Question Type Difficulty LO1: Direct and indirect costs LO2: DM, DL, Manuf. overhead LO3: Period and product costs LO4: Variable, fixed, and mixed costs LO5: High-low method LO6: Income statement formats LO7: Decision-making cost classifications Professional exam adapted 1 T/F E x 2 T/F E x 3 T/F M x 4 T/F H x 5 T/F E x 6 T/F M x 7 T/F M x 8 T/F E x x 9 T/F E x 10 T/F E x x 11 T/F E x 12 T/F M x 13 T/F M x x 14 T/F E x 15 T/F E x 16 T/F M x 17 T/F E x 18 T/F E x 19 T/F E x 20 T/F E x 21 T/F E x 22 T/F E x 23 T/F E x 24 T/F E x
Costs that are not direct costs of the Northridge Store = Corporate headquarters building lease + Corporate legal office salaries + Central warehouse lease cost = $80,000 + $75,000 + $17,000 = $172,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-01 Understand cost classifications used for assigning costs to cost objects: direct costs and indirect costs. The following cost data pertain to the operations of Bouffard Department Stores, Inc., for the month of May. The Brentwood Store is just one of many stores owned and operated by the company. The Shoe Department is one of many departments at the Brentwood Store. The central warehouse serves all of the company's stores. 101. What is the total amount of the costs listed above that are direct costs of the Shoe Department? Direct costs of the Shoe Department = Shoe Department cost of sales + Shoe Department sales commissions + Shoe Department manager's salary = $29,000 + $5,000 + $4,000 = $38,000 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 1 Easy Learning Objective: 02-01 Understand cost classifications used for assigning costs to cost objects: direct costs and indirect costs. 102. What is the total amount of the costs listed above that are NOT direct costs of the Brentwood Store?
Cost of sales: Because cost of sales is a variable cost, there are several ways to compute the variable cost per unit. Here is one: Variable cost per unit = Change in cost ÷ Change in activity = ($318,600 - $265,500) ÷ (6,000 units - 5,000 units) = $53,100 ÷ 1,000 units = $53.10 per unit Selling and administrative costs: Variable cost per unit = Change in cost ÷ Change in activity = ($406,800 - $393,500) ÷ (6,000 units - 5,000 units) = $13,300 ÷ 1,000 units = $13.30 per unit Total cost per unit = $53.10 per unit + $13.30 per unit = $66.40 Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-05 Analyze a mixed cost using a scattergraph plot and the high-low method. 150. The best estimate of the total contribution margin when 5,300 units are sold is: Contribution margin per unit = Selling price per unit - Variable cost per unit = $141.60 per unit - $66.40 per unit = $75.20 per unit Total contribution margin = Contribution margin per unit × Unit sales = $75.20 per unit × 5,300 units = $398,560 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-04 Understand cost classifications used to predict cost behavior: variable costs; fixed costs; and mixed costs. Learning Objective: 02-05 Analyze a mixed cost using a scattergraph plot and the high-low method. Learning Objective: 02-06 Prepare income statements for a merchandising company using the traditional and contribution formats. Bee Company is a wholesaler. An income statement and other data for the second quarter of the year are given below:
Variable cost = Change in cost ÷ Change in activity Variable cost = $1,560 ÷ 2,400 machine-hours = $0.65 per machine-hour Fixed cost = Total cost - Variable cost Fixed cost = $4,460 - ($0.65 per machine-hour × 6,000 machine-hours) = $560 AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-05 Analyze a mixed cost using a scattergraph plot and the high-low method. Inspection at one of Iuliano Corporation's factories are listed below: Management believes that inspection cost is a mixed cost that depends on units produced. 161. Using the high-low method, the estimate of the variable component of inspection cost per unit produced is closest to: Variable cost per unit = Change in cost ÷ Change in activity = $840 ÷ 90 units = $9.33 per unit AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 02-05 Analyze a mixed cost using a scattergraph plot and the high-low method. 162. Using the high-low method, the estimate of the fixed component of inspection cost per month is closest to:
Opportunity cost = Return from alternative investment = $305,000 Analytic AICPA BB: Critical Thinking AICPA FN: Decision Making Blooms: Apply Difficulty: 1 Easy Learning Objective: 02-07 Understand cost classifications used in making decisions: differential costs; opportunity costs; and sunk costs. Essay Questions 181. A number of costs are listed below. Required: For each item above, indicate whether the cost is direct or indirect with respect to the cost object listed next to it. 1. Cost of a measles vaccine administered at an outpatient clinic at a hospital; The outpatient clinic; Direct 2. Cost of a replacement battery installed in a car at the auto repair shop of an automobile dealer; The auto repair shop; Direct 3. Accounting professor's salary; A particular class; Indirect 4. Cost of electronic navigation system installed in a yacht at a yacht manufacturer; A particular yacht; Direct 5. Cost of wiring used in making a personal computer; A particular personal computer; Indirect 6. Supervisor's wages in a computer manufacturing facility; A particular personal computer; Indirect 7. Cost of lubrication oil used at the auto repair shop of an automobile dealer; The auto repair shop; Direct 8. Cost of heating a hotel run by a chain of hotels; A particular hotel guest; Indirect 9. Cost of heating a hotel run by a chain of hotels; The particular hotel; Direct 10. Cost of tongue depressors used in an outpatient clinic at a hospital; A particular patient; Indirect