ACCT CH1CH2 complete solutions correct answers key

ACCT CH1CH2 complete solutions correct answers key

Apple, Inc. incurs many types of costs in its operations.

Required:

For each cost in the following table, identify the stage in the value chain where this cost is incurred.

Cost

Stage in the Value Chain

  Programmer costs for a new operating system.

Research and Development  

  Costs to ship computers to customers.

Distribution  

  Call center costs for support calls.

Customer Service  

  Salaries for employees working on new product designs.

Design  

  Costs to purchase advertising in university stores.

Marketing  

  Costs of memory chips to make computers.

Production  

Pine Ridge Cabinets (PRC) produces cabinets for new home builders. You have been called in to settle a dispute between PRC and Eastern Homes, a builder of custom homes.

Eastern Homes buys 10,000 units of a particular cabinet from PRC every year. It insists that PRC keep a one-month inventory to accommodate fluctuations in Eastern’s demand. PRC does not want to keep any inventory and says that Eastern Homes should buy components in advance and store them.

You determine that the inventory storage costs per unit are $100 at PRC and $200 at Eastern Homes.

Required:

How do you suggest the two companies settle their dispute?

There is no need for Pine Ridge Cabinets (PRC) to carry the inventory. Eastern Homes should buy in advance.

To minimize costs in the supply chain, Pine Ridge Cabinets (PRC) should carry the inventory and the two firms could share the inventory savings through price discounts or other contractual agreements.

Pine Ridge Cabinets (PRC) should carry the inventory, but Eastern Homes should cover all the inventory carrying costs.

As an analyst in an airline's finance department, you are asked to help the operations staff. Personnel has identified a new method of loading baggage that is expected to result in a 30 percent reduction in labor time but no changes in any other costs. The current labor cost to load bags is $1.00 per bag. Other costs are $0.50 per bag.

Required:

(a)

What differential costs should the operations staff consider for the decision to use the new method next year? (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

  Differential costs

$   

(b)

Describe how management would use the information in requirement (a) and any other appropriate information to proceed with the comtemplated use of the new baggage loading method.

Beige Computers operates retail stores in both downtown (City) and suburban (Mall) locations. The company has two responsibility centers: the City Division, which contains stores in downtown locations, and the Mall Division, which contains stores in suburban locations. Beige’s CEO is concerned about the profitability of the City Division, which has been operating at a loss for the last several years. The most recent income statement follows. The CEO has asked for your advice on shutting down the City Division's operations. If the City Division is eliminated, corporate administration is not expected to change, nor are any other changes expected in the operations or costs of the Mall Division.

BEIGE COMPUTERS, CITY DIVISION
Divisional Income Statement
For the Year Ending January 31

  Sales revenue

$

12,900,000

  Costs

    Advertising—City Division

525,000

    Cost of goods sold

6,450,000

    Divisional administrative salaries

870,000

    Selling costs (sales commissions)

1,730,000

    Rent

2,215,000

    Share of corporate administration

1,425,000

  Total costs

$

13,215,000

  Net loss before income tax benefit

$

(315,000

)

  Tax benefit at 40% rate

126,200

  Net loss

$

(189,000

)

Required:

What revenues and costs are probably differential for the decision to discontinue City division's operations?(Input all values as positive number. Leave no cells blank - be certain to enter "0" wherever required. Omit the "$" sign in your response.)

BEIGE COMPUTERS, CITY DIVISION
Divisional Income Statement
Differential Revenues and Costs
For the Year Ending January 31

  Sales revenue

  $   

  Differential

  Costs

    Advertising—City Division

  Differential

    Cost of goods sold

  Differential

    Divisional administrative salaries

  Differential

    Selling costs (sales commissions)

  Differential

    Rent

  Differential

    Share of corporate administration

  Not Differential

       Total costs

$   

  Net differential gain before income tax expense

$   

  Tax expense at 40% rate

  Differential

  Net differential gain from store

$   

Assume that Carmen's Cookies is preparing a budget for the month ending June 30. Management prepares the budget by starting with the actual results for April 30. Next, management considers what the differences in costs will be between April and June.

     Management expects the number of cookies sold to be 15 percent greater in June than in April, and it expects all food costs (e.g., flour, eggs) to be 15 percent higher in June than in April. Management expects "other" labor costs to be 20 percent higher in June than in April, partly because more labor will be required in June and partly because employees will get a pay raise. The manager will get a pay raise that will increase the salary from $3,000 in April to $3,750 in June. Rent and utilities are not expected to change.

Required:

Prepare a budget for Carmen's Cookies for June. (Omit the "$" sign in your response.)

CARMEN'S COOKIES
Retail Responsibility Center
Budgeted Costs
For the Month Ending June 30

Actual
(April)

Budget
(June)

  Food

    Flour

   $

2,100  

$  

    Eggs

5,200  

    Chocolate

2,000  

    Nuts

2,000  

    Other

2,200  

  Total food

   $

13,500  

$   

  Labor

    Manager

   $

3,000  

$   

    Other

1,500  

  Total labor

   $

4,500  

$   

  Utilities

1,800  

  Rent

5,000  

  Total cookie costs

   $

24,800  

$   

  Number of cookies sold

32,000  

  Graphic Components (GC) has offered to supply the Federal Aviation Agency (FAA) with computer monitors at "cost plus 20 percent." GC operates a manufacturing plant that can produce 22,000 monitors per year, but it normally produces 20,000. The costs to produce 20,000 monitors follow:

Total Cost

Cost per
Monitor

  Production costs:

       Materials

$

1,180,000

 $

59

       Labor

1,720,000

86

       Supplies and other costs that will vary with production

800,000

40

       Indirect cost that will not vary with production

560,000

28

  Variable marketing costs

1,740,000

87

  Administrative costs (all fixed)

1,140,000

57

  Totals

$

7,140,000

$

357

Based on these data, company management expects to receive $428.4 (= $357 × 120 percent) per monitor for those sold on this contract. After completing 5,000 monitors, the company sent a bill (invoice) to the government for $2,142,000 (= 5,000 monitors × $428.4 per monitor).

     The president of the company received a call from an FAA representative, who stated that the per monitor cost should be

  Materials

$

59  

  Labor

86  

  Supplies and other costs that will vary with production

40  

$

185 

       Therefore, the price per monitor should be $222 (= $185 × 120 percent). The FAA ignored marketing costs because the contract bypassed the usual selling channels.

Required:

What is the price per computer monitor that should be charged by Graphic Components under the following options? (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Options:

A.

Only the differential production costs are used as the cost basis.

B.

The total cost per monitor for normal production of 20,000 monitors are used as the cost basis.

C.

The total cost per monitor for production of 22,000 monitors, excluding marketing costs, are used as the cost basis.

D.

The total cost per monitor for production of 22,000 monitors, including marketing costs, are used as the cost basis.

  Price per monitor

  Option A

$       

  Option B

$       

  Option C

$       

  Option D

$      

Select the suitable concept to match the appropriate definition.

Definition

Concept

1.

 Cost that varies with the volume of activity.

   Variable cost

2.

 Sacrifice of resources.

   Cost

3.

 Cost charged against revenue in a particular accounting period.

   Expense

4.

 Cost that is part of inventory.

   Product cost

5.

 Cost that can more easily be attributed to time intervals.

   Period cost

6.

 Past, present, or near-future cash flow.

   Outlay cost

7.

 Lost benefit from the best forgone alternative.

   Opportunity cost

8.

 Cost used to compute inventory value according to GAAP.

   Full absorption cost

9.

 Cost that cannot be directly related to a cost object.

   Indirect cost

10.

 Cost that can be directly related to a cost object.

   Direct cost

11.

 Cost that does not vary with the volume of activity.

   Fixed cost

The following information comes from the accounting records for Santa Cruz, Inc., for March:

  Direct material inventory, March 1

$

18,200  

  Direct material inventory, March 31

14,500  

  Work-in-process inventory, March 1

8,100  

  Work-in-process inventory, March 31

5,600  

  Finished goods inventory, March 1

53,300  

  Finished goods inventory, March 31

71,100  

  Direct materials purchased during March

83,800  

  Direct labor costs, March

59,800  

  Manufacturing overhead, March

81,000  

Required:

(a)

Compute Total prime costs for the month of March. (Omit the "$" sign in your response.)

  Total prime costs

$   

(b) Compute Total conversion costs for the month of March. (Omit the "$" sign in your response.)

  Total conversion costs

$   

(c) Compute Total manufacturing costs for the month of March. (Omit the "$" sign in your response.)

  Total manufacturing costs

$   

(d) Compute Cost of goods manufactured for the month of March. (Omit the "$" sign in your response.)

  Cost of goods manufactured

$   

(e) Compute Cost of goods sold for the month of March. (Omit the "$" sign in your response.)

 Cost of goods sold

$   

  
 The cost accountant for Sun & Surf Apparel Shop has compiled the following information for last year's operations:

  Administrative costs

$

74,000

  Merchandise inventory, January 1

25,000

  Merchandise inventory, December 31

23,000

  Merchandise purchases

666,000

  Sales commissions

41,800

  Sales revenue

942,000

  Store rent

15,900

  Store utilities

2,950

  Transportation-in costs

5,950

Required:

(a)

Prepare a cost of goods sold statement. (Input all amounts as positive values. Omit the "$" sign in your response.)

Sun & Surf Apparel Shop
Cost of Goods Sold Statement
For the Year Ended December 31

  Beginning inventory

$   

  Purchases

$   

  Transportation-in

  Total cost of goods purchased

  Cost of goods available for sale

  Ending inventory

  Cost of goods sold

$   

(b)

Prepare an income statement. (Input all amounts as positive values. Omit the "$" sign in your response.)

Sun & Surf Apparel Shop
Income Statement
For the Year Ended December 31

  Sales revenue

$   

  Cost of goods sold

  Gross margin

$   

  Marketing and administrative costs

  Operating profit

$   

 Gibson Corporation has compiled the following information from the accounting system for the one product it sells:

  Sales price

$

620

 per unit

  Fixed costs (for the month)

     Marketing and administrative

$

68,000

     Manufacturing overhead

$

115,600

  Variable costs (per unit)

     Marketing and administrative

$

18

     Direct materials

$

240

     Manufacturing overhead

$

27

     Direct labor

$

135

  Units produced and sold (for the month)

1,700

Requirement 1:

Calculate the product costs per unit. (Omit the "$" sign in your response.)

  Product costs per unit

$   

Requirement 2:

Calculate the period costs. (Omit the "$" sign in your response.)

  Period costs

$   

 Tosca Beverages reports the following information for July:

  Units produced and sold

23,900  

  Per unit revenue and costs:

     Sales revenue

$

8.35  

     Direct material costs

0.40  

     Direct labor costs

0.35  

     Variable manufacturing overhead

0.25  

     Fixed manufacturing overhead based on a volume of 23,900 units

2.30  

     Variable marketing and administrative costs

1.05  

     Fixed marketing and administrative costs based on a volume of 23,900 units

2.90  

Required:

(a)

Prepare a gross margin income statement. (Input all amounts as positive values. Omit the "$" sign in your response.)

Gross Margin Income Statement

  Revenue

$   

  Variable manufacturing costs

  Fixed manufacturing costs

  Gross margin

$   

  Variable marketing and administrative costs

  Fixed marketing and administrative costs

  Operating profit

$   

(b)

Prepare a contribution margin income statement. (Input all amounts as positive values. Omit the "$" sign in your response.)

Contribution Margin Income Statement

  Revenue

$   

  Variable manufacturing costs

  Variable marketing and administrative costs

  Contribution margin

$   

  Fixed manufacturing costs

  Fixed marketing and administrative costs

  Operating profit

$