Solutions Manual, Chapter 2 21
Exercise 2-13 (20 minutes)
1. Traditional income statement
The Alpine House, Inc.
Traditional Income Statement
Sales ……………………………………………………….
$150,000
Cost of goods sold
($30,000 + $100,000 – $40,000) …………………
90,000
Gross margin ……………………………………………..
60,000
Selling and administrative expenses:
Selling expenses (($50 per unit × 200 pairs of
skis*) + $20,000) …………………………………..
30,000
Administrative expenses (($10 per unit × 200
pairs of skis) + $20,000)………………………….
22,000
52,000
Net operating income ………………………………….
$ 8,000
2. Contribution format income statement
The Alpine House, Inc.
Contribution Format Income Statement
Sales ……………………………………………………….
$150,000
Variable expenses:
Cost of goods sold
($30,000 + $100,000 – $40,000) ………………
$90,000
Selling expenses
($50 per unit × 200 pairs of skis) ………………
10,000
Administrative expenses
($10 per unit × 200 pairs of skis) ………………
2,000
102,000
Contribution margin …………………………………….
48,000
Fixed expenses:
Selling expenses ………………………………………
20,000
Administrative expenses …………………………….
20,000
40,000
Net operating income ………………………………….
$ 8,000
22 Managerial Accounting for Managers, 4th edition
Exercise 2-13 (continued)
2. Since 200 pairs of skis were sold and the contribution margin totaled
Solutions Manual, Chapter 2 23
Exercise 2-14 (30 minutes)
1.
Guest-
Days
Custodial
Supplies
Expense
12,000
$13,500
4,000
7,500
8,000
$ 6,000
Variable cost per guest-day:
Change in expense $6,000
= =$0.75 per guest-day
Change in activity 8,000 guest-days
Fixed cost per month:
Custodial supplies expense at high activity level ….
$13,500
Less variable cost element:
12,000 guest–days × $0.75 per guest-day ……….
9,000
Total fixed cost …………………………………………….
$ 4,500
2. Custodial supplies expense for 11,000 guest-days:
Variable cost:
11,000 guest-days × $0.75 per guest-day .
$ 8,250
Fixed cost …………………………………………..
4,500
Total cost ……………………………………………
$12,750
24 Managerial Accounting for Managers, 4th edition
Exercise 2-14 (continued)
5. Expected custodial supplies expense for 11,000 guest-days:
Variable cost: 11,000 guest–days × $0.77 per day …..
$ 8,470.00
Fixed cost ………………………………………………………
3,973.10
Total cost ……………………………………………………….
$12,443.10
Exercise 2-15 (15 minutes)
Selling and
Cost Behavior
Administrative
Product
Cost Item
Variable
Fixed
Cost
Cost
1.
Hamburger buns at a
Wendy’s outlet ……..
X
X
2.
Advertising by a dental
office ………………….
X
X
3.
Apples processed and
canned by Del Monte
X
X
4.
Shipping canned
apples from a Del
Monte plant to
customers ……………
X
X
5.
Insurance on a Bausch
& Lomb factory
producing contact
lenses …………………
X
X
6.
Insurance on IBM’s
corporate
headquarters ……….
X
X
7.
Salary of a supervisor
overseeing
production of
printers at Hewlett-
Packard ………………
X
X
8.
Commissions paid to
automobile
salespersons ………..
X
X
9.
Depreciation of factory
lunchroom facilities
at a General Electric
plant ………………….
X
X
10.
Steering wheels
installed in BMWs ….
X
X
Problem 2-16 (45 minutes)
1.
Cost of goods sold ……………….
Variable
Advertising expense …………….
Fixed
Shipping expense ………………..
Mixed
Salaries and commissions ……..
Mixed
Insurance expense ………………
Fixed
Depreciation expense …………..
Fixed
2. Analysis of the mixed expenses:
Units
Shipping
Expense
Salaries and
Commissions
Expense
High level of activity …..
5,000
$38,000
$90,000
Low level of activity ……
4,000
34,000
78,000
Change ……………………
1,000
$ 4,000
$12,000
Variable cost element:
Change in cost
Variable rate = Change in activity
$4,000
Shipping expense: = $4 per unit
1,000 units
$12,000
Salaries and commissions expense: = $12 per unit
1,000 units
Fixed cost element:
Shipping
Expense
Salaries and
Commissions
Expense
Cost at high level of activity ….
$38,000
$90,000
Less variable cost element:
5,000 units × $4 per unit …..
20,000
5,000 units × $12 per unit …
60,000
Fixed cost element ……………..
$18,000
$30,000
Solutions Manual, Chapter 2 27
Problem 2-16 (continued)
The cost formulas are:
Shipping expense:
3.
Morrisey & Brown, Ltd.
Income Statement
For the Month Ended September 30
Sales (5,000 units × $100 per unit) ………..
$500,000
Variable expenses:
Cost of goods sold
(5,000 units × $60 per unit) ……………
$300,000
Shipping expense
(5,000 units × $4 per unit) ………………
20,000
Salaries and commissions expense
(5,000 units × $12 per unit) …………….
60,000
380,000
Contribution margin …………………………….
120,000
Fixed expenses:
Advertising expense ………………………….
21,000
Shipping expense …………………………….
18,000
Salaries and commissions expense ……….
30,000
Insurance expense …………………………...
6,000
Depreciation expense ………………………..
15,000
90,000
Net operating income ………………………….
$ 30,000
28 Managerial Accounting for Managers, 4th edition
Problem 2-17 (30 minutes)
isolated as follows:
Level of Activity
50,000 DLHs
75,000 DLHs
Total factory overhead cost ……………..
$14,250,000
$17,625,000
Deduct:
Indirect materials @ $100 per DLH* .
5,000,000
7,500,000
Rent …………………………………………
6,000,000
6,000,000
Maintenance cost ………………………….
$ 3,250,000
$ 4,125,000
* $5,000,000 ÷ 50,000 DLHs = $100 per DLH
2. High-low analysis of maintenance cost:
Direct
Labor-Hours
Maintenance
Cost
High level of activity ……..
75,000
$4,125,000
Low level of activity ………
50,000
3,250,000
Change ………………………
25,000
$ 875,000
Variable cost element:
Change in cost $875,000
= =$35 per DLH
Change in activity 25,000 DLH
Fixed cost element:
Total cost at the high level of activity ………………
$4,125,000
Less variable cost element
(75,000 DLHs × $35 per DLH) …………………….
2,625,000
Fixed cost element ……………………………………..
$1,500,000
$35 per direct labor-hour or
Solutions Manual, Chapter 2 29
Problem 2-17 (continued)
3. Total factory overhead cost at 70,000 direct labor-hours is:
Indirect materials
(70,000 DLHs × $100 per DLH) …………
$ 7,000,000
Rent ………………………………………………
6,000,000
Maintenance:
Variable cost element
(70,000 DLHs × $35 per DLH) ………..
$2,450,000
Fixed cost element ………………………….
1,500,000
3,950,000
Total factory overhead cost …………………
$16,950,000
30 Managerial Accounting for Managers, 4th edition
Problem 2-18 (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
*These costs could be direct costs of serving particular seniors.