchandise inventory, January 1, 2017 103,500
Shipping of merchandise to customers 4,600
Depreciation on store fixtures 9,660
Purchases 598,000
General and administrative costs 73,600
Merchandise inventory, December 31, 2017 119,600
Merchandise freight-in 23,000
Purchase returns and allowances 25,300
Purchase discounts 20,700
Revenues 736,000
2-7
Required:
1. Compute (a) the cost of goods purchased and (b) the cost of goods sold.
2. Prepare the income statement for 2017.
SOLUTION
(20 min.) Cost of goods purchased, cost of goods sold, and income statement.
1a. Arizona Retail Outlet Stores
Schedule of Cost of Goods Purchased
For the Year Ended December 31, 2017
(in thousands)
Deduct:
1b. Arizona Retail Outlet Stores
Schedule of Cost of Goods Sold
For the Year Ended December 31, 2017
(in thousands)
Beginning merchandise inventory 1/1/2017 $103,500
2. Arizona Retail Outlet Stores
Income Statement
Year Ended December 31, 2017
(in thousands)
Operating costs
2-8
2-36 Flow of Inventoriable Costs. Renka’s Heaters selected data for October 2017 are
presented here (in millions):
Direct materials inventory 10/1/2017 $ 105
Direct materials purchased 365
Direct materials used 385
Total manufacturing overhead costs 450
Variable manufacturing overhead costs 265
Total manufacturing costs incurred during October 2017 1,610
Work-in-process inventory 10/1/2017 230
Cost of goods manufactured 1,660
Finished-goods inventory 10/1/2017 130
Cost of goods sold 1,770
Required:
Calculate the following costs:
1. Direct materials inventory 10/31/2017
2. Fixed manufacturing overhead costs for October 2017
3. Direct manufacturing labor costs for October 2017
4. Work-in-process inventory 10/31/2017
5. Cost of finished goods available for sale in October 2017
6. Finished goods inventory 10/31/2017
2-9