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
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
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