2-48. (10 min.) Cost Behavior for Forecasting: Sophia’s Restaurant.
The variable costs will be 10 percent lower because there will be an decrease of 5,000
– 4,500 = 500 meals (10% = 500 ÷ 5,000).
Variable costs:
Ingredients used ($14,000 × 0.9) ……………………………………
$ 12,600
Direct labor ($10,500 × 0.9) …………………………………………..
9,450
Indirect materials and supplies ($5,300 × 0.9) ………………….
4,770
Utilities ($1,700 × 0.9) …………………………………………………..
1,530
Total variable costs ………………………………………………………
$28,350
Fixed costs:
Managers’ salaries ……………………………………………………….
Rent ……………………………………………………….…………..
Depreciation on equipment ……………………………………………
2,000
Other fixed costs ………………………………………………………….
Total fixed costs …………………………………………………………..
Note that the variable cost per unit is $6.30 at both 5,000 units and at 4,500 units.
Total variable cost at 5,000 units is $31,500 (= $14,000 + $10,500 + $5,300+ $1,700).
Unit variable cost = $6.30 per unit = ($31,500 5,000 units) or ($28,350 4,500 units).
2-49. (10 min.) Cost Behavior for Forecasting: Sophia’s Restaurant.
The variable costs will be 15 percent higher because there will be a 15% increase in the
number of meals to 5,750 (= 1.15 × 5,000). This means an additional part-time
manager.
Variable costs:
Ingredients used ($14,000 × 1.15) ………………………………….
$ 16,100
Direct labor ($10,500 × 1.15) …………………………………………
12,075
Indirect materials and supplies ($5,300 × 1.15) ………………..
6,095
Utilities ($1,700 × 1.15) …………………………………………………
1,955
Total variable costs ………………………………………………………
$36,225
Fixed costs:
Managers’ salaries ($22,000 + $6,450)…………………………...
$ 28,450
Rent ……………………………………………………….…………..
18,000
Depreciation on equipment ……………………………………………
2,000
Other fixed costs ($3,000 × 1.10) ……………………………………
3,300
Total fixed costs …………………………………………………………..
51,750
2-50. (30 min.) Components of Full Costs: Madrid Corporation
2-51. (15 min.) Components of Full Costs: Madrid Corporation.
a.
b.
Period costs = Marketing and administrative costs.
Period costs for the period: $108,000 + ($18 x 1,800 units) = $140,400
2-52. (30 min.) Components of Full Cost: Larcker Manufacturing.
a. Variable cost: $21.00 + $24.00 + $12.00 + $5.00 = $62.00
b. Variable manufacturing cost: $21.00 + $24.00 + $12.00 = $57.00
c. Full-absorption cost: $21.00 + $24.00 + $12.00 + ($135,000 ÷ 30,000 units) = $61.50
2-52. (continued)
d. Full cost: $21.00 + $24.00 + $12.00 + ($135,000 ÷ 30,000 units) + $5.00 +
($117,000 ÷ 30,000 units) = $70.40
e. Profit margin = Sales price – full cost = $79.00 – $70.40 = $8.60
2-53. (20 Min.) Gross Margin and Contribution Margin Income Statements:
Larcker Manufacturing.
Gross Margin Income Statement
Contribution Margin Income
Statement
Sales revenue(a) ……
$2,370,000
Sales revenue ………
$2,370,000
Variable manufacturing costs
(b) ………………………..
1,710,000
Variable manufacturing
costs …………………..
1,710,000
Fixed manufacturing
overhead costs ………
135,000
Variable marketing and
administrative costs
150,000
Gross margin …………
$525,000
Contribution margin
$510,000
Fixed marketing and
administrative costs ..
Fixed marketing and
administrative costs
2-54. (20 Min.) Gross Margin and Contribution Margin Income Statements: Niles
Castings.
Gross Margin Income Statement
Contribution Margin Income Statement
Sales revenue
$264,000
Sales revenue
$264,000
Variable manufacturing
costsa
119,000
Variable manufacturing
costs
119,000
Fixed manufacturing
costs
44,000
Variable marketing and
administrative costs
13,600
Gross margin ……………….
$ 101,000
Contribution margin ………….
$131,400
Variable marketing and
administrative costs ………
13,600
Fixed manufacturing costs…
44,000
Fixed marketing and
administrative costs ………
32,000
Fixed marketing and
administrative costs ………….
2-55. (20 Min.) Gross Margin and Contribution Margin Income Statements: Alpine
Coffee Roasters.
Gross Margin Income Statement
Contribution Margin Income Statement
Sales revenuea ………………
$230,400
Sales revenue ……………….
$230,400
Variable manufacturing
costsb …………………………..
126,000
Variable manufacturing
costs …………………………...
126,000
Fixed manufacturing
overhead costsc …………….
45,000
Variable marketing and
administrative costs ……….
10,800
Gross margin …………………
$59,400
Contribution margin ……….
$93,600
Variable marketing and
administrative costsd ………
10,800
Fixed manufacturing
overhead costs ……………..
45,000
2-56. (30 min.) Value Income Statement: Ralph’s Restaurant.
a.
Ralph’s Restaurant
Value Income Statement
For the year 2 ending December 31
Nonvalue-
added
activities
Value-
added
activities
Total
Sales revenue ………………………………….
$1,000,000
$1,000,000
Cost of merchandise …………………………
Cost of food serveda ……………………..
$ 52,500
297,500
350,000
Gross margin …………………………………..
$ (52,500)
$ 702,500
$ 650,000
Operating expenses ………………………….
Employee salaries and wagesb ……….
212,500
250,000
Managers’ salariesc ……………………….
b. The information in the value income statement enables Ralph to identify nonvalue-
added activities. He could eliminate such activities without reducing value to
customers. Ralph can take steps to ensure that food is used prior to the expiration
date, either by changing scheduling or purchasing procedures. He can also spend
time training staff to take orders more carefully. Preparing a Year 3 statement helps
Ralph see whether the company is improving in reducing nonvalue-added activities.
2-57. (30 min.) Value Income Statement: DeLuxe Limo Service.
a.
b. The information in the value income statement enables the managers at DeLuxe to
identify nonvalue-added activities. They could eliminate such activities without
reducing value to customers. They can take steps to improve how directions are
Solutions to Problems
2-58. (30 min.) Cost Concepts: Chelsea, Inc.
a.
Prime costs = direct materials + direct labor
Direct materials
=
beginning inventory + purchases – ending inventory
=
$9,000 + $120,000 – $7,500
=
$121,500
Direct labor is given as $96,000
Prime costs
=
$121,500 + $96,000
=
$217,500
=
$121,500 (from a above) + $96,000 + $126,000
d.
Cost of goods
manufactured
=
Beginning Work In Process + Total manufacturing costs
– Ending Work In Process
=
$4,500 + $343,500 (from c above) – $3,000
=
$345,000
=
(from d above)
2-59. (30 Minutes) Cost Concepts: Lawrence Components.
a. $58,000.
Prime costs
=
Direct materials used + Direct labor costs
Direct materials used
=
Prime costs – Direct labor costs
=
$98,000 – $40,000
=
$58,000
b. $12,000.
Direct materials used
=
Beginning inventory + purchases – ending inventory
Direct materials,
beginning inventory
=
Direct materials used – purchases + ending inventory
$58,000 – $56,000 + $10,000
=
$12,000
Total manufacturing
=
Prime costs + Conversion costs – Direct labor cost
Conversion cost
=
Total manufacturing costs – Prime costs + Direct labor
=
$178,000 – $98,000 + $40,000
d. $4,000.
Work-in-process, ending
=
Work-in-process, beginning + Total manufacturing costs
– Cost of goods manufactured
$6,000 + $178,000 – $180,000
=
$4,000
Conversion cost
=
Direct labor costs + Manufacturing overhead
Manufacturing overhead
=
Conversion costs – Direct labor costs
=
$120,000 – $40,000
=
$80,000
2-59. (continued)
f. $10,000.
Cost of goods sold
=
Finished goods, beginning + Cost of goods
manufactured – Finished goods, ending
Finished goods,
beginning
=
Cost of goods sold – Cost of goods manufactured +
Finished goods, ending
$142,000 – $180,000 + $48,000
=
$10,000
2-60. (30 minutes) Cost Concepts: Columbia Products.
a. Amounts per unit:
(1) $217.
Variable manufacturing
cost
=
Manufacturing overhead + Direct labor + Direct
materials
=
$70 + $35 + $112
=
$217
(2) $362.
Full unit cost
=
All unit fixed costs + All unit variable costs
Unit fixed manufacturing = ($50,400 ÷ 900 units) = $56
Unit fixed marketing and administrative cost = ($67,500 ÷ 900
=
=
(3) $231.
Variable cost
=
All variable unit costs
=
$14 + $70 + $35 + $112
=
$231
(4) $273.
direct materials
=
=
$273
Full absorption cost
=
Fixed and variable manufacturing overhead + Direct labor +
(5) $147.
Prime cost
=
Direct labor + Direct materials
=
$35 + $112
=
$147
2-60. (continued)
(6) $161.
Conversion cost
=
Direct labor + Manufacturing overhead
=
$35 + ($70 + $56)
=
$161
(7) $86.
Profit margin
=
Sales price – Full cost
=
$448 – $362
=
$86
(8) $217.
Contribution margin
=
Sales price – Variable costs
=
$448 – $231
=
$217
(9) $175.
Gross margin
=
Sales price – Full absorption cost
=
$448 – $273
=
$175
b. As the number of units increases (reflected in the denominator), fixed manufacturing
cost per unit (and the total cost per unit) decreases. The numerator (i.e., total fixed
costs) remains the same. However, that does not mean Columbia should produce
more units. That decision should be based on the total profits (revenues minus
costs), not on unit profits.
2-61. (30 min.) Prepare Statements for a Manufacturing Company: Yolo
Windows.
Yolo Windows
Statement of Cost of Goods Sold
For the Year Ended December 31
($000)
Work in process, Jan. 1 ……………………………………
$ 48
Manufacturing costs:
Direct materials:
Beginning inventory, Jan. 1 ………………………..
$ 36
Add material purchases …………………………….
3,280
Direct materials available …………………………..
3,316
Less ending inventory, Dec. 31 …………………..
32
Direct materials used ………………………………..
$ 3,284
Direct labor …………………………………………………
4,240
Manufacturing overhead:
Indirect factory labor …………………………………
1,120
Indirect materials and supplies ……………………
280
Factory supervision …………………………………..
Factory utilities …………………………..…………….
Factory and machine depreciation ………………
4,640
Property taxes on factory …………………………..
Total manufacturing overhead …………………
7,352
Total cost of work in process during the year ………
Less work in process, Dec. 31 ……………………….
Costs of goods manufactured during the year
Beginning finished goods, Jan. 1 ………………………
Finished goods inventory available for sale ………..
2-61. (continued)
Yolo Windows
Income Statement
For the Year Ended December 31
($000)
Sales revenue ………………………………………
$18,160
Less: Cost of goods sold ……………………….
14,936
Gross margin ……………………………………….
$3,224
Administrative costs ………………………………
$1,440
Marketing costs …………………………………….
Total marketing and administrative costs ….
2-62. (30 min.) Prepare Statements for a Manufacturing Company: Mesa
Designs.
Mesa Designs
Statement of Cost of Goods Sold
For the Year Ended December 31
($000)
Work in process, Jan. 1 ……………………………………
$ 152
Manufacturing costs:
Direct materials:
Beginning inventory, Jan. 1 ………………………..
$ 96
Add materials purchases …………………………..
10,300
Direct materials available …………………………..
$10,396
Less ending inventory, Dec. 31 …………………..
110
Direct materials used ………………………………..
$10,286
Direct labor …………………………………………………
13,000
Manufacturing overhead:
Depreciation (factory) ………………………………..
$5,560
Depreciation (machines) …………………………...
9,240
Indirect labor (factory) ……………………………….
3,340
Indirect materials (factory)………………………….
Property taxes on factory …………………………..
Utilities (factory) ……………………………………….
Total manufacturing overhead …………………
Total cost of work in process during the year ………
$43,968
Less work in process, Dec. 31 ……………………….
Costs of goods manufactured during the year
$43,832
Beginning finished goods, Jan. 1 ………………………
Finished goods inventory available for sale ………..
$45,806
2-62. (continued)
Mesa Designs
Income Statement
For the Year Ended December 31
($000)
Sales revenue ………………………………………
$60,220
Less: Cost of goods sold ……………………….
43,780
Gross margin ……………………………………….
$ 16,440
Administrative costs ………………………………
$4,200
Selling cost ………………………………………….
Total marketing and administrative costs ….
2-63. (30 min.) Prepare Statements for a Manufacturing Company: Billings Tool
& Die.
.
Billings Tool & Die
Statement of Cost of Goods Sold
For the Year Ended December 31
($ 000)
Beginning work in process, Jan. 1…………………………
$ 192
Manufacturing costs:
Direct materials:
Beginning inventory, Jan. 1 …………………………...
$ 72
Add: Purchases ……………………………………………
21,900
Direct materials available …………………………..
21,972
Less ending inventory, Dec. 31 ………………………
84
Direct materials used …………………………………
$21,888
Direct labor …………………………………………………….
5,040
Manufacturing overhead:
Indirect factory labor …………………………………….
Factory supervision ………………………………………
2,940
Indirect materials and supplies ……………………….
4,110
Building utilities (90% of total) ………………………..
Building & machine depreciation (75% of $5,400)
4,050
Property taxes—factory (80% of total) …………….
4,032
Total manufacturing overhead …………………….
27,354
Total manufacturing costs ……………………….
54,282
Total cost of work in process during the year ………….
54,474
Less work in process, Dec. 31 …………………………..
174
Costs of goods manufactured during the year …..
54,300
Beginning finished goods, Jan. 1 ………………………….
Finished goods available for sale ………………………….
Less ending finished goods, Dec. 31 …………………….