Q: 1SHORT ANSWER QUESTIONS, EXERCISES AND PROBLEMS 1. What are the major differences between managerial and financial accounting? 2. Identify the three elements of cost incurred in manufacturing a product and indicate the distinguishing characteristics of each. 3. Why might a company claim that the total cost of employing a person is $15.30 per hour when the employee's wage rate is $10.50 per hour? How should this difference be classified and why? 4. Why are certain costs referred to as period costs? What are the major types of period costs incurred by a manufacturer? 5. Explain why the income statement of a manufacturing company differs from the income statement of a merchandising company. 6. What is the general content of a statement of cost of goods manufactured? What is its relationship to the income statement? 7. Real world question Assume Domino's Pizza is considering offering a new product-a 6-inch (15.24 cm) pizza. Why would it matter if Domino's Pizza knows how much it costs to produce and deliver this 6-inch (15.24 cm) pizza? 8. Real world question Why is it becoming more important that the managers of hospitals understand their product costs? 9. Define and explain contribution margin on a per unit basis. 10. Define and explain contribution margin ratio. 11. Explain how a contribution margin income statement can be used to determine profitability 12. In a cost-volume-profit analysis, explain what happens at the break-even point and why companies do not want to remain at the break-even point. What is meant by a product's contribution margin ratio and how is this ratio useful in planning business operations? 13. Explain how a manager can use CVP analysis to make decisions regarding changes in operations or pricing structure 14. After conducting a CVP analysis, most businesses will then recreate a revised or projected income statement incorporating the results of the CVP analysis. What is the benefit of taking this extra step in the analysis? 15. Explain how it is possible for costs to change without changing the break-even point. 16. Explain what a sales mix is and how changes in the sales mix affect the break- even point. 17. Explain how break-even analysis for a multi-product company differs from a company selling a single product Q:2 A The following costs are incurred by an electrical appliance manufacturer. Classify these costs as direct materials, direct labor, manufacturing overhead, selling, or administrative 1. President's salary. 2. Cost of electrical wire used in making appliances. 3. Cost of janitorial supplies (the janitors work in the factory). 4. Wages of assembly-line workers. 5. Cost of promotional displays. 6. Assembly-line supervisor's salary. 7. Cost accountant's salary (the accountant works in the factory). 8. Cost of cleaner used to clean appliances when they are completed. 9. Cost of aluminum used for toasters. 10. Cost of market research survey Q:3 Lopez Corporation incurred the following costs while manufacturing its product Materials used in product $120,000 Advertising expertise $45,000 Depreciation on plant 60,000 Property taxes on plant 14.000 Property taxes on store 7,500 Delivery expense 21,000 Labor costs of assembly-line 110.000 Sales commissions 35,000 Factory supplies used 23,000 Clerks 5D000 Work in process inventory was $12,000 at January 1 and $15,500 at December 31. Finished goods inventory was $60,000 at January 1 and $45,600 at December 31 (a) Compute cost of goods manufactured (b) Compute cost of goods sold 0:4 The controller of Dousman Industries has collected the following monthly expense data for use in analyzing the cost behavior of maintenance costs Month Month Total Maintenance Costs Total Machine Hours January $2.750 $3,500 February 3.000 34,000 March 3,600 6.000 April 4.500 7,900 May 3,200 5,000 June 5,000 8,000 Instructions: (a) Determine the fixed- and variable-cost components using the high-low metro Q:5 Cepeda Corporation has the following cost records for June 2014. Indirect factory labor $ 4,500 Factory utilities $ 400 Direct materials used 20,000 Depreciation, factory equipment 1,400 Work in process, 6/1/14 3,000 Direct labor 40000 Work in process, 6/30/ 14 3,800 Maintenance, factory equipment 1,800 Finished goods, 6/1/14 5,000 Indirect materials 2.200 Finished goods, 6/30/14 7,500 Factory manager's salary S,000 Requirements: Prepare a cost of goods manufactured schedule for June 2014 Prepare an income statement through gross profit for June 2014 assuming sales revenue is $92,100 Q:6 Family Fumiture Corporation incurred the following costs. 1. Wood used in the production of furniture. 2. Fuel used in delivery trucks. 3. Straight-line depreciation on factory building. 4. Screws used in the production of furniture 5. Sales staff salaries. 6. Sales commissions. 7. Property taxes. 8. Insurance on buildings. 9. Hourly wages of furniture craftsmen. 10. Salaries of factory supervisors. 11. Utilities expense. 12. Telephone bill. Instructions Identify the costs above as variable, fixed, or mixed. Q:7 All That Blooms provides environmentally friendly lawn services for homeowners. Its operating costs are as follows. Depreciation $1,400 per month Advertising $200 per month Insurance $2,000 per month Weed and feed materials $12 per lawn Direct labor $10 per lawn Fuel $2 per lawn All That Blooms charges $60 per treatment for the average single-family lawn. Instructions Determine the company's break-even point (a) number of lawns serviced per month and (b) In dollars Q:8 E3-13 The Welding Department of Thorpe Company has the following production and manufacturing cost data for February 2014. All materials are added at the beginning of the process. Manufacturing Costs Beginning work in process Materials $18,000 Conversion costs 14,175 $ 32,175 Materials 180,000 Labor 52,380 Overhead 61,445 Production Data Beginning work in process 15,000 units 1/10 complete Units transferred out 49,000 Units started 45,000 Ending work in process 11,000 units 1/5 complete Instructions Prepare a production cost report for the Welding Department for the month of February Q:9 a. Calculate the per-unit contribution margin of a product that has a sale price of $150 if the variable costs per unit are$ 40. b. Calculate the per-unit contribution margin of a product that has a sale price a of$350 if the variable costs per unit are$95. C. A product has a sales price of $175 and a per-unit contribution margin of $75. What is the contribution margin ratio? d. A product has a sales price of$ 90 and a per-unit contribution margin of $35. What is the contribution margin ratio? Q.10 Multiple Choice 1. The amount of a unit's sales price that helps to cover fixed expenses is its a. contribution margin b. profit C. variable cost d stepped cost 2. When sales price increases and all other variables are held constant, the break-even point will a. remain unchanged b. increase C. decrease d. produce a lower contribution margin 3. When sales price decreases and all other variables are held constant, the break- even point will a. remain unchanged b increase C. decrease d. produce a higher contribution margin 4. When variable costs increase and all other variables remain unchanged, the break- even point will a. remain unchanged b. increase C. decrease d. produce a lower contribution margin 5. When fixed costs decrease and all other variables remain unchanged, the break- even point will a. remain unchanged b. increase c. decrease d. produce a lower contribution margin 6. When fixed costs increase and all other variables remain unchanged, the contribution margin will a. remain unchanged b. increase C. decrease d. increase variable costs per unit 7. If the sales mix in a multi-product environment shifts to a higher volume in low contribution margin products, the break-even point will a. remain unchanged because all products are included in the calculation of break- even b. increase because the low contribution margin products have little effect on break- even c. increase because the per composite unit contribution margin will decrease d. decrease because the per composite unit contribution margin will increase