Exam 2: Basic Cost Management Concepts

Which of the following inventories would a discount retailer such as Zellers report as an asset?

If the total cost of alternative A is $600,000 and the total cost of alternative B is $200,000, then $400,000 is termed the:

Which of the following statements is true?

Austin Muffler, Inc., operates an automobile service facility. The table below shows the cost incurred during a month when 500 mufflers were replaced. Number of muffler replacements Total costs Fixed costs Variable costs Total costs Cost per muffler replacement Fixed costs Variable costs Total cost per muffler replacement 400 A G 500 \ 9,000 H 600 C I Required: Insert the missing amounts, labelled A through O, in the table.

Manufacturers have established a cost classification called product costs. Define the term "product cost" and note where these costs appear in the financial statements. Be specific.

Which of the following costs is not a component of manufacturing overhead?

The following terms are used to describe various economic characteristics of costs. Opportunity cost Differential cost Out-of-pocket cost Marginal cost Sunk cost Average cost Required: Choose one of the preceding terms to characterize each of the amounts described below. Each term may be used only once. A. The cost of including one extra child in a day-care center. B. The cost of merchandise inventory purchased five years ago. The goods are now obsolete. C. The cost of feeding 300 children in a public school cafeteria is $450 per day, or $1.50 per child per day. What economic term describes this $1.50 cost? D. The management of a high-rise office building uses 3,000 square feet of space in the building for its own administrative functions. This space could be rented for $30,000. What economic term describes this $30,000 of lost rental revenue? E. The cost of building an automated assembly line in a factory is $700,000; a manually operated assembly line would cost $250,000. What economic term is used to describe the $450,000 variation between these two amounts? F. Refer to the preceding question and assume that the firm is currently building the assembly line for $700,000. What economic term is used to describe the $700,000 construction cost?

Mike's Machinery Ltd. reported the cost of goods manufactured of $300,000, and the firm's year-end balance sheet reported work in process and finished goods of $50,000 and $67,000, respectively. If supplemental information disclosed raw materials used in production of $25,000, direct labour of $80,000, and manufacturing overhead of $90,000, the company's beginning work in process must have been:

Draper Textiles Inc. had the following data for the period just ended. Work in process - Jan 1 \ 40,000 Work in process - Dec 31 52,000 Finished goods - Jan 1 60,000 Finished goods - Dec 31 81,000 Direct materials used 106,000 Direct labour 300,000 Factory depreciation 90,000 Sales 1,000,000 Advertising expense 50,000 Factory utilities 20,000 Indirect materials 20,000 Indirect labour 30,000 Required: A. Calculate Draper's cost of goods manufactured. B. Calculate Draper's cost of goods sold.

Horne Builders began business on January 1 of the current year, producing a single product that is popular with contractors. Demand was very strong, allowing the company to sell its entire manufacturing output of 100,000 units. The following unit costs were incurred: Manufacturing costs Direct materials Direct labour Variable overhead Fixed overhead Selling \& administrative costs Variable Fixed \ 20 13 16 11 10 7 Horne anticipates an increase in productive output to 150,000 units and sales of 145,000 units in the next accounting period. The company uses appropriate drivers to determine cost behaviour and estimates. Required: A. Assuming that present cost behaviour patterns continue, compute the total expected costs in the upcoming accounting period. B. The company Controller is about to prepare a graph that shows the unit cost behaviour for variable selling and administrative cost. If the graph's horizontal axis is volume and the vertical axis is dollars, briefly describe what the graph should look like. C. Determine whether the following costs are variable or fixed in terms of behaviour: 1. Yearly lease payments for a state-of-the-art cutting machine. 2. A fee paid to a consultant who provided advice about quality issues. The fee was based on the number of consulting hours provided. 3. Cost of an awards dinner for "star" salespeople.

The income statements and balance sheets of service, retailing, and manufacturing businesses tend to differ. Required: A. Which of these businesses will disclose a cost-of-goods-sold figure on the income statement? Why? B. Briefly describe the difference between a retailing firm and manufacturer's disclosure of inventories on the balance sheet. A. Retailers and manufacturers will disclose a cost-of-goods-sold figure because both of these entities sell goods. Service businesses, in contrast, do not given that such firms provide services. A. Which of these businesses will disclose a cost-of-goods-sold figure on the income statement? Why? B. A retailer will typically disclose inventories as one-line item entitled merchandise inventories. Manufacturers, on the other hand, carry three different types of inventories: raw materials, work in process, and finished goods. B. Briefly describe the difference between a retailing firm and manufacturer's disclosure of inventories on the balance sheet.

Describe the economic characteristics of sunk costs and opportunity costs, and explain the impact that these costs may have on decisions.

Consider the following items: A. Tomatoes used in the manufacture of Heinz ketchup B. Administrative salaries of executives employed by Air Canada C. Wages of assembly-line workers at a Ford plant D. Marketing expenditures of the Toronto Blue Jays Baseball Club E. Commissions paid to Coca-Cola's salespeople F. Straight-line depreciation on manufacturing equipment owned by Dell Computer G. Shipping charges incurred by Office Depot on out-going orders H. Speakers used in Sony home-theater systems I. Insurance costs related to a Mary Kay Cosmetics' manufacturing plant Required: Complete the table that follows and classify each of the costs listed as (1) a product or period cost and (2) a variable or fixed cost by placing an "X" in the appropriate column.

Depreciation of factory equipment is classified as:

Which of the following would likely be a suitable cost driver for the amount of direct materials used?

The accounting records of Niagara Manufacturing Company revealed the following costs: direct materials used, $120,000; direct labour, $275,000; manufacturing overhead, $350,000; and selling and administrative expenses, $400,000. Niagara's product costs total:

Which of the following would not be characterized as a cost object?

Which of the following is not an example of a variable cost?

Maplewood Company reported manufacturing overhead of $300,000 with the company's year-end balance sheet revealing work in process and finished goods of $80,000 and $150,000, respectively. If supplemental information disclosed raw materials used in production of $70,000, direct labour of $130,000, and beginning work in process of $30,000, the company's cost of goods manufactured have been:

The fixed costs per unit are $20 when a company produces 10,000 units of product. What are the fixed costs per unit when 25,000 units are produced?