Exercise 1-13 (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
30,000
Net operating income ………………………………….
2. Contribution format income statement
The Alpine House, Inc.
Contribution Format Income Statement
Sales ……………………………………………………….
$150,000
Variable expenses:
10,000
Contribution margin …………………………………….
Fixed expenses:
20,000
Net operating income ………………………………….
Exercise 1-13 (continued)
2. Since 200 pairs of skis were sold and the contribution margin totaled
Exercise 1-14 (30 minutes)
1.
Guest–
Days
High activity level (July) ……………
12,000
Low activity level (March) …………
Custodial supplies expense at high activity level ….
Less variable cost element:
Total fixed cost …………………………………………….
2. Custodial supplies expense for 11,000 guest-days:
Fixed cost …………………………………………..
Total cost ……………………………………………
Variable cost:
Exercise 1-14 (continued)
3. The scattergraph appears below.
4. The high-low estimate of fixed costs is $526.90 higher than the estimate
provided by least-squares regression. The high-low estimate of the
5. Expected custodial supplies expense for 11,000 guest–days:
Exercise 1-15 (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
X
X
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.
X
X
X
Steering wheels
X
X
Problem 1-16A (45 minutes)
1.
Cost of goods sold ……………….
Variable
Advertising expense …………….
Fixed
Shipping expense ………………..
Mixed
Salaries and commissions ……..
Mixed
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
Change ……………………
1,000
$12,000
20,000
Fixed cost element ……………..
Problem 1-16A (continued)
The cost formulas are:
3.
Morrisey & Brown, Ltd.
Income Statement
For the Month Ended September 30
Sales (5,000 units × $100 per unit) ………..
$500,000
Variable expenses:
Salaries and commissions expense
Contribution margin …………………………….
Fixed expenses:
Net operating income ………………………….
Cost of goods sold
Problem 1-17A (30 minutes)
1. Maintenance cost at the 75,000 direct labor-hour level of activity can be
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* .
Rent …………………………………………
Maintenance cost ………………………….
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
Change ………………………
25,000
Total cost at the high level of activity ………………
$4,125,000
Fixed cost element ……………………………………..
Problem 1-17A (continued)
3. Total factory overhead cost at 70,000 direct labor-hours is:
Indirect materials
(70,000 DLHs × $100 per DLH) …………
$ 7,000,000
1,500,000
Problem 1-18A (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.
X
X
X
The salary of the part-time manager of the
X
X
X
Depreciation on the kitchen equipment used in
X
X
The costs of complying with health safety
X
X
X
The costs of mailing letters soliciting donations
The cost of incidental supplies such as salt,
Problem 1-19A (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:
800
300
Total selling and administrative expenses ……….
19,000
Net operating income ………………………………..
Problem 1-19A (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
10,000
800
Fixed expenses:
300
Total fixed expenses ……………………………………
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.
Problem 1-20A (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
Deduct:
2. High-low analysis of maintenance cost:
Machine-
Hours
Maintenance
Cost
High activity level ………………..
90,000
$153,000
Low activity level …………………
60,000
Total maintenance cost at the high activity level ..
Fixed cost element ……………………………………..
Problem 1-20A (continued)
3.
Variable Cost per
Machine-Hour
Fixed Cost
Utilities cost ………………..
$0.80
Total overhead cost ………
$2.40
4. Total overhead cost at an activity level of 75,000 machine-hours:
Fixed costs ………………………………………….
Variable costs: 75,000 MHs × $2.40 per MH
Total overhead costs ……………………………..
Problem 1-21A (30 minutes)
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.
6.
Wages of workers assembling computers …..
V
9.
Advertising costs …………………………………..
F
V
X
V
Magazine subscriptions, factory lunchroom …
F
X
V
V
Executive life insurance ………………………….
F
Problem 1-21A (continued)
Variable or
Selling
Administrative
Manufacturing
(Product) Cost
Cost Item
Fixed
Cost
Cost
Direct
Indirect
16.
Ink used in textbook production ……………….
V
X
18.
Yarn used in sweater production ………………
V
19.
Wages of receptionist, executive offices …….
Problem 1-22A (45 minutes)
1. High-low method:
Number of
Scans
Utilities Cost
High level of activity .
150
$4,000
Low level of activity ..
Change ………………..
$1,800
Fixed cost:
Total cost at high level of activity ………..
Fixed cost element …………………………..
2. The scattergraph plot appears as follows: