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Solution To Chapter 2 E2 24,2 30, P2 40, 2 37 E2 32,28 (1 3 Parts) P2 43,2 54

This document provides solutions to accounting exercises on classifying costs as product or period costs, calculating cost per unit, and preparing schedules of manufacturing costs. Key points include: - Advertising, insurance, and supervisor salaries are typically period costs while materials, labor, and manufacturing overhead are usually product costs. - Fixed costs remain the same regardless of production volume while variable costs change in relation to activity levels. - Cost per unit is calculated by dividing total fixed costs by units or total variable costs by units to determine the average cost. - Manufacturing schedules track direct material, labor, and overhead costs to calculate total manufacturing costs and cost of goods manufactured.

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138 views7 pages

Solution To Chapter 2 E2 24,2 30, P2 40, 2 37 E2 32,28 (1 3 Parts) P2 43,2 54

This document provides solutions to accounting exercises on classifying costs as product or period costs, calculating cost per unit, and preparing schedules of manufacturing costs. Key points include: - Advertising, insurance, and supervisor salaries are typically period costs while materials, labor, and manufacturing overhead are usually product costs. - Fixed costs remain the same regardless of production volume while variable costs change in relation to activity levels. - Cost per unit is calculated by dividing total fixed costs by units or total variable costs by units to determine the average cost. - Manufacturing schedules track direct material, labor, and overhead costs to calculate total manufacturing costs and cost of goods manufactured.

Uploaded by

Reilpeter
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Solution to Chapter 2 

E2‐24,2‐30,P2‐40, 2‐37 E2‐32,28 (1‐3 parts) P2‐43,2‐54 
 
EXERCISE 2-24 (20 MINUTES)

1. Advertising costs: Period cost, fixed

2. Straight-line depreciation: Product cost, fixed, manufacturing overhead

3. Wages of assembly-line personnel: Product cost, variable, direct labor

4. Delivery costs on customer shipments: Period cost, variable

5. Newsprint consumed: Product cost, variable, direct material

6. Plant insurance: Product cost, fixed, manufacturing overhead

7. Glass costs: Product cost, variable, direct material

8. Tire costs: Product cost, variable, direct material

9. Sales commissions: Period cost, variable

10. Wood glue: Product cost, variable, either direct material or manufacturing
overhead (i.e., indirect material) depending on how significant the cost is

11. Wages of security guards: Product cost, variable, manufacturing overhead

12. Salary of financial vice-president: Period cost, fixed

EXERCISE 2-30 (15 MINUTES)

Number of Muffler Replacements


600 700 800
Total costs:
Fixed costs ................................................................... (a) $56,000 $56,000 (b) $56,000
Variable costs............................................................... (c) 24,000 28,000 (d) 32,000
Total costs .............................................................. (e) $80,000 $84,000 (f) $88,000

Cost per muffler replacement:


Fixed cost ..................................................................... (g) $ 93.33 * (h) $ 80 (i) $ 70
Variable cost................................................................. (j) 40.00 (k) 40 (l) 40
Total cost per muffler replacement ...................... (m) $133.33 (n) $120 (o) $110
*Rounded.
EXERCISE 2-30 (CONTINUED)
Explanatory Notes:
(a) Total fixed costs do not vary with activity.
(c) Variable cost per replacement = $28,000/700 = $40
Total variable cost for 600 replacements = $40 × 600 = $24,000
(g) Fixed cost per replacement = $56,000/600 = $93.33 (rounded)
(j ) Variable cost per replacement = $24,000/600 = $40

PROBLEM 2-40 (10 MINUTES)

Cost Item Number Product Cost or Period Cost


1. Product
2. Period*
3. Product
4. Period*
5. Product
6. Period*
7. Product
8. Product
9. Product

*Service industry and retail firms typically treat all costs


as operating expenses which are period expenses. Such
firms do not inventory costs.
 
PROBLEM 2-37 (25 MINUTES)

1. a. Total prime costs:

Direct material.................................................................................... $ 1,050,000


Direct labor:
Wages ............................................................................................. 242,500
Fringe benefits............................................................................... 47,500
Total prime costs............................................................................... $ 1,340,000
 
b. Total manufacturing overhead:

Depreciation on factory building...................................................... $ 57,500


Indirect labor: wages......................................................................... 70,000
Production supervisor's salary ........................................................ 22,500
Service department costs ................................................................. 50,000
Indirect labor: fringe benefits........................................................... 15,000
Fringe benefits for production supervisor ...................................... 4,500
Total overtime premiums paid.......................................................... 27,500
Cost of idle time: production employees ........................................ 20,000
Total manufacturing overhead ......................................................... $ 267,000

c. Total conversion costs:

Direct labor ($242,500 + $47,500) ..................................................... $ 290,000


Manufacturing overhead ................................................................... 267,000
Total conversion costs...................................................................... $ 557,000

d. Total product costs:

Direct material.................................................................................... $1,050,000


Direct labor......................................................................................... 290,000
Manufacturing overhead ................................................................... 267,000
Total product costs ........................................................................... $1,607,000

PROBLEM 2-37 (CONTINUED)

e. Total period costs:

Advertising expense.......................................................................... $ 49,500


Administrative costs ......................................................................... 75,000
Rental of office space for sales personnel...................................... 7,500
Sales commissions ........................................................................... 2,500
Product promotion costs.................................................................. 5,000
Total period costs.............................................................................. $ 139,500

EXERCISE 2-32 (15 MINUTES)

1. Phone bill, January: $200 + ($.15 × 7,000) ........................................ $1,250


Phone bill, February: $200 + ($.15 × 8,000)....................................... $1,400

2. Cost per call, January: $1,250/7000 ................................................... $ .179 (rounded)


Cost per call, February: $1,400/8000.................................................. $ .175

3. Fixed component, January ................................................................. $ 200


Variable component, January: $.15 × 7,000...................................... 1,050
Total ...................................................................................................... $1,250
4. Since each phone call costs $.15, the marginal cost of making the 7,001st call is $.15.

5. The average cost of a phone call in January (rounded) is $.179 ($1,250/7,000).

EXERCISE 2-28 (25 MINUTES)

1. ALHAMBRA ALUMINUM COMPANY


SCHEDULE OF COST OF GOODS MANUFACTURED
FOR THE YEAR ENDED DECEMBER 31, 20X1

Direct material:
Raw-material inventory, January 1......................................... $ 55,000
Add: Purchases of raw material ............................................. 240,000
Raw material available for use................................................ $295,000
Deduct: Raw-material inventory, December 31..................... 75,000
Raw material used ................................................................... $220,000
Direct labor .................................................................................... 420,000
Manufacturing overhead:
Indirect material ....................................................................... $ 12,000
Indirect labor ............................................................................ 22,000
Depreciation on plant and equipment.................................... 110,000
Utilities ...................................................................................... 23,000
Other ......................................................................................... 35,000
Total manufacturing overhead ............................................... 202,000
Total manufacturing costs ........................................................... $842,000
Add: Work-in-process inventory, January 1............................... 110,000
Subtotal .......................................................................................... $952,000
Deduct: Work-in-process inventory, December 31 .................... 125,000
Cost of goods manufactured ....................................................... $827,000

2. ALHAMBRA ALUMINUM COMPANY


SCHEDULE OF COST OF GOODS SOLD
FOR THE YEAR ENDED DECEMBER 31, 20X1

Finished-goods inventory, January 1............................................................ $160,000


Add: Cost of goods manufactured ................................................................ 827,000
Cost of goods available for sale .................................................................... $987,000
Deduct: Finished-goods inventory, December 31........................................ 155,000
Cost of goods sold.......................................................................................... $832,000
EXERCISE 2-28 (CONTINUED)

3. ALHAMBRA ALUMINUM COMPANY


INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 20X1

Sales revenue .................................................................................................. $1,210,000


Less: Cost of goods sold ............................................................................... 832,000
Gross margin ................................................................................................... $ 378,000
Selling and administrative expenses ............................................................ 105,000
Income before taxes........................................................................................ $ 273,000
Income tax expense (at 35%) ......................................................................... 95,550
Net income ....................................................................................................... $ 177,450

4. In the electronic version of the solutions manual, press the CTRL key and
click on the following link: BUILD A SPREADSHEET

PROBLEM 2-43 (35 MINUTES)

1. LAREDO LUGGAGE COMPANY


SCHEDULE OF COST OF GOODS MANUFACTURED
FOR THE YEAR ENDED DECEMBER 31, 20X2

Direct material:
Raw-material inventory, January 1 ............................................ $ 20,000
Add: Purchases of raw material................................................. 90,000
Raw material available for use ................................................... $110,000
Deduct: Raw-material inventory, December 31 ........................ 12,500
Raw material used....................................................................... $97,500
Direct labor ...................................................................................... 100,000
Manufacturing overhead:
Indirect material........................................................................... $ 5,000
Indirect labor................................................................................ 7,500
Utilities: plant............................................................................... 20,000
Depreciation: plant and equipment ........................................... 30,000
Other............................................................................................. 40,000
Total manufacturing overhead................................................... 102,500
Total manufacturing costs ............................................................. $300,000
Add: Work-in-process inventory, January 1................................. 20,000
Subtotal ............................................................................................ $320,000
Deduct: Work-in-process inventory, December 31 ...................... 15,000
Cost of goods manufactured ......................................................... $305,000

2. LAREDO LUGGAGE COMPANY


SCHEDULE OF COST OF GOODS SOLD
FOR THE YEAR ENDED DECEMBER 31, 20X2

Finished goods inventory, January 1............................................................ $ 10,000


Add: Cost of goods manufactured ................................................................ 305,000
Cost of goods available for sale .................................................................... $315,000
Deduct: Finished-goods inventory, December 31........................................ 25,000
Cost of goods sold.......................................................................................... $290,000
PROBLEM 2-43 (CONTINUED)

3. LAREDO LUGGAGE COMPANY


INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 20X2

Sales revenue .................................................................................................. $475,000


Less: Cost of goods sold ............................................................................... 290,000
Gross margin ................................................................................................... $185,000
Selling and administrative expenses ............................................................ 75,000
   Income before taxes........................................................................................ $110,000
Income tax expense ........................................................................................ 45,000
Net income ....................................................................................................... $65,000

4. In the electronic version of the solutions manual, press the CTRL key and
click on the following link: BUILD A SPREADSHEET

PROBLEM 2-54 (20 MINUTES)

1. a, d, e, k
2. a, d, e, k
3. j
4. g (The $200 cost savings is a differential cost.)
5. a, c, e
6. b, d, e, k
7. d, e, k
8. b, d*, e, k
*Unless the dishwasher has been used improperly.
9. b, d, e, k
PROBLEM 2-54 (CONTINUED)
10. a, c, e, k
11. h
12. a, d, e*, j
*The hotel general manager may have some control over the total space
allocated to the kitchen.
13. d, e, i, j
14. i
15. d, e, i
 

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