Exercise 2-1

Direct Material Direct Labor Manufacturing OH Selling

1
2
3
4
5
6
7
8

Exercise 2-2

Product Period
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
We will do 2-1 and 2-2 together in class!
Administrative
Exercise 2-4
X Y
Month Occupancy-Days Electrical Costs
January 2,604 $ 6,257
February 2,856 6,550
March 3,534 7,986
April 1,440 4,022
May 540 2,289
June 1,116 3,591
July 3,162 7,264
August 3,608 8,111 High
September 1,260 3,707
October 186 1,712 Low
November 1,080 3,321
December 2,046 5,196

High Cost - Low Cost

High Volume - Low Volume

b=

a=
Exercise 2-5

Units sold 10,000

Selling price per unit $ 15
Variable selling expense per unit $ 2
Variable administrative expense / unit $ 1
Total fixed selling expense $ 20,000
Total fixed administrative expense $ 15,000
Beginning merchandise inventory $ 12,000
Ending merchandise inventory $ 22,000
Merchandise purchases $ 90,000

Traditional Income Statement

Sales
Cost of Goods Sold (BI + P - EI)
Gross Profit
Selling expense
Administrative expense
Net operating income

Contribution Income Statement

Sales
Cost of goods sold
Variable selling
Variable administrative
Contribution margin
Fixed selling
Fixed administrative
Net operating income
Exercise 2-6
Cost
Salary of head chef
Salary of head chef
Room cleaning supplies
Flowers for the reception desk
Wages of the doorman
Room cleaning supplies
Fire insurance on hotel building
Towels used in the gym
Cost Object Direct Indirect
Hotel's restaurant
A particular restaurant customer
A particular hotel guest
A particular hotel guest
A particular hotel guest
The housecleaning department
The hotel's gym
The hotel's gym
Exercise 2-7

Cost Differential Opportunity Sunk

New flat-panel displays
Old computer terminals
Rent of space for registration desk
Wages of registration desk personnel
Benefits from a new freezer
Maintaining the old computer terminals
Removing the old computer terminals
Existing registration desk wiring
Exercise 2-8
Units Produced and Sold
60,000 80,000 100,000
Total Costs:
Variable costs 150,000
Fixed costs 360,000
Total Costs 510,000

Cost per unit:

VC/unit
FC/unit
Total cost/unit

Units 90,000
Selling price 7.50 per unit

Contribution Income Statement

Sales
Variable costs
Contribution margin
Fixed costs
Net operating income
Exercise 2-1
Exercise 2-9
Variable Fixed DM DL MOH Period
Lost rent on building
Direct materials
Production supervisor
Direct laborers
Warehouse rental
Equipment rental
Depreciation expense
Advertising
Shipping of units
Electricity for manufacturing
Lost investment income
Opportunity Sunk
Exercise 2-13
X Y
Month X-rays Taken X-ray Costs
January 6,250 $ 28,000
February 7,000 29,000
March 5,000 23,000
April 4,250 20,000
May 4,500 22,000
June 3,000 17,000
July 3,750 18,000
August 5,500 24,000
September 5,750 26,000

High Cost - Low Cost

High Volume - Low Volume

b=

a=

3. Not required

5
Problem 2-14

Units sold 60
Selling price per unit $ 2,500
Cost of goods sold per unit $ 1,500
Selling expenses:
Advertising expense $ 950 per month
Delivery of organs $ 60 per organ
Sales salaries $ 4,800 per month
Sales commissions $ 100 4% of sales
Utilities $ 650 per month
Depreciation of sales facilities $ 5,000 per month
Administrative expenses:
Executive salaries $ 13,500 per month
Depreciation of office equipment $ 900 per month
Clerical fixed costs $ 2,500 per month
Clerical variable costs $ 40 per organ
Insurance $ 700 per month

Traditional Income Statement

Sales
Cost of Goods Sold
Gross Profit
Selling expenses:
Advertising
Delivery
Sales salaries and commissions
Utilities
Depreciation
Total selling expense
Administrative expenses
Executive salaries
Depreciation
Clerical
Insurance
Total administrative expenses
Total selling and administrative expenses
Net operating income

Contribution Income Statement

Sales
Variable Costs:
Cost of Goods Sold
 Delivery Expense
Sales commissions
Clerical
Total variable costs
Contribution margin
Fixed Costs:
Advertising
Sales salaries
Utilities
Depreciation
Executive salaries
Clerical
Insurance
Total fixed costs
Net operating income
Problem 2-15

1a
1b
1c
1d
1e
1f
1g
1h
1i

2.

Graph # 4 is wrong in the text, it should be a fixed cost and then at the end it should
right angle down to the horizontal axis where cost would be zero.
Exercise 2A-1

Month Rental Returns (x) Car Wash Costs (y)

January 2,310 10,113
February 2,453 12,691
March 2,641 10,905
April 2,874 12,949
May 3,540 15,334
June 4,861 21,455
July 5,432 21,270
August 5,268 19,930
September 4,628 21,860
October 3,720 18,383
November 2,106 9,830
December 2,495 11,081

b (slope)

a (intercept)

RSQ
Exercise 2B-2

Quality Costs Prevention Appraisal

a. Repairs of good still under warranty
b. Customer returns due to defects
c. Statistical process control
d. Disposal of spoiled goods
e. Maintaining testing equipment
f. Inspecting finished goods
g. Downtime caused by quality problems
h. Debugging errors in software
i. Recalls of defective products
j. Training quality engineers
k. Re-entering data due to typing errors
l. Inspecting materials received from suppliers
m. Audits of the quality system
n. Supervision of testing personnel
o. Rework labor

2
Internal Failure External Failure