Glass specializes in the repair and replacement of windshields for passenger vehicles. Variable and fixed costs related to installation activities for the most recent month (July) are listed below: EXERCISE 22 Classification of Costs as Period or Product Costs [LO2] Suppose that you have a summer job at Remotely Speaking, a company that manufactures sophisticated portable two-way radio transceivers for remote-controlled military reconnaissance missions. 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. You have been asked to help prepare the financial statements and are given the following list of costs: 1. Depreciation on salespeoples cars. 2. Rent on equipment used in the factory. 3. Lubricants used for machine maintenance. 4. Salaries of personnel who work in the finished goods warehouse. 5. Soap and paper towels used by factory workers at the end of a shift. 6. Factory supervisors salaries. 7. Heat, water, and power consumed in the factory. 8. Materials used for boxing company products for shipment overseas. (Units are not normally boxed.) 9. Advertising costs. 10. Workers Compensation Insurance for factory employees. 11. Depreciation on chairs and tables in the factory lunchroom. 12. The wages of the receptionist in the administrative offices. 13. Cost of leasing the corporate jet used by the companys executives. 14. The cost of renting rooms at a British Columbia resort for the annual sales conference. 15. The cost of packaging the companys product. Required: Classify the above costs as either product (inventoriable) costs or period (non-inventoriable) costs for preparing the financial statements for the bank. EXERCISE 23 Constructing an Income Statement [LO3] Home Entertainment, a retailer of CDs and DVDs, provided the following information for the month of June: Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $150,000 Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 Merchandise inventory, beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 Merchandise inventory, ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,000 Merchandise purchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000 Beginning raw materials inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,000 Purchases of raw materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 528,000 Ending raw materials inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,000 Direct labour. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258,000 Manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 456,000 Beginning work in process inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 228,000 Ending work in process inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264,000 Required: Prepare an income statement for the company for the month. EXERCISE 24 Prepare a Schedule of Cost of Goods Manufactured [LO4] Acromould Fabrication manufactures a variety of products in its factory. Data for the most recent months operations appear below: gar24903_ch02_026-064.indd Page 50 07/06/14 8:28 AM user1 /207/MHR00249/gar24903_disk1of1/1259024903/gar24903_pagefiles 3rd Pass 96 Managerial Accounting McGraw-Hill Create Review Copy for Instructor Ena. Not for distribution. www.tex-cetera.com Chapter 2 Cost Terms, Concepts, and Classifications 51 Required: 1. Calculate the per unit amounts for each of the variable expense and fixed expense items in July. 2. Management expects that 1,200 windshields will be installed in August and that this level of activity is within the relevant range for all variable and fixed expenses. Calculate a. The total expense for each of the variable and fixed cost items above. b. The per unit amounts for each of the variable and fixed cost items above. Explain any differences in the per unit amounts between July and August. 3. Identify some factors that might cause variable costs per unit to change if the actual level of activity in a given month falls above or below the relevant range. EXERCISE 26 Identifying Examples of Direct and Indirect Costs [LO6] The Royal Hotel is located in central Alberta and has, among others, the following cost objects: 1. Hotel guests. 2. Hotel restaurant. 3. Hotel fitness centre and pool. 4. Hotel business centre (computers, printer, fax machine). Required: For each of the above cost objects, identify two examples of a direct cost and two examples of an indirect cost. EXERCISE 27 Differential , Opportunity , and Sunk Costs [LO7] The Sorrento Hotel is a four-star hotel in downtown Montreal. The hotels operations vicepresident would like to replace the hotels antiquated computer terminals at the registration desk with attractive state-of-the-art flat-panel displays. The new displays would take less space; consume less power; and provide additional security, since they can be viewed only from a restrictive angle. The new computer displays would not require any new wiring. The hotels chef believes the funds would be better spent on a new bulk freezer for the kitchen. Required: For each of the items below, indicate by placing an X in the appropriate column whether it should be considered a differential cost, an opportunity cost, or a sunk cost in the decision to replace the old computer terminals with new flat-panel displays. If none of the categories apply for a particular item, leave all columns blank. The first item has been completed as an example: Item Number of windshields installed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 Variable expenses: Direct materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000 Direct labour (1 hour per installation) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 Indirect materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 Fixed expenses: Installation supervisors wages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,000 Installation schedulers wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 Warehouse expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000