Chapter 1 Accounting 220 PDF

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Chapter 1 Problem Session Coursework Practice...

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Chapter 1 Problem Session HW Assignments: Discussion Questions: 1. Explain the Difference Between a product cost and a period cost. Product costs are those directly related to the production of a product or service intended for sale. Period costs are all other indirect costs that are incurred in production. 2. Distinguish between a variable cost, a fixed cost and a mixed cost. Variable cost varies, in total, in direct proportion to changes in the level of activity. Fixed cost remains constant regardless of change in the level of activity. Mixed costs contains both elements. 3. What effect does an increase in activity in the activity level have on: a. Unit fixed costs decreases b. Total fixed costs remains the same c. Total variable costs increases 4. What is meant by an activity based when dealing with variable costs? Give several examples of activity bases. An activity base is a measure of whatever causes the incurrence of a variable cost. Some examples are direct labor-hours, machine-hours, and units produced and sold. 5. What is the difference between a traditional format income statement and a contribution margin income statement? Traditional income statement works by separating product costs from period costs. Contribution margin income statement separates variable costs from fixed costs. 6. What is the contribution margin? Selling price per unit minus the variable cost per unit.

Problems: 1. Todrick Company is a merchandiser that reported the following information based on 1,000 units sold: Sales $300,000 Beginning merchandise inventory$ 20,000 Purchases $200,000 Ending merchandise inventory $ 7,000 Fixed selling expense $ ? Fixed administrative expense $ 12,000 Variable selling expense $ 15,000 Variable administrative expense $ ? Contribution margin $ 60,000 Net operating income $ 18,000

Required: 1. Prepare a contribution format income statement. 60000 2. Prepare a traditional format income statement. 18000 3. Calculate the selling price per unit. 300000/1000= 300 4. Calculate the variable cost per unit. 240000/1000=240 5. Calculate the contribution margin per unit. 60000/1000=60

6. Which income statement format (traditional format or contribution format) would be more useful to managers in estimating how net operating income will change in responses to changes in unit sales? Contribution format income statement because I can easily analyze the effect of each unit in the cost structure and net income. 2. Company produced and sold 1,000 units during its first month of operations. It reported the following costs and expenses for the month: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Total manufacturing overhead Variable selling expense Fixed selling expense Total selling expense Variable administrative expense Fixed administrative expense Total administrative expense

$

15,000 28,000

$

12,000 18,000

$

4,000 25,000

$ $

69,000 35,000

$

43,000

$

30,000

$

29,000

Required: 1. With respect to cost classifications for preparing financial statements: a. What is the total product cost? 69000 +35000 +43000 = 147000 b. What is the total period cost? 30000 + 29000 = 59000 2. With respect to cost classifications for assigning costs to cost objects: a. What is total direct manufacturing cost? 15000 b. What is the total indirect manufacturing cost? 28000 3. With respect to cost classifications for manufacturers: a. What is the total manufacturing cost? 35000 +69000 +43000 = 147000 b. What is the total nonmanufacturing cost? 30000 +29000 = 59000 c. What is the total conversion cost and prime cost? 206,000* 4. With respect to cost classifications for predicting cost behavior: a. What is the total variable manufacturing cost? 69000 +35000 +15000 +12000 +4000 =135000 b. What is the total fixed cost for the company as a whole? 28000 + 180070 + 25000 =71000 c. What is the variable cost per unit produced and sold? 135000/1000= 135 5. With respect to cost classifications for decision making: a. If Dozier had produced 1,001 units instead of 1,000 units, how much incremental manufacturing cost would it have incurred to make the additional unit? The cost of making one more unit is $135

Chapter 6A Hoi Chong Transport, Limited, operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 138,000 kilometers during a year, the average operating cost is 14.8 cents per kilometer. If a truck is driven only 92,000 kilometers during a year, the average operating cost increases to 18.6 cents per kilometer.

Required: 1. Using the high-low method, estimate the variable operating cost per kilometer and the annual fixed operating cost associated with the fleet of trucks. Variable Cost: .072 Fixed Cost: 10488 Total Cost: 17112 2. Express the variable and fixed costs in the form Y = a + bX. Y= 10488 + .072X 3. If a truck were driven 115,000 kilometers during a year, what total operating cost would you expect to be incurred? $18768...