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Managerial Accounting Tutorial Questions Chapter 2 *2. 3 What is the most important difference between a manufacturing firm and a service industry firm, with regard to the classification of costs as product *costs or period costs? The most important difference between a manufacturing firm and a service industry firm is that most services are consumed as they are produced. Services cannot be stored and kept like manufactured goods. Product costs are costs associated with goods for sale until when the products are sold, the costs become expenses.
Period costs are costs that are expensed during the time period in which they are incurred. Product costs are usually associated with manufacturing firms, as product costs are costs of inventory that can be stored such as books and pencils, while Period costs are associated with Service industry firms as period costs are costs of services. 2. 7 Explain why an overtime premium is included in manufacturing overhead An overtime premium is a bonus given to an employee who works over the time normally scheduled.
A manufacturing overhead are all the other costs of manufacturing. It includes indirect material, indirect labor, and other manufacturing costs. Fixed cost per unit changes when the level of activity increases because as total fixed cost stays the same, and the level of activity increases, the fixed cost for each unit decreases.. *2. 16 List three costs that are likely to be controllable by a city’s airport manager.
List three costs that are likely to be uncontrollable *by the manager One cost that is likely to be controllable by a city’s airport manager is direct costs, which is the cost that can be traced to a particular department or other subunit of an organization. An example of a direct cost in this case is the cost of an airplane. Another cost that is likely to be controllable by a city’s airport manager is indirect costs, which is the cost that is not directly traceable to a particular cost object. An example of this cost in this case is 2. 9 Define the terms sunk cost and differential cost Sunk costs are costs that have been incurred in the past. They do not affect future costs and cannot be changed by any current or future action. A differential cost is the amount by which the costs differ under 2 alternative actions. For example, the cost of going to Adelaide is $300, while the cost of going to Melbourne is $500 dollars. Therefore the differential cost is $200 dollars. 2. 28 Consider the following costs that were incurred during the current year: 1) Tire costs ncurred by Ford Motor Company -Direct costs 2) Sales commissions paid to the sales force of Dell Computer -Direct costs 3) Wood glue consumed in the manufacture of Thomasville furniture -Direct costs 4) Hourly wages of refinery security guards employed by ExxonMobil Corporation -Indirect costs 5) The salary of a financial vice president of Hewlett Packard -Indirect costs 6) Advertising costs of Coca-cola -Indirect costs 7) Straight-line depreciation on factory machinery of Boeing Corporation -Fixed costs 2. 31 A hotel pays the phone company $100 per month plus $. 5 for each call made. During January 6000 calls were made. In February 5,000 calls were made. 1) Calculate the hotel’s phone bills for January and Feruary. January Fixed costs: $100 Variable Costs: $1500(0. 25×6000) Total Costs: $1600 February Fixed costs: $100 Variable Costs: $1250(0. 25×5000) Total Costs: $1350 2) Calculate the cost per phone call in January and February January 25c(? ) February 25c(? ) 3) Separate the January phone bill into it’s fixed and variable components January Fixed costs: $100 Variable Costs: $1500(0. 5×6000) Total Costs: $1600 February Fixed costs: $100 Variable Costs: $1250(0. 25×5000) Total Costs: $1350 4) What is the marginal cost of one additional phone call in January. Marginal cost is the extra cost incurred when one additional unit is produced. The cost of one addition phone call in January is 25c 5) What was the average cost of a phone call in January. $1600/6000 = 27c per call(26. 666) 2. 39 On April 12, after the close of business, Singh & Sons had a devastating fire that destroyed the company’s work in process and finished-goods inventories.
Fortunately, all raw materials escaped damage because materials owned by the firm were stored in another warehouse. (*information* in textbook) Direct materials 40,000 Add: Manufacturing overhead 160,000 = Total manufacturing cost 320,000 WORK IN PROCESS = Cost of goods manufactured 275,000 FINISHED GOODS 2. 43 Prepare San Fernando Fashions’ schedule of cost of goods manufactured for the year Prepare San Fernando Fashions’ schedule of costs of goods sold for the year.
Prepare San Fernando Fashions’ income statement for the year. Direct materials 40,000 Add: Manufacturing overhead 160,000 = Total manufacturing cost 320,000 WORK IN PROCESS Add: Total manufacturing costs: 320,000 Total work in process for the period 341,000 Less: Ending work-in-process inventory 66,000 = Cost of goods manufactured 275,000 FINISHED GOODS Add: Cost of goods manufactured 275,000 Cost of goods available for sale 312,000 = Cost of goods sold(Direct Labor + Direct Materials) 160,000