EXERCISE 2-3 Fixed and Variable Cost Behavior [LO3] Koffee Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,100 and the variable cost per cup of coffee served is $0.26. Required: 1. Fill in the following table with your estimates of total costs and average cost per cup of coffee at the indicated levels of activity for a coffee stand. Round off the cost of a cup of coffee to the nearest tenth of a cent. Cups of Coffee Served in a Week 1,800 1,900 2,000 Fixed cost . . . Variable cost . .. . Total cost . . .. ... Average cost per cup of coffee served . .. . 2. Does the average cost per cup of coffee served increase, decrease, or remain the same as the number of cups of coffee served in a week increases? Explain.EXERCISE 2-2 Classification of Costs as Period or Product Costs [LO2] Suppose that you have been given a summer job at Fairwings Avionics, a company that manufac tures sophisticated radar sets for commercial aircraft. The company, which is privately owned, has approached a bank for a loan to help finance its tremendous growth. The bank requires financial statements before approving such a loan. Required: Classify each cost listed below as either a product cost or a period cost for purposes of preparing the financial statements for the bank. 1. The cost of the memory chips used in a radar set. 2. Factory heating costs. 3. Factory equipment maintenance costs. 4. Training costs for new administrative employees. 5. The cost of the solder that is used in assembling the radar sets. 6. The travel costs of the company's salespersons. 7. Wages and salaries of factory security personnel. 8. The cost of air-conditioning executive offices. 9. Wages and salaries in the department that handles billing customers. 10. Depreciation on the equipment in the fitness room used by factory workers. 11. Telephone expenses incurred by factory management. 12. The costs of shipping completed radar sets to customers. 13. The wages of the workers who assemble the radar sets. 14. The president's salary. 15. Health insurance premiums for factory personnel.EXERCISE 2-6 Identifying Direct and Indirect Costs [L06] The Empire Hotel is a four-star hotel located in downtown Seattle. Required: For each of the following costs incurred at the Empire Hotel, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object by placing an X in the appropriate column. Direct Indirect Cost Cost Object Cost Cost Ex. Room service beverages A particular hotel guest X 1. The salary of the head chef The hotel's restaurant 2. The salary of the head chef A particular restaurant customer 3. Room cleaning supplies A particular hotel guest 4. Flowers for the reception desk A particular hotel guest 5. The wages of the doorman A particular hotel guest 6. Room cleaning supplies The housecleaning department 7. Fire insurance on the hotel building The hotel's gym 8. Towels used in the gym The hotel's gym
