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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.
© The McGraw-Hill Companies, Inc., 2017. All rights reserved.
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
