Question 1: (4 points)
multi
2
multi
12
Exercise 5-1 Fixed and Variable Cost Behavior [LO1]
Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a
coffee stand is $1,900 and the variable cost per cup of coffee served is $0.59.
Requirement 1:
Fill in the following table with your estimates of total costs and cost per cup of coffee at the indicated levels of activity for a
coffee stand. (Round average cost per cup of coffee to 3 decimal places. Omit the "$" sign in your response.)
1,900
Cups of Coffee Served in a Week
2,000
list
list
2
Fixed cost
$
2
$
2,100
list
2
$
1
1
1
list
list
list
2
2
2
1
1
1
list
list
list
Variable cost
2
Total cost
$
2
$
1
1
1
list
list
list
2
Average cost per cup of coffee served
2
$
$
2
$
1
2
$
1
1
Requirement 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?
string
Increases
Decreases
Remains the same
Question 2: (4 points)
multi
2
multi
2
Exercise 5-3 High-Low Method [LO3]
The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total electrical costs of the hotel and the number
of occupancy-days over the last year. An occupancy-day represents a room rented out for one day. The hotel's business is
highly seasonal, with peaks occurring during the ski season and in the summer.
Month
January
February
March
April
May
June
July
August
September
October
November
December
OccupancyDays
2,617
2,862
4,220
1,420
120
1,141
3,165
4,110
1,297
510
1,009
2,039
Electrical
Costs
$ 6,266
$ 6,553
$ 9,652
$ 4,015
$ 2,272
$ 3,600
$ 7,270
$ 7,200
$ 3,706
$ 1,713
$ 3,313
$ 5,192
Requirement 1:
Using the high-low method, estimate the variable cost of electricity per occupancy-day and the fixed cost of electricity per
month. (Round the fixed cost to the nearest whole dollar and the variable cost to the nearest whole cent. Omit the
"$" sign in your response.)
list
2
Variable cost
$
per occupancy day
1
list
2
Fixed cost
$
per month
1
Requirement 2:
Which of the following statement(s) is true? (Select all that apply.)
list
3
Fixed cost will not be affected by the number of days in a month
Less systematic factors such as frugality of individual guests may also affect electrical costs
Electrical cost may reflect seasonal factors other than just the variation in occupancy days
Partial Grading Explained
Question 3: (4 points)
multi
2
multi
18
Exercise 5-4 Contribution Format Income Statement [LO4]
The Alpine House, Inc., is a large retailer of winter sports equipment. An income statement for the company's Ski
Department for a recent quarter is presented below:
The Alpine House, Inc.
Income Statement—Ski Department
For the Quarter Ended March 31
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses:
Selling expenses
Administrative expenses
Net operating income
$
$
255,000
152,000
$
805,980
317,140
488,840
407,000
81,840
Skis sell, on the average, for $399 per pair. Variable selling expenses are $51 per pair of skis sold. The remaining
selling expenses are fixed. The administrative expenses are 28% variable and 72% fixed. The company does not
manufacture its own skis; it purchases them from a supplier for $157 per pair.
Requirement 1:
Prepare a contribution format income statement for the quarter. (Omit the "$" sign in your response.)
The Alpine House, Inc.
Income Statement—Ski Department
For the Quarter Ended March 31
list
2
string
$
1
Variable expenses:
list
2
string
$
1
list
2
string
1
list
list
2
2
1
1
string
list
2
string
1
Fixed expenses:
list
2
string
1
list
list
2
2
1
1
string
list
2
string
$
1
multi
1
Requirement 2:
For every pair of skis sold during the quarter, what was the contribution toward covering fixed expenses and toward earning
profits? (Round your answer to the nearest dollar amount. Omit the "$" sign in your response.)
list
2
Contribution margin per pair
$
1
E5_4_A_id4
E5_4_A_id6
E5_4_A_id8
E5_4_A_id13
E5_4_A_id15
Question 4: (4 points)
multi
2
multi
15
Exercise 5-5 Cost Behavior; Contribution Format Income Statement [LO1, LO4]
Harris Company manufactures and sells a single product.
Requirement 1:
A partially completed schedule of the company's total and per unit costs over the relevant range of 52,000 to 92,000 units
produced and sold annually is given. Complete the schedule of the company's total and unit costs below (Round the "total
costs" to the nearest dollar amount and the "cost per unit" to 2 decimal places. Omit the "$" sign in your response)
:
52,000
Units produced and sold
72,000
92,000
Total costs:
list
Variable
costs
list
2
$
104,000
Fixed costs
$
2
$
1
1
list
list
2
2
1
1
list
list
490,000
2
Total costs
$
594,000
$
2
$
1
1
list
list
Cost per unit:
list
2
Variable cost
$
2
$
2
$
1
1
1
list
list
list
2
2
2
1
1
1
list
list
list
Fixed cost
Total cost per
unit
2
$
1
multi
2
$
2
$
1
1
10
Requirement 2:
Assume that the company produces and sells 82,000 units during the year at a selling price of $7.1 per unit. Prepare a
contribution format income statement for the year. (Input all amounts as positive values. Omit the "$" sign in your
response.)
Income Statement
For the Year Ended
list
string
2
$
1
list
string
2
1
list
string
2
1
list
string
2
1
list
string
2
$
1
Question 5: (4 points)
multi
3
multi
5
Exercise 6-1 Preparing a Contribution Format Income Statement [LO1]
Whirly Corporation's most recent income statement is shown below:
Total
$ 229,680
156,600
73,080
55,500
$ 17,580
Sales (8,700 units)
Variable expenses
Contribution margin
Fixed expenses
Net operating income
Per
Unit
$ 26.4
18
$ 8.4
Prepare a new contribution format income statement under each of the following conditions (consider each case
independently):
Requirement 1:
The sales volume increases by 50 units. (Omit the "$" sign in your response.)
Total
list
2
Sales
$
1
list
2
Variable expenses
1
list
2
Contribution margin
1
list
2
Fixed expenses
1
list
2
Net operating income
$
1
multi
5
Requirement 2:
The sales volume decreases by 50 units. (Omit the "$" sign in your response.)
Total
list
2
Sales
$
1
list
2
Variable expenses
1
list
2
Contribution margin
1
list
2
Fixed expenses
1
list
2
Net operating income
$
1
multi
5
Requirement 3:
The sales volume is 7,700 units. (Omit the "$" sign in your response.)
Total
list
2
Sales
$
1
list
2
Variable expenses
1
list
2
Contribution margin
1
Fixed expenses
list
2
1
list
2
Net operating income
$
1
Question 6: (4 points)
multi
2
multi
1
Exercise 6-4 Computing and Using the CM Ratio [LO3]
Last month when Holiday Creations, Inc., sold 40,000 units, total sales were $307,000, total variable expenses were
$245,600, and fixed expenses were $39,500.
Requirement 1:
What is the company's contribution margin (CM) ratio? (Omit the "%" sign in your response.)
list
2
Contribution margin ratio
%
1
multi
1
Requirement 2:
Estimate the change in the company's net operating income if it were to increase its total sales by $1,200. (Omit the "$"
sign in your response.)
list
Estimated change in net operating income
$
2
Question 7: (4 points)
multi
3
multi
1
Exercise 6-5 Changes in Variable Costs, Fixed Costs, Selling Price, and Volume [LO4]
Data for Hermann Corporation are shown below:
Per unit
$ 78.00
46.80
$ 31.20
Selling price
Variable expenses
Contribution margin
Percent
of Sales
100 %
60 %
40 %
Fixed expenses are $74,600 per month and the company is selling 4,700 units per month.
Requirement 1:
(a) Calculate the change in net operating income if a $8,200 increase in the monthly advertising budget would increase
monthly sales by $14,600. (Negative amount should be indicated by a minus sign. Omit the "$" sign in your
response.)
Change in net operating income
$
list
2
1
(b) Should the advertising budget be increased as suggested in requirement 1(a) above?
string
Yes
No
Requirement 2:
Refer to the original data. Management is considering using higher-quality components that would increase the variable
cost by $3.2 per unit. The marketing manager believes the higher-quality product would increase sales by 16% per month.
Should the higher-quality components be used?
string
Yes
No
Question 8: (4 points)
multi
2
multi
1
Exercise 6-6 Compute the Level of Sales Required to Attain a Target Profit [LO5]
Lin Corporation has a single product whose selling price is $142 and whose variable expense is $58 per unit. The
company's monthly fixed expense is $39,000.
Requirement 1:
Using the equation method, solve for the unit sales that are required to earn a target profit of $10,560.
list
2
Unit sales to earn target profit
units
1
multi
1
Requirement 2:
Using the formula method, solve for the unit sales that are required to earn a target profit of $11,064.
list
2
Unit sales to earn target profit
units
1
Question 9: (4 points)
multi
2
multi
1
Exercise 6-7 Compute the Break-Even Point [LO6]
Mauro Products distributes a single product, a woven basket whose selling price is $30 and whose variable expense is $27
per unit. The company's monthly fixed expense is $4,500.
Requirement 1:
Solve for the company's break-even point in unit sales using the equation method.
list
2
Break-even point in unit sales
baskets
1
multi
1
Requirement 2:
Solve for the company's break-even point in sales dollars using the equation method and the CM ratio. (Omit the "$" sign
in your response.)
list
Break-even point in sales
$
2
Question 10: (4 points)
multi
2
multi
1
Exercise 6-8 Compute the Margin of Safety [LO7]
Molander Corporation is a distributor of a sun umbrella used at resort hotels. Data concerning the next month's budget
appear below:
Selling price
Variable expenses
Fixed expenses
Unit sales
$
25 per unit
$
12 per unit
$ 10,790 per month
980 units per month
Requirement 1:
Compute the company's margin of safety. (Omit the "$" sign in your response.)
list
2
Margin of safety
$
1
multi
1
Requirement 2:
Compute the company's margin of safety as a percentage of its sales. (Round your answer to the nearest whole
percent. Omit the "%" sign in your response.)
list
2
Margin of safety as a percentage of sales
%
1
Question 11: (4 points)
multi
3
multi
1
Exercise 6-9 Compute and Use the Degree of Operating Leverage [LO8]
Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income
statement follows:
Sales
Variable expenses
Contribution margin
Fixed expenses
Net operating income
Amount
$ 129,000
51,600
77,400
18,000
$ 59,400
Percent
of Sales
100 %
40 %
60 %
Requirement 1:
Compute the company's degree of operating leverage. (Round your answer to 2 decimal places.)
list
2
Degree of operating leverage
1
multi
1
Requirement 2:
Using the degree of operating leverage, estimate the impact on net operating income of a 12% increase in sales. (Round
your answer to 2 decimal places, e.g., .1234 as 12.34. Omit the "%" sign in your response.)
list
2
Estimated percent change in net operating income
%
1
multi
7
Requirement 3:
Verify your estimate from requirement (2) by constructing a new contribution format income statement for the company
assuming a 12% increase in sales. (Round "percent change" to 2 decimal places, e.g., .1234 as 12.34. Final answer
may vary from Requirement 2 due to rounding. Omit the "$" and "%" signs in your response.)
Amount
list
2
Sales
$
1
list
2
Variable expenses
1
Contribution margin
list
2
1
list
2
Fixed expenses
1
list
2
Net operating income
$
1
list
2
Original net operating income
$
1
list
2
Percent change in net operating income
%
1
Question 12: (4 points)
multi
2
multi
1
Exercise 7-2 Variable Costing Income Statement; Explanation of Difference in Net Operating Income [LO2]
Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia.
The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The
sounding bars are cast from brass and hand-filed to attain just the right sound. The bars are then mounted on an intricately
hand-carved wooden base. The gamelans are sold for 915 (thousand) rupiahs. (The currency in Indonesia is the rupiah,
which is denoted by Rp.) Selected data for the company's operations last year follow (all currency values are in thousands
of rupiahs):
Units in beginning inventory
Units produced
Units sold
Units in ending inventory
Variable costs per unit:
Direct materials
Direct labor
Variable manufacturing overhead
Variable selling and administrative
Fixed costs:
Fixed manufacturing overhead
Fixed selling and administrative
0
259
215
44
Rp
Rp
Rp
Rp
82
306
24
19
Rp 60,088
Rp 19,400
The absorption costing income statement prepared by the company's accountant for last year appears below (all currency
values are in thousands of rupiahs):
Sales
Cost of goods sold
Gross margin
Selling and administrative expenses
Net operating income
Rp 196,725
138,460
58,265
23,485
Rp 34,780
Requirement 1:
Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the
next period. (Omit the "Rp" sign in your response.)
list
2
Fixed manufacturing overhead
Rp
1
multi
15
Requirement 2:
Prepare an income statement for the year using the variable costing method. (Input all amounts as positive values. Omit
the "Rp" sign in your response.)
list
2
string
Rp
1
Variable expenses:
string
list
Rp
2
1
string
list
list
2
2
1
1
list
2
Contribution margin
1
Fixed expenses:
list
string
2
1
string
list
list
2
2
1
1
list
2
string
Rp
1
E7_2_A_id5
E7_2_A_id7
E7_2_A_id11
E7_2_A_id13
Question 13: (4 points)
multi
3
multi
3
Exercise 7-3 Reconciliation of Absorption and Variable Costing Net Operating
Incomes [LO3]
Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for
municipalities. The company uses variable costing for internal management reports and
absorption costing for external reports to shareholders, creditors, and the government. The
company has provided the following data:
Year 1
Inventories:
Beginning (units)
Ending (units)
Variable costing net
operating income
Year 2
Year 3
218
157
157
198
198
222
$ 1,087,400
$ 1,029,400
$ 1,001,400
The company's fixed manufacturing overhead per unit was constant at $552 for all three
years.
Requirement 1:
Determine each year's absorption costing net operating income. (Omit the "$" sign in
your response.)
Year 1
Year 2
list
Absorption costing net
operating income
list
2
$
Year 3
list
2
$
1
2
$
1
1
Requirement 2:
In Year 4, the company's variable costing net operating income was $997,400 and its
absorption costing net operating income was $1,020,400.
(a) Did inventories increase or decrease during Year 4?
string
Increase
Decrease
multi
2
(b) How much fixed manufacturing overhead cost was deferred or released from inventory
during Year 4? (Omit the "$" sign in your response.)
list
string
manufacturing overhead cost
fixed
2
$
1
Question 14: (4 points)
multi
4
multi
1
Exercise 7-5 Variable and Absorption Costing Unit Product Costs and Income
Statements [LO1, LO2]
Lynch Company manufactures and sells a single product. The following costs were
incurred during the company's first year of operations:
Variable costs per unit:
Manufacturing:
Direct materials
Direct labor
Variable manufacturing overhead
Variable selling and administrative
Fixed costs per year:
Fixed manufacturing overhead
Fixed selling and administrative
$
$
$
$
20
7
4
4
$ 120,000
$ 112,000
During the year, the company produced 20,000 units and sold 17,600 units. The selling
price of the company's product is $61 per unit.
Requirement 1:
Assume that the company uses absorption costing:
(a) Compute the unit product cost. (Omit the "$" sign in your response.)
list
2
Unit product cost
$
1
multi
10
(b) Prepare an income statement for the year.(Input all amounts as positive values. Omit
the "$" sign in your response.)
list
string
2
$
1
list
string
2
1
list
2
string
1
list
string
2
1
list
2
$
string
1
multi
1
Requirement 2:
Assume that the company uses variable costing:
(a) Compute the unit product cost. (Omit the "$" sign in your response.)
list
2
Unit product cost
$
1
multi
16
(b) Prepare an income statement for the year. (Input all amounts as positive values.
Omit the "$" sign in your response.)
list
2
$
string
1
Variable expenses:
list
string
2
$
1
string
list
list
2
2
1
1
list
string
2
1
Fixed expenses:
list
string
2
1
string
list
list
2
2
1
1
list
2
string
$
1
E7_5_A_id16
E7_5_A_id18
E7_5_A_id23
E7_5_A_id25
Question 15: (4 points)
multi
2
multi
15
Exercise 7-7 Variable Costing Income Statement; Reconciliation [LO2, LO3]
Whitman Company has just completed its first year of operations. The company's
absorption costing income statement for the year appears below:
Whitman Company
Income Statement
Sales (41,000 units × $40 per unit)
Cost of goods sold (41,000 units × $21 per
unit)
Gross margin
Selling and administrative expenses
Net operating income
$ 1,640,000
861,000
779,000
471,500
$ 307,500
The company's selling and administrative expenses consist of $307,500 per year in fixed
expenses and $4 per unit sold in variable expenses. The $21 per unit product cost given above
is computed as follows:
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead ($208,000 ÷ 52,000
units)
Absorption costing unit product cost
$ 9
5
3
4
$ 21
Requirement 1:
Redo the company's income statement in the contribution format using variable costing.
(Input all amounts as positive values. Omit the "$" sign in your response.)
list
2
$
string
1
Variable expenses:
list
string
2
$
1
string
list
list
2
2
1
1
list
2
Contribution margin
1
Fixed expenses:
list
string
2
1
string
list
list
2
2
1
1
list
2
$
string
1
multi
4
Requirement 2:
Reconcile any difference between the net operating income on your variable costing
income statement and the net operating income on the absorption costing income statement
above. (Omit the "$" sign in your response.)
list
2
Variable costing net operating income (loss)
$
1
list
string
2
: Fixed manufacturing
overhead cost deferred
1
list
Absorption costing net operating income (loss)
$
2
1
E7_7_A_id4
E7_7_A_id6
E7_7_A_id10
E7_7_A_id12
Question 16: (4 points)
multi
35
Exercise 8-2 First-Stage Allocation [LO2]
SecuriCorp operates a fleet of armored cars that make scheduled pickups and deliveries in the
Los Angeles area. The company is implementing an activity-based costing system that has
four activity cost pools: Travel, Pickup and Delivery, Customer Service, and Other. The
activity measures are miles for the Travel cost pool, number of pickups and deliveries for the
Pickup and Delivery cost pool, and number of customers for the Customer Service cost pool.
The Other cost pool has no activity measure because it is an organization-sustaining activity.
The following costs will be assigned using the activity-based costing system:
Driver and guard wages
Vehicle operating expense
Vehicle depreciation
Customer representative salaries and
expenses
Office expenses
Administrative expenses
Total cost
$ 1,040,000
470,000
350,000
380,000
240,000
540,000
$ 3,020,000
The distribution of resource consumption across the activity cost pools is as follows:
Driver and guard wages
Vehicle operating expense
Vehicle depreciation
Customer representative
salaries and expenses
Office expenses
Administrative expenses
Pickup and Customer
Delivery
Service
30 %
5%
5%
0%
15 %
0%
Travel
45 %
75 %
50 %
0%
0%
0%
0%
15 %
5%
85 %
25 %
50 %
Other
20 %
20 %
35 %
Totals
100 %
100 %
100 %
15 %
60 %
45 %
100 %
100 %
100 %
Required:
Complete the first-stage allocations of costs to activity cost pools. (Leave no cells blank - be
certain to enter "0" wherever required. Omit the "$" sign in your response.)
Pickup and
Delivery
Travel
list
Driver and
guard wages
Vehicle
operating
expense
list
2
$
Customer
Service
list
2
$
Other
list
2
$
Totals
list
2
$
2
$
1
1
1
1
1
list
list
list
list
list
2
2
2
2
2
1
1
1
1
1
Vehicle
depreciation
Customer
representative
salaries
and expenses
list
list
list
list
list
2
2
2
2
2
1
1
1
1
1
list
list
list
list
list
2
2
2
2
2
1
1
1
1
1
list
list
list
list
list
2
2
2
2
2
1
1
1
1
1
list
list
list
list
list
2
2
2
2
2
1
1
1
1
1
list
list
list
list
list
Office expenses
Administrative
expenses
2
Total cost
$
2
$
1
2
$
1
2
$
1
2
$
1
1
Question 17: (4 points)
multi
5
Exercise 8-3 Compute Activity Rates [LO3]
Green Thumb Gardening is a small gardening service that uses activity-based costing to
estimate costs for pricing and other purposes. The proprietor of the company believes that
costs are driven primarily by the size of customer lawns, the size of customer garden beds, the
distance to travel to customers, and the number of customers. In addition, the costs of
maintaining garden beds depends on whether the beds are low maintenance beds (mainly
ordinary trees and shrubs) or high maintenance beds (mainly flowers and exotic plants).
Accordingly, the company uses the five activity cost pools listed below:
Activity Cost Pool
Caring for lawn
Caring for garden beds–low
maintenance
Caring for garden beds–high
maintenance
Travel to jobs
Customer billing and service
Activity Measure
Square feet of lawn
Square feet of low maintenance beds
Square feet of high maintenance beds
Miles
Number of customers
The company has already completed its first stage allocations of costs and has summarized its
annual costs and activity as follows:
Activity cost Pool
Caring for lawn
Caring for garden beds–low
maintenance
Caring for garden beds–high
maintenance
Travel to jobs
Customer billing and service
Estimated
Overhead
Cost
$ 79,400
$ 32,000
$ 57,000
$ 3,400
$ 7,100
Expected Activity
175,000 square feet of lawn
square feet of low maintenance
26,000
beds
square feet of high maintenance
20,000
beds
17,000 miles
38 customers
Required:
Compute the activity rate for each of the activity cost pools. (Round your answers to 2
decimal places. Omit the "$" sign in your response.)
Activity Cost Pool
Activity Rate
list
2
Caring for lawn
$
per square foot of lawn
1
list
Caring for garden beds–low
maintenance
2
$
1
per square foot of low maintenance
beds
list
Caring for garden beds–high
maintenance
2
$
per square foot of high maintenance
beds
1
list
2
Travel to jobs
$
per mile
1
list
2
Customer billing and service
$
per customer
1
Question 18: (4 points)
multi
2
multi
24
Exercise 9-1 Schedule of Expected Cash Collections [LO2]
Silver Company makes a product that is very popular as a Mother's Day gift. Thus, Peak
sale occur in May of each year, as shown in the company's sales budget for the second
quarter given below:
April
Budgeted sales (all on
account)
May
June
Total
$ 596,000 $ 799,000 $ 486,000 $ 1,881,000
From past experience, the company has learned that 30% of a month's sales are
collected in the month of sale, another 65% are collected in the month following sale, and
the remaining 5% are collected in the second month following sale. Bad debts are
negligible and can be ignored. February sales totaled $412,000, and March sales totaled
$512,000.
Requirement 1:
Prepare a schedule of expected cash collections from sales, by month and in total, for the
second quarter. (Leave no cells blank - be certain to enter "0" wherever required.
Omit the "$" sign in your response.)
April
May
list
February
sales
March
sales
list
2
$
June
list
2
$
Total
list
2
$
2
$
1
1
1
1
list
list
list
list
2
2
2
2
1
1
1
1
list
list
list
list
2
2
2
2
1
1
1
1
list
list
list
list
2
2
2
2
1
1
1
1
list
list
list
list
2
2
2
2
April sales
May sales
June sales
Total cash
$
collections
1
1
1
1
list
list
list
list
2
2
$
1
multi
2
$
1
2
$
1
1
1
Requirement 2:
Assume that the company will prepare a budgeted balance sheet as of June 30. Compute
the accounts receivable as of that date. (Omit the "$" sign in your response.)
list
2
Accounts receivable $
1
Question 19: (4 points)
multi
4
Exercise 9-2 Production Budget [LO3]
Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the
next four months as follows:
April
May
June
July
Sales
in Units
28,000
40,000
55,000
46,000
The company is now in the process of preparing a production budget for the second quarter.
Past experience has shown that end-of-month inventory levels must equal 10% of the
following month's sales. The inventory at the end of March was 2,800 units.
Required:
Show the number of units to be produced each month and for the quarter in total.
Required
Production
list
2
April
1
list
2
May
1
list
2
June
1
list
2
Quarter
1