Exercise 2-1 (10 minutes)
The wages of employees who build the sailboats: direct labor cost.
The cost of advertising in the local newspapers: marketing and selling cost.
The cost of an aluminum mast installed in a sailboat: direct materials cost.
The wages of the assembly shop’s supervisor: manufacturing overhead cost.
Rent on the boathouse: a combination of manufacturing overhead, administrative, and marketing and selling cost. The rent would most likely be prorated on the basis of the amount of space occupied by manufacturing, administrative, and marketing operations.
The wages of the company’s bookkeeper: administrative cost.
Sales commissions paid to the company’s salespeople: marketing and selling cost.
Depreciation on power tools: manufacturing overhead cost.
Exercise 2-2 (15 minutes)
The cost of the memory chips used in a radar set
Factory heating costs
Factory equipment maintenance costs
Training costs for new administrative employees
The cost of the solder that is used in assembling the radar sets
The travel costs of the company’s salespersons
Wages and salaries of factory security personnel
The cost of air-conditioning
Wages and salaries in the department that handles billing customers
Depreciation on the equipment in the fitness room used by factory workers
Telephone expenses incurred by factory management
The costs of shipping completed radar sets to customers
The wages of the workers who assemble the radar sets
The president’s salary
Health insurance premiums for factory personnel
Exercise 2-3 (15 minutes)
Cups of Coffee Served
in a Week
Average cost per cup served*
* Total cost ÷ cups of coffee served in a week
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)
High activity level (August)
Low activity level (October)
= Change in cost ÷ Change in activity
= $6,399 ÷ 3,422 occupancy-days
= $1.87 per occupancy-day
Total cost (August)
Variable cost element
($1.87 per occupancy-day × 3,608 occupancy-days)
Fixed cost element
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 2-5 (15 minutes)
1. Traditional income statement
Traditional Income Statement
Sales ($15 per unit × 10,000 units)
Cost of goods sold
($12,000 + $90,000 – $22,000)
Selling and administrative expenses:
(($2 per unit × 10,000 units) + $20,000)
(($1 per unit × 10,000 units) + $15,000)
Net operating income
2. Contribution format...
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