¡Descarga ejercicios y más Ejercicios en PDF de Administración de Empresas solo en Docsity!
TOPIC 2
Below are a number of costs that might be incurred in a variety of organizations. Indicate whether the cost involved would be variable or fixed with respect to the goods and services sold by the organization.
• X-ray film used in the radiology lab at Virginia Mason Hospital.
• The costs of advertising a Madonna rock concert in New York city.
• Rental cost of the space occupied by a McDonald’s restaurant in Hong Kong.
• The electrical costs of running a roller coaster at Magic Mountain.
• Property taxes on your local cinema.
• Commissions paid to salespersons at Nordstrom.
• Property insurance on a Coca-Cola bottling plant.
• The costs of synthetic materials used to make Nike running shoes.
• The costs of shipping LG televisions to retail stores.
• The costs of leasing an ultra-scan diagnostic machine at the American Hospital in Paris.
Cost Costing Object Direct cost
Indirect cost
Catered food served to patients A particular patient x
The wages of pediatric nurses The pediatric department
Prescription drugs A particular patient
Heating of the hospital The pediatric department
The salary of the head of pediatrics The pediatric department
The salary of the head of pediatrics A particular pediatric patient
Hospital chaplain’s salary A particular patient
Lab tests by outside contractor A particular patient
Lab tests by outside contractor A particular department
Northwest Hospital is a full service hospital that provides everything from major surgery. For each cost incurred at Northwest Hospital , indicate whether it would be most likely be a direct cost or an indirect cost of the specified costing object by placing an X in the appropriate column.
Northwest Hospital Radiology Department is considering replacing and old inefficient X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It would also require a colour laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory department is lobbying the hospital’s manager to buy a new DNA analyzer.
Required:
For each of the items below, indicate whether it should be considered a differential cost, an opportunity cost, or a sunk cost in the decision to replace the old X-ray machine with a new one. If none of the categories applies for a particular item, leave all columns blank.
Item Differential cost Opportunity cost Sunk cost
Cost of the old X-ray film used in the old machine x
Salary of the head of the Radiology Department
Salary of the head of the Pediatrics Department
Cost of the new color laser printer.
Rent of the space occupied by Radiology.
The cost of maintaining the old machine.
Benefits from a new DNA analyzer.
Cost of the electricity to run the X-ray machines.
7. 7. Salary of a supervisor overseeing production of printers at Hewlett-Packard.
8. 8. Commissions paid to pharmaceutical sales representatives.
9. 9. Depreciation of factory lunchroom facilities at a General Electric plant.
10. 10. Steering wheels installed in BMWs.
Required: Classify each cost as being either variable or fixed with respect to the number of units produced and sold. Also classify each cost as either a selling and administrative cost or a product cost. Prepare your answer sheet as shown below, placing Xs in the appropriate columns.
- Definitions of Cost Terms (LO2, LO5, LO7) Following are a number of cost terms introduced in the chapter: Choose the term or terms above that most appropriately describe the cost identified in each of the following situations. A cost term can be used more than once.
1. Lake Company produces a tote bag that is very popular with college students. The cloth used to
manufacture the tote bag would be called direct materials and classified as a __________. In terms of cost behavior, the cloth could also be described as a __________.
2. The direct labor cost required to produce the tote bags, combined with the manufacturing overhead
cost involved, would be known as __________.
3. The company could have taken the funds that it has invested in production equipment and invested
them in interest-bearing securities instead. The interest forgone on the securities would be called an __________.
4. Taken together, the direct materials cost and the direct labor cost required to produce tote bags
would be called __________.
5. The company used to produce a smaller tote bag that was not very popular. Some three hundred of
these smaller bags are stored in one of the company’s warehouses. The amount invested in these bags would be called a __________.
6. The tote bags are sold through agents who are paid a commission on each bag sold. These
commissions would be classified by Lake Company as a __________. In terms of cost behavior, commissions would be classified as a __________.
7. Depreciation on the equipment used to produce tote bags would be classified by Lake Company as
a __________. However, depreciation on any equipment used by the company in selling and administrative activities would be classified as a __________. In terms of cost behavior, depreciation would probably be classified as a __________.
8. A __________ is also known as an inventoriable cost, since such costs go into the Work in Process
inventory account and then into the Finished Goods inventory account before appearing on the income statement as part of cost of goods sold.
9. The salary of Lake Company’s president would be classified as a __________, since the salary will
appear on the income statement as an expense in the time period in which it is incurred.
10. Costs are often classified in several ways. For example, Lake Company pays $5,000 rent each
month on its factory building. The rent would be part of manufacturing overhead. In terms of cost behavior, it would be classified as a __________. The rent can also be classified as a __________ and as part of __________.
- Preparing a Schedule of Cost of Goods Manufactured and Cost of Goods Sold (LO3, LO4) The following cost and inventory data are taken from the accounting records of Mason Company for the year just completed:
Required: Prepare a schedule of cost of goods manufactured. Prepare the cost of goods sold section of Mason Company’s income statement for the year.
- Cost Classification (LO5, LO6)Various costs associated with the operation of factories are given below:
• Electricity used in operating machines.
• Rent on a factory building.
• Cloth used in drapery production.
• Production superintendent’s salary.
• Wages of laborers assembling a product.
• Depreciation of air purification equipment used in furniture production.
• Janitorial salaries.
• Peaches used in canning fruit.
• Lubricants needed for machines.
• Sugar used in soft-drink production.
• Property taxes on the factory.
• Wages of workers painting a product.
• Depreciation of cafeteria equipment.
• Insurance on a building used in producing helicopters.
• Cost of rotor blades used in producing helicopters.
Required: Classify each cost as either variable or fixed with respect to the number of units produced and sold. Also indicate whether each cost would typically be treated as a direct cost or an indirect cost with respect to units of product. Prepare your answer sheet as shown below:
- Classification of Costs (LO1, LO2, LO5, LO7)
Wollogong Group Ltd. of New South Wales, Australia, acquired its factory building about 10 years ago. For several years the company has rented out a small annex attached to the rear of the building. The company has received a rental income of $30,000 per year on this space. The renter’s lease will expire soon, and rather than renew the lease, the company has decided to use the space itself to manufacture a new product.
Direct materials cost for the new product will total $80 per unit. To have a place to store finished units of product, the company will rent a small warehouse at a cost of $500 per month. In addition, the company must rent equipment at a cost of $4,000 per month to make the new product. Workers will be hired to manufacture the new product, with direct labor cost amounting to $60 per unit. The space in the annex will continue to be depreciated on a straight-line basis in the amount of $8,000 per year.
• Assume that the company uses the weighted-average method of accounting for units and costs.
Prepare a quantity schedule and a computation of equivalent units for the month for the first department.
• Determine the costs per equivalent unit for the month.
- Equivalent Units and Cost per Equivalent Unit—Weighted-Average Method (LO2, LO4)
Helox, Inc., manufactures a product that passes through two production processes. A quantity schedule for the month of May for the first process follows:
Costs in the beginning work in process inventory of the first processing department were: materials, $1,500; and conversion cost, $4,000. Costs added during the month were: materials, $54,000; and conversion cost, $352,000.
Required:
• Assume that the company uses the weighted-average method of accounting for units and costs.
Determine the equivalent units for the month for the first process.
• Compute the costs per equivalent unit for the month for the first process.
- Quantity Schedule and Equivalent Units—Weighted-Average Method (LO2, LO3) The Alaskan Fisheries, Inc., processes salmon for various distributors. Two departments are involved—Cleaning and Packing. Data relating to pounds of salmon processed in the Cleaning Department during July are presented below: All materials are added at the beginning of processing in the Cleaning Department.
Required: Prepare a quantity schedule and a computation of equivalent units for July for the Cleaning Department assuming that the company uses the weighted-average method of accounting for units.
11.Quantity Schedule and Equivalent Units—Weighted-Average Method (LO2, LO3) The Alaskan Fisheries, Inc., processes salmon for various distributors. Two departments are involved—Cleaning and Packing. Data relating to pounds of salmon processed in the Cleaning Department during July are presented below:
All materials are added at the beginning of processing in the Cleaning Department.
Required: Prepare a quantity schedule and a computation of equivalent units for July for the Cleaning Department assuming that the company uses the weighted-average method of accounting for units.
PROBLEMS
- Listed below are a number of costs typically found in organizations.
• Property taxes, factory.
• Boxes used for packaging detergent produced by the company.
• Salespersons’ commissions.
• Supervisor’s salary, factory.
• Depreciation, executive autos.
• Wages of workers assembling computers.
• Insurance, finished goods warehouses.
• Lubricants for machines.
• Advertising costs.
• Microchips used in producing calculators.
• Shipping costs on merchandise sold.
• Magazine subscriptions, factory lunchroom.
• Thread in a garment factory.
• Billing costs.
• Executive life insurance.
• Ink used in textbook production.
• Fringe benefits, assembly-line workers.
• Yarn used in sweater production.
• Wages of receptionist, executive offices.
Required:
Prepare an answer sheet with column headings as shown below. For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it would typically be treated as a direct cost or an indirect cost with respect to units of product. Three sample answers are provided for illustration.
