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Sign in. Welcome, Login to your account. Forget password? Add: Purchases Goods available for sale Deduct: Ending merchandise inventory Gross margin Selling and administrative expenses: Selling expense Administrative expense Operating income Add: Purchases of raw materials Raw materials available for use Deduct: Ending raw materials inventory Raw materials used in production Direct labour Manufacturing overhead Total manufacturing costs Add: Beginning work in process inventory Deduct: Ending work in process inventory Cost of goods manufactured Exercise 30 minutes 1.
Solutions Manual, Chapter 2. Exercise continued 3. Note: requirement three may be a stretch for many students given that the factors affecting cost behaviour outside the relevant range are not discussed in detail in Chapter 2. Accordingly, providing some hints to generate ideas may be warranted.
Newspaper provided for the guest in the morning. Room repairs resulting from damage caused by guests. Restaurant 1. Salary of the head chef. Cleaning supplies used in the restaurant. Fitness Centre 1. Fitness equipment maintenance.
Business Centre. Computer equipment. Printer suppliers e. Concierge wages. Fire insurance on the hotel. Hotel utilities. Property taxes on the hotel. Howe ver, this provides a good example of a cost object that direct costs could be accumulated for, but would rarely occur in practice.
In service industries such as hospitality, calculating profitability at the customer-level typically involves assigning indirect costs with very few direct costs identified.
Item 1. Cost of the new flat-panel displays Cost of the old computer terminals Rent on the space occupied by the registration desk Wages of registration desk personnel Benefits from a new freezer Costs of maintaining the old computer terminals Cost of removing the old computer terminals Cost of existing registration desk wiring Note: The costs of the rent on the space occupied by the registration desk and the wages of registration desk personnel are neither differential costs, opportunity costs, nor sunk costs.
These are costs that do not differ between the alternatives and are therefore irrelevant in the decision, but they are not sunk costs since they occur in the future. It appears that the overtime spent completing the job was simply a matter of how the job happened to be scheduled. Total labour cost Deduct: Raw materials inventory, ending Manufacturing overhead: Rent, factory building Indirect labour Utilities, factory Maintenance, factory equipment Supplies, factory Depreciation, factory equipment Total manufacturing overhead costs Add: Work in process, beginning Deduct: Work in process, ending The cost of goods sold section would be: Finished goods inventory, beginning Add: Cost of goods manufactured Deduct: Finished goods inventory, ending Cost of goods sold Cost Item The costs of turn signal switches used at a General Motors plant Salary of production manager at RIM The costs of shipping brass fittings to customers in California Depreciation on the bookshelves at Reston Bookstore The cost of leasing a toll-free telephone number at G.
The cost of the mozzarella cheese used at a Pizza Hut outlet The company could treat the cost of employee benefits relating to direct labour workers as part of manufacturing overhead. This approach spreads the cost of such benefits over all units of output. Alternatively, the company could treat the cost of employee benefits relating to direct labour workers as additional direct labour cost.
This latter approach charges the costs of employee benefits to specific jobs rather than to all units of output. Problem continued 2. Problem 30 minutes 1. Total wages Problem continued 4. Cost Item 1. Wages of workers who assemble a product Electricity to run production equipment Janitorial salaries Clay used to make bricks Rent on a factory building Wood used to make skis Cloth used to make shirts Depreciation of cafeteria equipment Lubricants for production equipment Paper used to make textbooks It would not be worth the effort to trace their costs to individual units of product and therefore they would usually be classified as indirect materials.
Problem 60 minutes 1. Medco, Inc. Income Statement For the year ended xxxx Sales Cost of goods sold: Finished goods inventory, beginning Selling and administrative expenses: Selling expenses Administrative expenses Since fixed costs do not change in total as the activity level changes, they will decrease on a unit basis as the activity level rises.
Problem 15 minutes 1. The controller is correct that the salary cost should be classified as a selling marketing cost. The duties described in the problem have nothing to do with manufacturing the product, but rather deal with ordertaking and shipping finished goods to customers. As stated in the text, selling costs include all costs necessary to secure customer orders and get the finished product into the hands of customers.
No, the president is not correct; how the salary cost is classified can affect the reported operating income for the year. If the salary cost is classified as a selling expense all of it will appear on the income statement as a period cost. However, if the salary cost is classified as a manufacturing product cost, then it will be added to Work in Process Inventory along with other manufacturing costs for the period.
To the extent that goods are still in process at the end of the period, part of the salary cost will remain with these goods in the Work in Process Inventory account. Only that portion of the salary cost that has been assigned to finished units will leave the Work in Process Inventory account and be transferred into the Finished Goods Inventory account.
In like manner, to the extent that goods are unsold at the end of the period, part of the salary cost will remain with these goods in the Finished Goods Inventory account. Only that portion of the salary that has been assigned to finished units that are sold during the period will appear on the income statement as an expense part of Cost of Goods Sold for the period.
These legal and filing fees have already been paid and are a sunk cost. Thus, the cost will not differ depending on whether Todd decides to produce brooms or to stay with the janitorial service.
All other costs listed above are differential costs since they will be incurred only if Todd leaves the janitorial service and produces the brooms. Cost Item Direct materials used wood, glass General office salaries Factory supervision Sales commissions Depreciation, factory building Depreciation, office equipment Indirect materials, factory Factory labour cutting and assembly.
Insurance, factory General office supplies Property taxes, factory Total costs Only the product costs will be included in the cost of a bookcase. The cost per bookcase will be: Direct product costs The cost per bookcase would increase.
This is because the fixed costs would be spread over fewer units, causing the cost per unit to rise. Yes, there probably would be a disagreement. He may expect an even higher price than this to cover a portion of the administrative costs as well. The neighbour will probably be thinking of cost as including only materials used, or perhaps materials and direct labour. The term is opportunity cost. Since the company is operating at full capacity, the president must give up the full, regular price of a set to sell a bookcase to the neighbour.
The salary of the head nurse in the Immunization Centre X Costs of incidental supplies consumed in the Immunization Centre such as paper towels X The cost of lighting and heating the Immunization Centre X The cost of disposable syringes used in the Immunization Centre X Depreciation on the fixtures and equipment in the Immunization Centre X wages of the nurses could be variable and a direct cost of serving particular patients.
Add: Work in process inventory, June Deduct: Work in process inventory, June Cost of goods sold: Finished goods inventory, June Deduct: Finished goods inventory, June Selling and administrative expenses: Selling and administrative salaries Depreciation, sales equipment In preparing the income statement shown in the text, the accountant failed to distinguish between product costs and period costs, and also failed to recognize the change in inventories between the beginning and end of the month.
Once these errors have been corrected, the financial condition of the company looks much better and continuing operations appears more attractive. By delaying expenditures, the company can keep its cash a bit longer and thereby earn a bit more interest. There is nothing unethical about such an action.
The second action was to ask that the order for the parts be cancelled. The third action was to ask the accounting department to delay recognition of the delivery until the bill is paid in January. This action is dubious. Asking the accounting department to ignore transactions strikes at the heart of the integrity of the accounting system.
If the accounting system cannot be trusted, it is very difficult to run a business or obtain funds from outsiders. However, in Mr. Raw materials should be recorded as an asset when delivered rather than as an expense. If the correct accounting policy were followed, there would be no reason for Mr. Richart to ask the accounting department to delay recognition of the delivery of the raw materials. This flawed accounting policy creates incentives for managers to delay deliveries of raw materials until after the end of the fiscal year.
This could lead to raw materials shortages and poor relations with suppliers who would like to record their sales before the end of the year.
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