2-19 (pg79) 1.

Cost Behavior Variable Fixed 118000 50000 40000 3500 80000 2500 4000 80000 2500 4000 Selling or admin cost Product cost Direct Indirect 118000

Cost item Factory labor direct Advertising Factory supervision Property taxes, factory building Sales commissions Insurance,factory Depreciation, administrative office equipment Lease cost, factory equipment Indirect materials, factory Depreciation, factory building Admin office supplies Admin office salaries Direct materials used Utilities, factory

50000 40000 3500

12000

12000

6000

6000

10000 3000 60000 94000 20000 321000 3000 60000 94000

10000

182000

197000

212000

20000 94000

2. Average product cost =(212000+94000)/2000 = 153 3. Increase. Indirect costs are split with less units therefore cost per unit increases 4. Disagreement when brother in law wants to pay only for direct costs while president may want to cover his indirect costs. Brother expects 212000/2000=$106, president expects average product cost of $153 b. product cost?

Case 2-27 (pg 84) 1. Selling and admin expenses were added in to compute cost per unit. Purchases of raw materials only direct materials costs should be accounted into computing cost 2. Schedule of cost of goods manufactured Materials inventory, Start of quarter 0 Purchases 360000 Material inventory, end of quarter 10000 Direct materials used in production 360000-10000=350000

Direct materials Direct labour Overhead Total manufacturing cost added end qt WIP, start of qt WIP, end of qt Cost of goods manufactured

350000 70000 410000 830000 0 (50000) 780000

3. COGM = 780000 Cost per unit = 780000/40000=19.5per unit COGS = 19.5*32000=624000

Income statement For quarter ended mar 31 Sales revenue COGS Gross margin Less Selling and admin expense Inventory losses Operating income 4. Insurance company owes 8000*19.5 = 156000

960000 624000 336000 290000 156000 (110000)

Problem 3-12(pg137) 1. Sales rev COGS Variable Variable Fixed Mixed Mixed Fixed Fixed

Advertising exp Shipping exp -

Salaries and com Insurance exp Depreciation exp 2. Using High-Low method

No. of units Low High July September Change Change/unit Variable cost for 4000 units Fixed costs 4000 5000 1000 1

COGS 240000 300000 60000 60

Shipping exp 34000 38000 4000 4

Salaries&Commission 78000 90000 12000 12

4000

240000 0

16000 18000

48000 30000

3.Contribution approach income statement Sales in units Sales revenue Variable expenses: Variable production Variable selling Contribution margin Fixed expense Fixed production Fixed selling Fixed administrative Net operating income 5000 500000 300000 80000

(5000*4+5000*12) 120000 (500000-300000-80000)

15000 (depreciation) 69000 (18000+30000+advertising21000) 6000 (insurance) 30000 (120000-15000-69000-6000)

Problem 4-25 pg195 For month of April Standard % 61.5% 100% 15% Deluxe % 38.5% 100% 15% Total %

Amount Percentage of total sales Sales Variable sales commission expense Contribution margin Fixed expenses Net operating income

Amount

Amount

240000 36000

150000 22500

390000 58500

100% 15%

204000

85%

127500

85%

331500 189700 141800

85%

For month of May Standard Amount % 13.8% 60000 9000 100% 15% Deluxe % 86.2% 100% 15% Total %

Amount

Amount

Percentage of total sales Sales Variable sales commission expense Contribution margin Fixed expenses Net operating income

375000 56250

435000 65250

100% 15%

51000

85%

318750

85%

369750 189700 180050

85%

2. Explain difference Deluxe sells for a higher price therefore higher % of deluxe sales returns higher net operating income (disregarding costs)

3. lower the commission for deluxe to the same as standard so no incentive to sell either a. Break even is 189700 Profit for Standard less commission is $36/set Profit for deluxe less commission is $33.75/set Based on sales mix of 61.5% 61.5%*36=22.14 38.5% 38.5%*33.75=13

Break even point before commission for standard = 189700/(22.14+13)*22.14 = 119520.72 Break even point in sales dollars for standard = 119520.72/85*100=140612.61

Break even point before commission for deluxe = 189700/(22.14+13)*13 = 70179.28 Break even point in sales dollars for standard =70179.28/85*100=82563.86

5. Break even points will be higher. The profit for deluxe less commission is less @ 33.75 compared to standard @ 36 so more needs to be sold to break even.