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Solutions Manual, Chapter 1 31
Exercise 1-15 (20 minutes)
1. Traditional income statement
T
he Alpine House, Inc.
Traditional Income Statement
Sales ……………………………………………………… $150,000
Cost of
g
oods sold
($30,000 + $100,000 – $40,000) ……………….. 90,000
Gross mar
g
in …………………………………………… 60,000
Sellin
g
and administrative expenses:
A
2. Contribution format income statement
T
he Alpine House, Inc.
Contribution Format Income Statement
Sales ……………………………………………………… $150,000
V
ariable expenses:
Cost of
g
oods sold
($30,000 + $100,000 – $40,000) …………….. $90,000
Sellin
g
expenses
A
g
A
g
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32 Managerial Accounting, 16th edition
Exercise 1-15 (continued)
3. Since 200 pairs of skis were sold and the contribution margin totaled
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Solutions Manual, Chapter 1 33
Exercise 1-16 (10 minutes)
1. The differential cost is computed as follows:
2. The sunk cost is the cost of the machine purchased seven years ago for
3. The opportunity cost is the $374,000 that could have been earned by
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34 Managerial Accounting, 16th edition
Exercise 1-17 (15 minutes)
Cost Classifications for:
Cost Item
(1)
Predicting Cost
Behavior
(2)
Preparing
Financial
Statements
1. Hambur
g
er buns at a
Wendy’s restaurant … Variable Product
2.
A
dvertisin
g
by a dental
office ………………….. Fixed Period
3.
A
pples processed and
canned by Del Monte Variable Product
4. Shippin
g
canned
apples from a Del
Monte plant to
customers ……………. Variable Period
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Solutions Manual, Chapter 1 35
Problem 1-18 (10 minutes)
1. The direct costs of the Apparel Department are as follows:
A
pparel Department cost of sales
—
Evendale Store $ 90,000
A
pparel Department sales commission
—
Evendale
A
—
T
2. The direct costs of the Evendale Store are as follows:
A
pparel Department cost of sales
—
Evendale Store $ 90,000
Store mana
g
er’s salary
—
Evendale Store….………… 12,000
A
pparel Department sales commission
—
Evendale
—
A
—
—
T
3. The direct costs in the Apparel Department that are also variable with
respect to departmental sales is computed as follows:
A
—
A
—
T
A
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36 Managerial Accounting, 16th edition
Problem 1-19 (30 minutes)
1. Contribution format income statement
The variable administrative expense shown above ($12,000) is computed
as follows:
Sales (a) …………………………………………. $300,000
Contribution mar
g
in (b) ……………………… $60,000
T
otal variable costs (a)
‒
(b) ……………….. $240,000
T
g
V
g
V
‒
T
odrick Company
Contribution Format Income Statement
Sales ……………………………………………………… $300,000
V
ariable expenses:
Cost of
g
oods sold
($20,000 + $200,000 – $7,000) ………………. $213,000
Sellin
g
expense ……………………………………… 15,000
A
g
g
A
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Solutions Manual, Chapter 1 37
Problem 1-19 (continued)
The fixed selling expense shown above ($30,000) is computed as follows:
Contribution mar
g
in (a) ……………………… $60,000
Net operatin
g
income (b)……………………. $18,000
T
‒
T
‒
2. Traditional income statement
T
odrick Company
Traditional Income Statement
Sales ……………………………………………………… $300,000
Cost of
g
oods sold
($20,000 + $200,000 – $7,000) …………………. 213,000
A
g
6. The contribution format is more useful because it organizes costs based
on their cost behavior. The contribution format enables managers to
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38 Managerial Accounting, 16th edition
Problem 1-20 (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
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Solutions Manual, Chapter 1 39
Problem 1-21 (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
g
oods sold
(40 pianos × $2,450 per piano) ………………… 98,000
Gross mar
g
in ………………………………………….. 27,000
Sellin
g
and administrative expenses:
Sellin
g
expenses:
A
dvertisin
g
………………………………………… $ 700
Sales salaries and commissions
A
T
T
T
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40 Managerial Accounting, 16th edition
Problem 1-21 (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
V
ariable expenses:
Cost of
g
oods 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
T
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
T
A