# Homework Assignment chapter 5 Accounting

Homework Assignment 05A
Cost Behavior
1. Last year, Baker Company produced 30,000 units and sold 28,000 units. Beginning inventory was zero. During the period, the following costs were incurred:
Indirect labor (variable)
\$60,000
Indirect materials (variable)
30,000
90,000
180,000
150,000
Fixed selling expenses
120,000
Variable selling expenses, per unit
40
Direct labor, per unit
80
Direct materials, per unit
20

Required: Compute the dollar amount of ending inventory using:
A.
Absorption costing
B.
Variable costing

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2. The variable costing income statement for Jackson Company for last year is as follows:

Sales (5,000 units)

\$100,000
Variable expenses:

Cost of goods sold
\$30,000

Selling (10% of sales)
10,000
40,000
Contribution margin

\$ 60,000
Fixed expenses:

\$24,000

14,400
38,400
Operating income

\$21,600

Selected data for last year concerning the operations of the company are as follows:

Beginning inventory
-0- units
Units produced
8,000 units

Manufacturing costs:

Direct labor
\$3.00 per unit
Direct materials
1.60 per unit
1.40 per unit

Required: Prepare an absorption costing income statement for last year.

3. Simon Company sells 900 units of its deluxe product each year. The cost of setting up for one production run is \$150; the cost of carrying one unit in inventory for a year is \$3.
A.
What is the economic order quantity?
B.
What is the annual setup cost of the EOQ policy?
C.
What is the annual carrying cost of the EOQ policy?
D.
What is the total inventory-related cost of the EOQ policy?

4. During the most recent year, Boston Corp. had the following data:
Beginning inventory in units
\$0
Units produced
15,400
Units sold (\$125 per unit)
8,200
Variable costs per unit:

Direct materials
\$13
Direct labor
\$16
\$8
Fixed costs:

\$23
\$185,000

Required:
A. How many units are in ending inventory?
B. Using absorption costing, calculate the per-unit product cost. What is the value of ending inventory?
C. Using variable costing, calculate the per-unit product cost. What is the value of ending inventory?
D. Prepare an income statement using absorption costing.
E. Prepare an income statement using variable costing.

5. What is the difference between absorption-costing income and variable-costing income?

6. Laconic Company manufactures ultrasound equipment. Based on past experience, Laconic has found that total annual repair and maintenance cost can be represented by the following formula: total annual repair and maintenance cost = \$205,000 + \$7.50x, where x = machine hours. Last year, Laconic incurred 145,000 machine hours.

Required:
A.
What was the total repair and maintenance cost incurred by Laconic last year?
B.
What was the total fixed repair and maintenance cost incurred by Laconic last year?
C.
What was the total variable repair and maintenance cost incurred by Laconic last year?
D.
What was the repair and maintenance cost per machine hour last year?
E.
What was the fixed repair and maintenance cost per machine hour last year?
F.
What was the variable repair and maintenance cost per machine hour last year?

7. The following six months of data were collected on electricity cost and the number of machine hours in a factory.

Month
Electricity Cost
Machine Hours
June
\$25,160
4,500
July
26,170
4,810
August
27,250
5,120
September
26,680
5,010
October
27,950
5,430
November
27,500
5,190

Required:
A.
Using the high-low method compute the variable rate for the electricity cost.
B.
Using the high-low method compute the fixed cost of electricity.
C.
Estimate the total electricity cost to be incurred in December if 5,300 machine hours are incurred.

8. Consider each of the following independent situations.

Cost
Cost Behavior
A.
The salary of a legal secretary in a law firm.

B.
A lease contract for an automobile which requires a monthly payment of \$300 plus \$.05 per mile.

C.
The cost of lumber for a homebuilder.

D.
The cost of Internet service which is calculated based on hours of usage.

E.
The cost of telephone service which includes a fixed monthly charge of \$50 plus \$.10 a minute for long distance calls.

F.
The salary cost of seasonal tax preparers for a CPA firm. One tax preparer can prepare 100 tax returns per month.

G.
A factory supervisor’s salary.

H.
The cost of sugar in the production of soft drinks.

Required: For each situation, describe the cost as one of the following: fixed cost, variable cost, mixed cost, or step cost.

9. The cost accountant for Bolagio Company used an Excel spreadsheet program to run ordinary least squares on a set of cost data for its utility cost. Bolagio’s cost driver for utility cost is machine hours. The following results were produced.
Intercept
2,490
X Variable
4.89

Required:
A.
Construct the cost formula for Bolagio’s utility cost using the results from the method of least squares.
B.
Using the formula computed in (A), what is the estimated cost of utilities for May assuming that Bolagio will incur 110,000 machine hours?

10. Why is it necessary to separate a mixed cost into its variable and fixed components?

11. Classifying Costs

12. Identifying cost behavior

Required
Identify the following costs as fixed or variable:
Costs related to plane trips between Boston, Massachusetts, and San Diego, California, follow. Pilots are paid on a per-trip basis.
a. Pilots’ salaries relative to the number of trips flown.
b. Depreciation relative to the number of planes in service.
c. Cost of refreshments relative to the number of passengers.
d. Pilots’ salaries relative to the number of passengers on a particular trip.
e. Cost of a maintenance check relative to the number of passengers on a particular trip.
f. Fuel costs relative to the number of trips.

Metro National Bank operates several branch offices in grocery stores. Each branch employs a supervisor and two tellers. Costs related to Metro’s branch operations follow.
g. Tellers’ salaries relative to the number of tellers in a particular district, which is composed of branches.
h. Supplies cost relative to the number of transactions processed in a particular branch.
i. Tellers’ salaries relative to the number of customers served at a particular branch.
j. Supervisors’ salaries relative to the number of branches operated.
k. Supervisors’ salaries relative to the number of customers served in a particular branch.
l. Facility rental costs relative to the size of customer deposits.

Costs related to operating a fast-food restaurant follow.
m. Depreciation of equipment relative to the number of restaurants.
n. Building rental cost relative to the number of customers served in a particular restaurant.
o. Manager’s salary of a particular store relative to the number of employees.
p. Food cost relative to the number of customers.
q. Utility cost relative to the number of restaurants in operation.
r. Company president’s salary relative to the number of restaurants in operation.
s. Land costs relative to the number of hamburgers sold at a particular restaurant.
t. Depreciation of equipment relative to the number of customers served at a particular restaurant.

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