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The Foundational 15 [LO1-1, LO1-2, LO1-3, LO1-4, LO1-5, LO1-6] [The following information applies to the questions displayed below.] Martinez Company’s relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows:

Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Fixed selling expense Fixed administrative expense Sales commissions Variable administrative expense

Average Cost Per Unit $ 5.10 $ 2.60 $

1.60

$

4.00

$ $ $

2.10 2.10 1.10

$

0.55

Foundational 1-1 Required: 1. For financial accounting purposes, what is the total amount of product costs incurred to make 10,000 units? (Do not round intermediate calculations.) Total product cost

$133,000selected answer correct

Garrison 16e Rechecks 2017-06-22 Explanation 1.

Direct materials Direct labor Variable manufacturing overhead Variable manufacturing cost per unit

$

$

5.10 2.60 1.60 9.30

Variable manufacturing cost per unit (a)

$

9.30 10,00 0

$

4.00 10,00 0

Number of units produced (b) Total variable manufacturing cost (a) × (b) Average fixed manufacturing overhead per unit (c) Number of units produced (d)

$ 93,000

Total fixed manufacturing cost (c) × (d) Total product (manufacturing) cost

40,000 133,00 $ 0

2. For financial accounting purposes, what is the total amount of period costs incurred to sell 10,000 units? (Do not round intermediate calculations.)

Total period cost

$58,500selected answer correct

Garrison 16e Rechecks 2017-06-22 Explanation 2.

Sales commissions Variable administrative expense Variable selling and administrative per unit

$ 1.10 0.55 $ 1.65

Variable selling and admin. per unit (a)

$ 1.65 10,00 0

Number of units sold (b) Total variable selling and admin. expense (a) × (b) Average fixed selling and administrative expense per unit ($2.10 fixed selling + $2.10 fixed admin.) (c) Number of units sold (d) Total fixed selling and administrative expense (c) × (d) Total period (nonmanufacturing) cost

$ 4.20 10,00 0

3. If 8,000 units are produced and sold, what is the variable cost per unit produced and sold? (Round your answer to 2 decimal places.) Variable cost per unit sold

$10.95selected answer correct

Explanation 3.

Direct materials Direct labor Variable manufacturing overhead Sales commissions Variable administrative expense Variable cost per unit sold

$ 5.10 2.60 1.60 1.10 0.55 10.9 $ 5

4. If 12,500 units are produced and sold, what is the variable cost per unit produced and sold? (Round your answer to 2 decimal places.) Variable cost per unit sold

$10.95selected answer correct

Explanation 4.

Direct materials Direct labor Variable manufacturing overhead Sales commissions Variable administrative expense Variable cost per unit sold

$ 5.10 2.60 1.60 1.10 0.55 10.9 $ 5

5. If 8,000 units are produced and sold, what is the total amount of variable costs related to the units produced and sold? (Do not round intermediate calculations.)

Total variable cost

$87,600selected answer correct

Garrison 16e Rechecks 2017-06-22 Explanation 5.

Direct materials Direct labor Variable manufacturing overhead Sales commissions Variable administrative expense Variable cost per unit sold

Variable cost per unit sold (a) Number of units sold (b) Total variable costs (a) × (b)

$ 5.10 2.60 1.60 1.10 0.55 10.9 $ 5

$ 10.95 8,000 87,60 $ 0

6. If 12,500 units are produced and sold, what is the total amount of variable costs related to the units produced and sold? (Do not round intermediate calculations.)

Total $136,875selected variable answer correct cost Garrison 16e Rechecks 2017-06-22 Explanation 6.

Direct materials Direct labor Variable manufacturing overhead Sales commissions Variable administrative expense

$ 5.10 2.60 1.60 1.10 0.55

Variable cost per unit sold

$

Variable cost per unit sold (a) Number of units sold (b) Total variable costs (a) × (b)

10.9 5

$ 10.95 12,500 136,87 $ 5

7. If 8,000 units are produced, what is the average fixed manufacturing cost per unit produced?

Average fixed manufacturing $5.00selected answer cost per unit correct Explanation 7.

Average fixed manufacturing overhead per unit (a) Number of units used to calculate fixed cost per unit (b) Total fixed manufacturing cost (a) × (b)

Total fixed manufacturing cost (a) Number of units produced (b) Average fixed manufacturing cost per unit produced (a) ÷ (b)

$ 4.00 10,00 0 40,00 $ 0

40,00 0 8,000 $ 5.00 $

8. If 12,500 units are produced, what is the average fixed manufacturing cost per unit produced? (Round your answer to 2 decimal places.)

Average fixed manufacturing cost per unit

$3.20selected answer correct

Explanation 8.

Average fixed manufacturing overhead per unit (a) Number of units used to calculate fixed cost per unit (b) Total fixed manufacturing cost (a) × (b)

Total fixed manufacturing cost (a) Number of units produced (b) Average fixed manufacturing cost per unit produced (a) ÷ (b)

$ 4.00 10,00 0 40,00 $ 0

40,00 0 12,50 0 $ 3.20 $

9. If 8,000 units are produced, what is the total amount of fixed manufacturing cost incurred to support this level of production?

Total fixed manufacturing cost Explanation

$40,000selected answer correct

9.

Average fixed manufacturing overhead per unit (a) Number of units used to calculate fixed cost per unit (b) Total fixed manufacturing cost (a) × (b)

$ 4.00 10,00 0 40,00 $ 0

10. If 12,500 units are produced, what is the total amount of fixed manufacturing cost incurred to support this level of production?

Total fixed manufacturing cost Explanation

$40,000selected answer correct

10.

Average fixed manufacturing overhead per unit (a) Number of units used to calculate fixed cost per unit (b) Total fixed manufacturing cost (a) × (b)

$ 4.00 10,00 0 40,00 $ 0

11. If 8,000 units are produced, what is the total amount of manufacturing overhead cost incurred to support this level of production? What is this total amount expressed on a per unit basis? (Round your "per unit" answer to 2 decimal places and other answers to the nearest whole dollar amount.)

Total manufacturing overhead cost Manufacturing overhead per unit Explanation

$52,800selected answer correct $6.60selected answer correct

11.

Average fixed manufacturing overhead per unit (a) Number of units used to calculate fixed cost per unit (b) Total fixed manufacturing cost (a) × (b)

$ 4.00 10,00 0 40,00 $ 0

Variable overhead per unit (a)

$ 1.60 8,00 0

Number of units produced (b)

12,80 0 40,00 0 52,80 $ 0

Total variable overhead cost (a) × (b)

$

Total fixed overhead Total manufacturing overhead cost

Total manufacturing overhead cost (a) Number of units produced (b) Manufacturing overhead per unit (a) ÷ (b)

52,80 0 8,000 $ 6.60

$

12. If 12,500 units are produced, what is the total amount of manufacturing overhead cost incurred to support this level of production? What is this total amount expressed on a per unit basis? (Round your "per unit" answer to 2 decimal places and other answers to the nearest whole dollar amount.)

Total manufacturing overhead cost Manufacturing overhead per unit Explanation

$60,000selected answer correct $4.80selected answer correct

12.

Fixed manufacturing overhead per unit (a) Number of units used to calculate fixed cost per unit (b) Total fixed manufacturing cost (a) × (b)

$ 4.00 10,00 0 40,00 $ 0

Variable overhead per unit (a)

$ 1.60 12,50 0

Number of units produced (b)

20,00 0 40,00 0 60,00 $ 0

Total variable overhead cost (a) × (b)

$

Total fixed overhead Total manufacturing overhead cost

Total manufacturing overhead cost (a)

60,00 0 12,50 0 $ 4.80 $

Number of units produced (b) Manufacturing overhead per unit (a) ÷ (b)

13. If the selling price is $21.10 per unit, what is the contribution margin per unit? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Contribution margin per unit Explanation

$10.15selected answer correct

13.

Direct materials Direct labor Variable manufacturing overhead Sales commissions Variable administrative expense Variable cost per unit sold

$ 5.10 2.60 1.60 1.10 0.55 10.9 $ 5

Selling price per unit

21.1 0 10.9 5 10.1 $ 5 $

Variable cost per unit sold Contribution margin per unit

14. If 12,000 units are produced, what are the total amounts of direct and indirect manufacturing costs incurred to support this level of production? (Do not round intermediate calculations.)

Total direct manufacturing cost Total indirect manufacturing cost Explanation

$92,400selected answer correct $59,200selected answer correct

14.

Direct materials per unit Direct labor per unit Direct manufacturing cost per unit (a) Number of units produced (b) Total direct manufacturing cost (a) × (b)

Average fixed manufacturing overhead per unit (a)

$ 5.10 2.60 $ 7.70 12,00 0 92,40 $ 0

$ 4.00

Number of units used to calculate fixed cost per unit (b) Total fixed manufacturing cost (a) × (b)

Variable overhead per unit (a) Number of units produced (b) Total variable overhead cost (a) × (b) Total fixed overhead Total indirect manufacturing cost

10,00 0 40,00 $ 0

$ 1.60 12,00 0 19,20 0 40,00 0 59,20 $ 0 $

15. What incremental manufacturing cost will Martinez incur if it increases production from 10,000 to 10,001 units? (Round your answer to 2 decimal places.)

Incremental cost per unit produced Explanation

$9.30selected answer correct

15.

Direct materials per unit Direct labor per unit Variable manufacturing overhead per unit Incremental cost per unit produced

5.1 0 2.6 0 1.6 0 9.3 $ 0 $

Wollogong Group Ltd. of New South Wales, Australia, acquired its factory building 10 years ago. For several years, the company has rented out a small annex attached to the rear of the building for $30,000 per year. The renter’s lease will expire soon, and rather

than renewing the lease, the company has decided to use the annex to manufacture a new product. Direct materials cost for the new product will total $80 per unit. To have a place to store its finished goods, the company will rent a small warehouse for $500 per month. In addition, the company must rent equipment for $4,000 per month to produce the new product. Direct laborers will be hired and paid $60 per unit to manufacture the new product. As in prior years, the space in the annex will continue to be depreciated at $8,000 per year. The annual advertising cost for the new product will be $50,000. A supervisor will be hired and paid $3,500 per month to oversee production. Electricity for operating machines will be $1.20 per unit. The cost of shipping the new product to customers will be $9 per unit. To provide funds to purchase materials, meet payrolls, and so forth, the company will have to liquidate some temporary investments. These investments are presently yielding a return of $3,000 per year. Required: Using the table shown below, describe each of the costs associated with the new product decision in four ways. In terms of cost classifications for predicting cost behavior (column 2), indicate whether the cost is fixed or variable. With respect to cost classifications for manufacturers (column 3), if the item is a manufacturing cost, indicate whether it is direct materials, direct labor, or manufacturing overhead. If it is a nonmanufacturing cost, then select “none” as your answer. With respect to cost classifications for preparing financial statements (column 4), indicate whether the item is a product cost or period cost. Finally, in terms of cost classifications for decision making (column 5), identify any items that are sunk costs or opportunity costs. If you identify an item as an opportunity cost, then select “none” as your answer in columns 2-4. Cost Classifications for: Name of the Cost

Predicting Cost Behavior

Manufacturers

Preparing Financial Statements

Decision Making

Rental revenue forgone, $30,000 per year

Noneselected answer correct

Noneselected answer correct

Noneselected answer correct

Opportunity costselected answer correct

Direct materials cost, $80 per unit

Variableselected answer correct

Direct materialsselected answer correct

Productselected answer correct

not attempted

Fixedselected answer correct

Noneselected answer correct

Periodselected answer correct

not attempted

Productselected answer correct

not attempted

Productselected answer correct

not attempted

Rental cost of warehouse, $500 per month Rental cost of equipment, $4,000 per month Direct labor cost, $60 per unit

Fixedselected answer correct Variableselected answer correct

Manufacturing overheadselected answer correct Direct laborselected answer correct

Depreciation of the annex space, $8,000 per year Advertising cost, $50,000 per year

Variableselected answer correct

Manufacturing overheadselected answer correct Noneselected answer correct Manufacturing overheadselected answer correct Manufacturing overheadselected answer correct Noneselected answer correct

Noneselected answer correct

Noneselected answer correct

Fixedselected answer correct Fixedselected answer correct

Supervisor's salary, Fixedselected $3,500 per month answer correct Electricity for machines, $1.20 per unit Shipping cost, $9 per unit Return earned on investments, $3,000 per year

Variableselected answer correct

Productselected answer correct

Sunk costselected answer correct

Periodselected answer correct

not attempted

Productselected answer correct

not attempted

Productselected answer correct

not attempted

Periodselected answer correct

not attempted

Noneselected answer correct

Opportunity costselected answer correct

Marwick’s Pianos, Inc., purchases pianos from a large manufacturer for an average cost of $1,507 per unit and then sells them to retail customers for an average price of $3,500 each. The company’s selling and administrative costs for a typical month are presented below: Costs Selling: Advertising Sales salaries and commissions Delivery of pianos to customers Utilities Depreciation of sales facilities Administrative: Executive salaries Insurance Clerical Depreciation of office equipment

Cost Formula $933 per month $4,788 per month, plus 4% of sales $62 per piano sold $656 per month $5,098 per month $13,584 per month $688 per month 2,515 per month, plus $41 per $ piano sold $927 per month

During August, Marwick’s Pianos, Inc., sold and delivered 65 pianos. Required: 1. Prepare a traditional format income statement for August. 2. Prepare a contribution format income statement for August. Show costs and revenues on both a total and a per unit basis down through contribution margin. Prepare a traditional format income statement for August. (A "Net operating loss" should be entered as a negative number.)

Marwick's Pianos, Inc. Traditional Income Statement For the Month of August $227,500selected answer correct 97,955selected answer correct 129,545selected answer correct

Salesselected answer correct Cost of goods soldselected answer correct Gross marginselected answer correct Selling and administrative expenses: Selling expenses:

not attempted

$933selected answer correct 13,888selected answer correct 656selected answer correct 5,098selected answer correct 4,030selected answer correct not attempted

not attempted

not attempted

Advertisingselected answer correct Sales salaries and commissionsselected answer correct Utilitiesselected answer correct Depreciation of sales facilitiesselected answer correct Delivery of pianosselected answer correct

Total selling expenses

24,605

Administrative expenses: Executive salariesselected answer correct Insuranceselected answer correct Clericalselected answer correct Depreciation of office equipmentselected answer correct not attempted not attempted

13,584selected answer correct 688selected answer correct 5,180selected answer correct 927selected answer correct not attempted not attempted

Total administrative expenses

20,379

Total selling and administrative expenses

44,984

$84,561selected answer Net operating incomeselected answer correct correct Prepare a contribution format income statement for August. Show costs and revenues on both a total and a per unit basis down through contribution margin.

ck's Pianos, Inc. Contribution Format Income Statement For the Month of August

Salesselected answer correct

Total $227,500selected answer correct

Variable expenses: Clericalselected answer 2,665selected correct answer correct Sales salaries and 9,100selected commissionsselected answer answer correct correct Delivery of pianosselected 4,030selected answer correct answer correct Cost of goods soldselected 97,955selected answer correct answer correct not attempted not attempted not attempted not attempted Total variable expenses Contribution margin

113,750 $113,750selected answer correct

Fixed expenses: Advertisingselected answer 933selected answer correct correct Depreciation of sales 5,098selected facilitiesselected answer answer correct correct Utilitiesselected answer 656selected answer correct correct Executive salariesselected 13,584selected answer correct answer correct Insuranceselected answer 688selected answer correct correct Depreciation of office 927selected answer equipmentselected answer correct correct Clericalselected answer 2,515selected correct answer correct Sales salaries and 4,788selected commissionsselected answer answer correct correct not attempted not attempted not attempted not attempted Total fixed expenses Net operating incomeselected answer correct

29,189 $84,561selected answer correct

Per Piano $3,500selected answer correct 41selected answer correct 140selected answer correct 62selected answer correct 1,507selected answer correct not attempted not attempted 1,750 $1,750selected answer correct

Explanation

1. Sales: (65 pianos × ...