Costs / Budgets - HOMEWORK CHAPTER 2

CHAPTER 2 :  

AN INTRODUCTION TO COST TERMS AND PURPOSES

2-19 Classification of costs, merchandising sector. Band Box Entertainment (BBE) operates a large store in Atlanta, Georgia. The store has both a movie (DVD) section and a music (CD) section. BBE reports revenues for the movie section separately from the music section.
Classify each cost item (A–H) as follows:

1. Direct or indirect (D or I) costs of the total number of DVDs sold.
   
2. Variable or fixed(V or F) costs of how the total costs of the movie section change as the total number
   of DVDs sold changes. (If in doubt, select on the basis of whether the total costs will change substantially if there is a large change in the total number of DVDs sold.)
   

You will have two answers (D or I; V or F) for each of the following items:
Cost Item
A . Annual retainer paid to a video distributor
B. Cost of store manager’s salary
C. Costs of DVDs purchased for sale to customers
D. Subscription to DVD Trends magazine
E. Leasing of computer software used for financial budgeting at the BBE store
F. Cost of popcorn provided free to all customers of the BBE store 
G. Cost of cleaning the store every night after closing
H. Freight-in costs of DVDs purchased by BBE

SOLUTION :
Cost object: DVDs sold in movie section of store
Cost variability: With respect to changes in the number of DVDs sold
There may be some debate over classifications of individual items, especially with regard to cost variability.
Cost Item                D or I                V or F
A                              D                          F
B                              I                            F
C                              D                         V
D                              D                         F
E                              I                           F
F                              I                          V
G                             I                          F
H                             D                        V

Costs / Budgets - HOMEWORK 1

NONE

ACCT 3311 - Costs/ Budgets - HW Chapter 2

CHAPTER 2

AN INTRODUCTION TO COST TERMS AND PURPOSES

2-19     (15–20 min.)   Classification of costs, merchandising sector.

Cost object: DVDs sold in movie section of store

Cost variability: With respect to changes in the number of DVDs sold

            There may be some debate over classifications of individual items, especially with regard to cost variability.

Cost Item	D or I	V or F
A	D	F
B	I	F
C	D	V
D	D	F
E	I	F
F	I	V
G	I	F
H	D	V

2-22        (15–20 min.)            Variable costs and fixed costs.

1.      Variable manufacturing cost per vehicle

Steel                                                     $1,500 per Surfer

Tires                                                          625 per Surfer

Direct manufacturing labor                      700 per Surfer

    Total                                                $2,825 per Surfer

         Fixed manufacturing costs per month

               Plant management costs ($1,200,000 ÷ 12)      $ 100,000

               Cost of leasing equipment ($1,800,000 ÷ 12)     150,000

               City license (for 110 surfers or 550 tires)            74,500

               Total fixed manufacturing costs                         $324,500                                      

        

         Fixed costs per month (1 surfer takes 5 tires)

               0 to 100 surfers per month              = $100,000 + $150,000 +  $50,000 = $300,000

               101 to 200 surfers per month        = $100,000 + $150,000 +  $74,500 = $324,500

               More than 200 surfers per month  = $100,000 + $150,000 + $200,000 = $450,000

2.

 

The concept of relevant range is potentially relevant for both graphs. However, the question does not place restrictions on the unit variable costs. The relevant range for the total fixed costs is from 0 to 100 surfers; 101 to 200 surfers; more than 200 surfers. Within these ranges, the total fixed costs do not change in total.

3.        

Vehicles Produced per Month	Tires Produced per Month	Fixed Cost per Month	Unit Fixed Cost per Vehicle	Unit Variable Cost per Vehicle	Unit Total Cost per Vehicle
(1)	(2) = (1) × 5	(3)	(4) = FC ÷ (1)	(5)	(6) = (4) + (5)
(a)   100	500	$300,000	$300,000 ÷ 100 = $3,000	$2,825	$5,825
(b)   225	1,125	$450,000	$450,000 ÷ 225 = $2,000	$2,825	$4,825

The unit cost for 100 vehicles produced per month is $5,825, while for 225 vehicles it is only $4,825. This difference is caused by the fixed cost increment of $150,000 (an increase of 50%, $150,000 ÷ $300,000 = 50%) being spread over an increment of 125 (225 – 100) vehicles (an increase of 125%, 125 ÷ 100). The fixed cost per unit is therefore lower.

2-33    (30–40 min.)    Cost of goods manufactured, income statement, manufacturing

company.

                                                       Shaler Corporation                            

                                     Schedule of Cost of Goods Manufactured          

                                              Year Ended December 31, 2014

                                                            (in thousands)                                

                                                                                                                     

Direct materials costs                                                                                    

    Beginning inventory, January 1, 2014                               $130,000                                   

    Purchases of direct materials                                               256,000                                   

    Cost of direct materials available for use                             386,000                                   

    Ending inventory, December 31, 2014                                  68,000                                   

Direct materials used                                                                             $318,000           

Direct manufacturing labor costs                                                                     212,000           

Indirect manufacturing costs                                                                                                   

    Indirect manufacturing labor                                                 96,000                                   

     Indirect materials                                                                 28,000

    Plant insurance                                                                       4,000                                   

    Depreciation—plant building & equipment                            42,000                                   

    Plant utilities                                                                        24,000

    Repairs and maintenance—plant                                           16,000

    Equipment lease costs                                                           64,000                                   

Total indirect manufacturing costs                                                          274,000           

Manufacturing costs incurred during 2014                                                       804,000           

Add beginning work-in-process inventory, January 1, 2014                            166,000           

Total manufacturing costs to account for                                                        970,000           

Deduct ending work-in-process inventory, December 31, 2014                      144,000           

Cost of goods manufactured (to Income Statement)                                      $826,000           

                                                                                                                       

                                                       Shaler Corporation         

                                                        Income Statement          

                                              Year Ended December 31, 2014

                                                            (in thousands)             

                                                                                                                       

Revenues                                                                                                    $1,200,000           

Cost of goods sold:                                                                                                                  

     Beginning finished goods, January 1, 2014                    $   246,000                                   

     Cost of goods manufactured                                               826,000                                   

     Cost of goods available for sale                                       1,072,000                                   

     Ending finished goods, December 31, 2014                        204,000                                   

         Cost of goods sold                                                                                 868,000           

Gross margin                                                                                                   332,000           

Operating costs:                                                                                                                      

     Marketing, distribution, and customer-service costs            124,000                                   

     General and administrative costs                                          68,000                                   

         Total operating costs                                                                             192,000           

Operating income                                                                                       $  140,000           

ACCT 3311 - Costs / Budgets

CHAPTER 1 

THE MANAGER AND MANAGEMENT ACCOUNTING 

1-4 The business functions in the value chain are 

• Research and development—generating and experimenting with ideas related to new products, services, or processes. 
• Design of products and processes—the detailed planning, engineering, and testing of products and processes. 
• Production—procuring, transporting, storing and assembling resources to produce a product or deliver a service. 
• Marketing—promoting and selling products or services to customers or prospective customers.
• Distribution—processing orders and shipping products or services to customers. 
• Customer service—providing after-sales service to customers.

1-16 Value chain and classification of costs, computer company.

                    Cost Item                              Value Chain Business Function 
                          a.                                               Production
                          b.                                              Distribution
                          c.                                   Design of products and processes
                          d.                                    Research and Development
                          e.                                     Customer Service or Marketing
                          f.                           Design of products and processes (or Research and Development)
                          g.                                              Marketing
                          h.                                               Production

1-24 Planning and control decisions, Internet company. 
1. Planning decisions 
a. Decision to raise monthly subscription fee
c. Decision to upgrade content of online services (later decision to inform subscribers and upgrade online services is an implementation part of control)
e. Decision to decrease monthly subscription fee starting in November.

Control decisions 
b. Decision to inform existing subscribers about the rate of increase—an implementation part of control decisions
d. Dismissal of VP of Marketing—performance evaluation and feedback aspect of control decisions

2. Other planning decisions that may be made at WebNews.com: decision to raise or lower advertising fees; decision to charge a fee from on-line retailers when customers click-through from WebNews.com to the retailers’ websites.

Other control decisions that may be made at WebNews.com: evaluating how customers like the new format for the weather information, working with an outside vendor to redesign the website, and evaluating whether the waiting time for customers to access the website has been reduced.