Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
2-19
PROBLEM 2-45 (40 MINUTES)
Case A
Case B
Case C
Sales ................................................................................
$1,600,000*
$1,500,000*
$240,000
Beginning inventory, raw material ................................
120,000*
60,000
7,500
Chapter 02 - Basic Cost Management Concepts
2-20
PROBLEM 2-46 (25 MINUTES)
1. Fixed manufacturing overhead per unit:
Average unit manufacturing cost:
Direct material………………………..
$ 40
2. Net income:
Sales revenue (20,000 units x $370)…………
$7,400,000
Chapter 02 - Basic Cost Management Concepts
2-21
PROBLEM 2-47 (25 MINUTES)
Since Fresno Furniture’s gross margin equals 30% of sales, cost of goods sold equals 70%
of sales, or $346,500 ($495,000 x 70%). Thus, the finished goods destroyed by the fire cost
$66,000, computed as follows:
Direct material used:
Direct material averages 25% of prime costs (i.e., direct material + direct labor).
Manufacturing overhead:
Manufacturing overhead equals 50% of total production costs.
The work in process destroyed by the fire cost $154,500, computed as follows:
Direct material………………………………….………
$ 60,000
PROBLEM 2-48 (25 MINUTES)
1. Graph of fixed production cost:
2.
Production Level in
Liters
Unit
Fixed Cost
Total Fixed
Cost
Fixed production cost
2-23
PROBLEM 2-48 (CONTINUED)
3. Graph of unit fixed production cost:
Unit fixed
production cost
$5.00
$2.50
•
•
•
Chapter 02 - Basic Cost Management Concepts
2-24
PROBLEM 2-49 (15 MINUTES)
1. Graph of raw-material cost:
2.
Production Level in Kilograms
Unit Cost
Total Cost
Raw material cost
$2,400,000
$3,200,000
•
Chapter 02 - Basic Cost Management Concepts
PROBLEM 2-50 (20 MINUTES)
2-26
PROBLEM 2-51 (40 MINUTES)
1. Caterpillar is a manufacturing firm. Its income statement highlights the firm's cost-of-
goods-sold expense, which is the cost of all of the heavy equipment sold during the
2. Cost-accounting data are used to measure all of the costs on all three companies'
income statements. For example, the cost-accounting system at Caterpillar
4. Wal-Mart Stores' cost of newspaper advertising would be included in selling
5. The salary for a Caterpillar brand manager would be included in selling expenses.
Chapter 02 - Basic Cost Management Concepts
2-27
PROBLEM 2-52 (25 MINUTES)
2-28
PROBLEM 2-53 (15 MINUTES)
Variable or
Fixed
20x5
Forecast
Explanation
Direct material ...............................................
V
$5,850,000
$4,500,000 1.30
PROBLEM 2-54 (20 MINUTES)
Chapter 02 - Basic Cost Management Concepts
2-29
PROBLEM 2-54 (CONTINUED)
PROBLEM 2-55 (10 MINUTES)
PROBLEM 2-56 (15 MINUTES)
2-30
PROBLEM 2-57 (15 MINUTES)
1. If the company buys 40,000 units of Part JR63, at a price of $X per unit, its total cost
will be:
2. If the firm buys Y units of Part JR63 at a unit price of $14, the total cost will be:
2-31
PROBLEM 2-58 (25 MINUTES)
1.
Output
(.75 liter bottles)
Calculation
Unit Cost
2.
Output
(.75 liter bottles)
Sales
Revenue
Total
Costs
Profit
Chapter 02 - Basic Cost Management Concepts
2-32
SOLUTIONS TO CASES
CASE 2-59 (50 MINUTES)
1. a. The previous purchase price of the endor on hand, $10.00 per gallon, and the
average cost of the endor inventory, $9.50 per gallon, are sunk costs. These
b. The $40,000 paid by Alderon for its stock of tatooine is a sunk cost. It was
incurred in the past and is irrelevant to any future decision. The current market
2-33
CASE 2-59 (CONTINUED)
2.
a.
CopyFast Company would be indifferent to acquiring either the small-volume
copier, 1500S, or the medium-volume copier, 1500M, at the point where the costs
for 1500S and 1500M are equal. This point may be calculated using the following
formula, where X equals the number of copies:
b.
A decision rule for selecting the most profitable copier, when the volume can be
estimated, would establish the points where management is indifferent to each
machine. The volume where the costs are equal between alternatives can be
calculated using the following formula, where X equals the number of copies:
2-34
CASE 2-59 (CONTINUED)
The decision rule is to select the alternative as shown in the following chart.
Anticipated Annual Volume
Optimal Model Choice
3. The projected donations from the wildlife show amount to $200,000 (10 percent of
the TV audience at $20,000 per 1 percent of the viewership). The projected donations
Chapter 02 - Basic Cost Management Concepts
2-35
CASE 2-60 (30 MINUTES)
1.
MEMORANDUM
Date: Today
To: James Cassanitti
From: I. M. Student
Subject: Costs related to Printer Case Department
The $30,100 building rental cost allocated to the Printer Case Department is part of
larger rental costs for the entire building. Even if the Printer Case Department is
Chapter 02 - Basic Cost Management Concepts
2-36
CASE 2-60 (CONTINUED)
2.
The controller has an ethical obligation to state accurately the projected cost savings
from closing the Printer Case Department. The production manager and other
decision makers have a right to know the financial implications of closing the
department. Several of the ethical standards for management accountants (listed in
Chapter 1) apply, including the following:
Competence:
Credibility:
FOCUS ON ETHICS (See page 57 in the text.)
Was WorldCom’s controller just following orders?
The WorldCom controller allegedly did not perform his professional duties in
accordance with relevant laws, regulations, and ethical standards for practitioners of
