Chapters 1-3 Homework Problems

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Workshop 1 – Chapters 1-3

Exercise 2-2 (15 minutes)
| | Product
Cost| Period
Cost|
1.| The cost of the memory chips used in a radar set| X| | 2.| Factory heating costs| X| |
3.| Factory equipment maintenance costs| X| |
4.| Training costs for new administrative employees| | X| 5.| The cost of the solder that is used in assembling the radar sets| X| | 6.| The travel costs of the company’s salespersons| | X| 7.| Wages and salaries of factory security personnel| X| | 8.| The cost of air-conditioning

executive offices| | X|
9.| Wages and salaries in the department that handles billing customers| | X| 10.| Depreciation on the equipment in the fitness room used by factory workers| X| | 11.| Telephone expenses incurred by factory management| X| | 12.| The costs of shipping completed radar sets to customers| | X| 13.| The wages of the workers who assemble the radar sets| X| | 14.| The president’s salary| | X|

15.| Health insurance premiums for factory personnel| X| |

Exercise 2-3 (15 minutes)
1.| | Cups of Coffee Served
in a Week|
| | 1,800| 1,900| 2,000|
| Fixed cost| $1,100| $1,100| $1,100|
| Variable cost|     468|     494|     520| | Total cost| $1,568| $1,594| $1,620|
| Average cost per cup served*| $0.871| $0.839| $0.810|

* Total cost ÷ cups of coffee served in a week

2.The average cost of a cup of coffee declines as the number of cups of coffee served increases because the fixed cost is spread over more cups of coffee.

Exercise 2-4 (20 minutes)
1.| | Occupancy-Days| Electrical Costs|
| High activity level (August)| 3,608| $8,111|
| Low activity level (October)|   186|  1,712|
| Change| 3,422| $6,399|

Variable cost= Change in cost ÷ Change in activity
= $6,399 ÷ 3,422 occupancy-days
= $1.87 per occupancy-day

| Total cost (August)| $8,111|
| Variable cost element
($1.87 per occupancy-day × 3,608 occupancy-days)|  6,747| | Fixed cost element| $1,364|

2.Electrical costs may reflect seasonal factors other than just the variation in occupancy days. For example, common areas such as the reception area must be lighted for longer periods during the winter. This will result in seasonal effects on the fixed electrical costs.

Additionally, fixed costs will be affected by how many days are in a month. In other words, costs like the costs of lighting common areas are variable with respect to the number of days in the month, but are fixed with respect to how many rooms are occupied during the month.

Other, less systematic, factors may also affect electrical costs such as the frugality of individual guests. Some guests will turn off lights when they leave a room. Others will not.

Exercise 2-11 (20 minutes)
1. Traditional income statement

Haaki Shop, Inc.Traditional Income Statement|
Sales| | $800,000|
Cost of goods sold
($80,000 + $320,000 – $100,000)| | 300,000|
Gross margin| | 500,000|
Selling and administrative expenses:| | |
Selling expenses (($50 per unit × 2,000 surfboards*) + $150,000)| 250,000| | Administrative expenses (($20 per unit × 2,000 units) + $120,000)|  160,000|  410,000| Net operating income| | $ 90,000|

| | |

*$800,000 sales ÷ $400 per surfboard = 2,000 surfboards.

2. Contribution format income statement

Haaki Shop, Inc.Contribution Format Income Statement|
Sales| | $800,000|
Variable expenses:| | |
Cost of goods sold
($80,000 + $320,000 – $100,000)| $300,000| |
Selling expenses
($50 per unit × 2,000 surfboards)| 100,000| |
Administrative expenses
($20 per unit × 2,000 surfboards)|   40,000|  440,000| Contribution margin| | 360,000|
Fixed expenses:| | |
Selling expenses| 150,000| |...
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