Solutions Manual, Chapter 2 31
Problem 2-19 (45 minutes)
1.
Marwick’s Pianos, Inc.
Traditional Income Statement
For the Month of August
Sales (40 pianos × $3,125 per piano) ……………
$125,000
Cost of goods sold
(40 pianos × $2,450 per piano) …………………
98,000
Gross margin …………………………………………..
27,000
Selling and administrative expenses:
Selling expenses:
Advertising …………………………………………
$ 700
Sales salaries and commissions
[$950 + (8% × $125,000)] ………………….
10,950
Delivery of pianos
(40 pianos × $30 per piano)…………………
1,200
Utilities ………………………………………………
350
Depreciation of sales facilities …………………
800
Total selling expenses ……………………………..
14,000
Administrative expenses:
Executive salaries …………………………………
2,500
Insurance …………………………………………..
400
Clerical
[$1,000 + (40 pianos × $20 per piano)] …
1,800
Depreciation of office equipment ……………..
300
Total administrative expenses ……………………
5,000
Total selling and administrative expenses ……….
19,000
Net operating income ………………………………..
$ 8,000
32 Managerial Accounting for Managers, 4th edition
Problem 2-19 (continued)
2.
Marwick’s Pianos, Inc.
Contribution Format Income Statement
For the Month of August
Total
Per
Piano
Sales (40 pianos × $3,125 per piano) ……………..
$125,000
$3,125
Variable expenses:
Cost of goods sold
(40 pianos × $2,450 per piano) ………………..
98,000
2,450
Sales commissions (8% × $125,000) ……………
10,000
250
Delivery of pianos (40 pianos × $30 per piano)
1,200
30
Clerical (40 pianos × $20 per piano) …………….
800
20
Total variable expenses ………………………………..
110,000
2,750
Contribution margin …………………………………….
15,000
$ 375
Fixed expenses:
Advertising ……………………………………………..
700
Sales salaries …………………………………………..
950
Utilities …………………………………………………..
350
Depreciation of sales facilities ……………………..
800
Executive salaries …………………………………….
2,500
Insurance ……………………………………………….
400
Clerical …………………………………………………..
1,000
Depreciation of office equipment …………………
300
Total fixed expenses ……………………………………
7,000
Net operating income ………………………………….
$ 8,000
3. Fixed costs remain constant in total but vary on a per unit basis
inversely with changes in the activity level. As the activity level
increases, for example, the fixed costs will decrease on a per unit basis.
Showing fixed costs on a per unit basis on the income statement might
Solutions Manual, Chapter 2 33
Problem 2-20 (45 minutes)
1. Maintenance cost at the 90,000 machine-hour level of activity can be
isolated as follows:
Level of Activity
60,000 MHs
90,000 MHs
Total factory overhead cost ……..
$174,000
$246,000
Deduct:
Utilities cost @ $0.80 per MH* .
48,000
72,000
Supervisory salaries …………….
21,000
21,000
Maintenance cost ………………….
$105,000
$153,000
2. High-low analysis of maintenance cost:
Machine-
Hours
Maintenance
Cost
High activity level ………………..
90,000
$153,000
Low activity level …………………
60,000
105,000
Change ……………………………..
30,000
$ 48,000
Variable rate:
Change in cost $48,000
= = $1.60 per MH
Change in activity 30,000 MHs
Total fixed cost:
Total maintenance cost at the high activity level ..
$153,000
Less variable cost element
(90,000 MHs × $1.60 per MH) …………………….
144,000
Fixed cost element ……………………………………..
$ 9,000
$1.60 per machine-hour or
34 Managerial Accounting for Managers, 4th edition
Problem 2-20 (continued)
3.
Variable Cost per
Machine-Hour
Fixed Cost
Utilities cost ………………..
$0.80
Supervisory salaries cost ..
$21,000
Maintenance cost …………
1.60
9,000
Total overhead cost ………
$2.40
$30,000
4. Total overhead cost at an activity level of 75,000 machine-hours:
Fixed costs ………………………………………….
$ 30,000
Variable costs: 75,000 MHs × $2.40 per MH
180,000
Total overhead costs ……………………………..
$210,000
Solutions Manual, Chapter 2 35
Problem 2-21 (30 minutes)
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
36 Managerial Accounting for Managers, 4th edition
Problem 2-21 (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, materials handling workers ..
V
X
18.
Yarn used in sweater production ………………
V
X
19.
Wages of receptionist, executive offices …….
F
X
* Could be administrative cost.
Solutions Manual, Chapter 2 37
Problem 2-22 (45 minutes)
1. High-low method:
Number of
Scans
Utilities Cost
High level of activity .
150
$4,000
Low level of activity ..
60
2,200
Change ………………..
90
$1,800
Change in cost $1,800
Variable rate: = =$20 per scan
Change in activity 90 scans
Fixed cost:
Total cost at high level of activity ………..
$4,000
Less variable element:
150 scans × $20 per scan ……………….
3,000
Fixed cost element …………………………..
$1,000
Therefore, the cost formula is: Y = $1,000 + $20X.
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38 Managerial Accounting for Managers, 4th edition
Problem 2-22 (continued)
3. The high-low estimate of fixed costs is $170.90 lower than the estimate
provided by least-squares regression. The high-low estimate of the
variable cost per unit is $1.82 higher than the estimate provided by
least-squares regression. A straight line that minimized the sum of the
squared errors would intersect the Y-axis at $1,170.90 instead of
$1,000. It would also have a flatter slope because the estimated variable
cost per unit is lower than the high-low method.
Problem 2-23 (45 minutes)
1. High-low method:
Units
Sold
Shipping
Expense
High activity level …………..
20,000
$210,000
Low activity level ……………
10,000
119,000
Change ………………………..
10,000
$91,000
Change in cost
Variable cost per unit = Change in activity
$91,000
= = $9.10 per unit
10,000 units
Fixed cost element:
Total shipping expense at high activity
level ……………………………………………..
$210,000
Less variable element:
20,000 units × $9.10 per unit …………….
182,000
Fixed cost element …………………………….
$ 28,000
40 Managerial Accounting for Managers, 4th edition
Problem 2-23 (continued)
2.
Milden Company
Budgeted Contribution Format Income Statement
For the First Quarter, Year 3
Sales (12,000 units × $100 per unit) ………..
$1,200,000
Variable expenses:
Cost of goods sold
(12,000 units × $35 unit) ………………….
$420,000
Sales commission (6% × $1,200,000) …….
72,000
Shipping expense
(12,000 units × $9.10 per unit) …………..
109,200
Total variable expenses ………………………….
601,200
Contribution margin ………………………………
598,800
Fixed expenses:
Advertising expense …………………………...
210,000
Shipping expense ………………………………
28,000
Administrative salaries ………………………..
145,000
Insurance expense ……………………………..
9,000
Depreciation expense ………………………….
76,000
Total fixed expenses ……………………………..
468,000
Net operating income …………………………...
$ 130,800