Exam 1: Managerial Accounting and Cost Concepts

Traditional format income statements are prepared primarily for external reporting purposes.

The traditional format income statement is used as an internal planning and decision-making tool. Its emphasis on cost behavior aids cost-volume-profit analysis, management performance appraisals, and budgeting.

Whitman Corporation, a merchandising company, reported sales of 7,400 units for May at a selling price of $677 per unit. The cost of goods sold (all variable) was $441 per unit and the variable selling expense was $54 per unit. The total fixed selling expense was $155,600. The variable administrative expense was $24 per unit and the total fixed administrative expense was $370,400. Required: a. Prepare a contribution format income statement for May. b. Prepare a traditional format income statement for May.

In making the decision to buy the model 230 machine rather than the model 330 machine, the differential cost was:

The following costs should be considered by a law firm to be indirect costs of defending a particular client in court: rent on the law firm's offices, the law firm's receptionist's wages, the costs of heating the law firm's offices, and the depreciation on the personal computer in the office of the attorney who has been assigned the client.

The total of the period costs listed above for November is:

The total of the manufacturing overhead costs listed above for November is:

What would be the average fixed maintenance cost per unit at an activity level of 5,600 machine-hours in a month? Assume that this level of activity is within the relevant range.

Discretionary fixed costs arise from annual decisions by management to spend in certain fixed cost areas.

Which of the following costs is often important in decision making, but is omitted from conventional accounting records?

At an activity level of 9,200 machine-hours in a month, Nooner Corporation's total variable production engineering cost is $761,300 and its total fixed production engineering cost is $154,008. What would be the total production engineering cost per unit, both fixed and variable, at an activity level of 9,300 machine-hours in a month? Assume that this level of activity is within the relevant range.

Using the high-low method, the estimate of the variable component of electrical cost per machine-hour is closest to:

Haar Inc. is a merchandising company. Last month the company's cost of goods sold was $61,000. The company's beginning merchandise inventory was $11,000 and its ending merchandise inventory was $21,000. What was the total amount of the company's merchandise purchases for the month?

Bill Pope has developed a new device that is so exciting he is considering quitting his job in order to produce and market it on a large-scale basis. Bill will rent a garage for $300 per month for production purposes. Utilities will cost $40 per month. Bill has already taken an industrial design course at the local community college to help prepare for this venture. The course cost $300. Bill will rent production equipment at a monthly cost of $800. He estimates the material cost per unit will be $5, and the labor cost will be $3. He will hire workers and spend his time promoting the product. To do this he will quit his job which pays $3,000 per month. Advertising and promotion will cost $900 per month. Required: Complete the chart below by placing an "X" under each heading that helps to identify the cost involved. There can be "Xs" placed under more than one heading for a single cost, e.g., a cost might be a sunk cost, an overhead cost and a product cost; there would be an "X" placed under each of these headings opposite the cost. * Between the alternatives of going into business to make the device or not going into business to make the device.

Maintenance costs at a Tierce Corporation factory are listed below: Management believes that maintenance cost is a mixed cost that depends on machine-hours. Using the high-low method to estimate the variable and fixed components of this cost, these estimates would be closest to:

The gross margin for March is:

Laco Company acquired its factory building about 20 years ago. For a number of years the company has rented out a small, unused part of the building. The renter's lease will expire soon. Rather than renewing the lease, Laco Company is considering using the space itself to manufacture a new product. Under this option, the unused space will continue to be depreciated on a straight-line basis, as in past years. Direct materials and direct labor cost for the new product would be $50 per unit. In order to have a place to store finished units of the new product, the company would have to rent a small warehouse nearby. The rental cost would be $2,000 per month. It would cost the company an additional $4,000 each month to advertise the new product. A new production supervisor would be hired to oversee production of the new product who would be paid $3,000 per month. The company would pay a sales commission of $10 for each unit of product that is sold. Required: Complete the chart below by placing an "X" under each column heading that helps to identify the costs listed to the left. There can be "X's" placed under more than one heading for a single cost. For example, a cost might be a product cost, an opportunity cost, and a sunk cost; there would be an "X" placed under each of these headings on the answer sheet opposite the cost. *Between the alternatives of (1) renting the space out again or (2) using the space to produce the new product.

What is the best estimate of the company's total fixed selling and administrative expense per year?

Lettman Corporation has provided the following partial listing of costs incurred during November: Required: a. What is the total amount of product cost listed above? Show your work. b. What is the total amount of period cost listed above? Show your work.

The following data pertains to activity and utility costs for two recent years: Year 2 Year 1 Activity level in units 10,000 6,000 Utilities cost observed \ 12,000 \ 9,000 Using the high-low method, the cost formula for utilities is: