Exercise 5-1 (continued) 2. a. The scattergraph appears bene 4,006 + . 3,500 aaah 3,000 N a 3 s Total Shipping Expense of the units st of units shippgeoreis® §-2 (30 minutes) Units Shipping 1, Shipped posited Month (Xx) m” wery 4 $2,200 February 7 3,100 march 5 2,600 Apri 2 1,500 May 3 2,200 Bane 6 3,000 sty 8 3,600 A spreadsheet application such as Excel or a statistical software package can be used to compute the slope and intercept of the least-squares regression line for the above data. The results are: Intercept (fixed cost) $1,011 Slope (variable cost per unit) $318 0.96 Therefore, the cost formula shipped or Y = $1,011 + $318X. 2 is 0.96, which means that 96% of the variation in Note that the R? is 0.96, ' hm a ceca This Isa 1,011 per month plus $318 per unitExercise 5-3 (20 minutes) aS X-ray Costs xrays TAKE” *’ 659,000 _ yer High activity level (February)-+- 3,000 Low activity level June, 4,000 $12,000 Change... Variable cost per X-ray: Change in.cost__ $12,000 _ 43.00 per X-ray Change in activity 4,000 X-rays Fixed cost per month: X-ray cost at the high activity level...vsserserss-reereerseeee $29,000 ‘ Less variable cost element: 7,000 X-rays x $3.00 per X-ray 21,000 Total fixed cost $8,000 The cost formula is $8,000 per month plus $3.00 per X-ray taken or, in terms of the equation for a straight line: Y = $8,000 + $3.00X where X is the number of X-rays taken, . Expected X-ray costs whenpercise 5-4 (30 minutes) y, The scatlergraph appears below, Cost of X-Rays 32,000 + 30,000 ~ 28,000 26,000 24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6.000 4 41,000 + 2,000 | E 3 z y r = r 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000Exercise 5-4 (continued) 2. - The high-low method would not provide an accurate cost formula in this _ to the inherent lac, ; siderably due to ck ill we a ick-and-dirty method.) (Note: Students’ answers W' / h [a point falling of precision and subjectivity of Total costs at 5,000 X-rays Per mont ; aa ‘on the line in (1)] « nsnanid i F the Y ax a 500 Less fixed cost element (IDterse tO ee ie i 6/500 Variable cost element ... i 7 4.16,500 = 5,000°X-rays = $3.30 per X-ray. The cost formula is therefore $6,500 per eae plus $3.30 per X-ray taken. Written in equation form, the cost formula is: Y = $6,500 + $3.30X, where X is the number of X-rays taken. situation, since a line drawn through the high and low points would have a slope that is too flat. Consequently, the high-low method would overestimate the fixed cost and underestimate the variable cost per uit.grercise 5-5 (20 minutes) 4, The company’s variable cost Per unit would be: $150,000 _ } 60,000 units $2.50 per unit. Taking into account the differ ; ence in behavior between variable and fixed costs, Ue completed set hedule would be: Units produced and sold 60,000 80,000 100,000 Total costs: Variable costs . $150,000 * $200,000 $250,000 Fixed costs. 360,000 * _360,000 360,000 Total costs. $510,000 * $560,000 $610,000 Cost per unit: Variable cost . $2.50 $2.50 $2.50 Fixed cost. 6.00 4.50 -3.60 ° Total cost per uni $8.50 $7.00 $6.10 *Given. 2, The company’s income statement in the contribution format would be: S| 5 5,000 Sales (90,000 units x $7.50 per unit) a+. $675, Less variable expenses (90,000 units x $2. 50 per unit) .. 225,000 Contribution marg| . , bevsnenn 450, 000 : Net operatingExercise 5-6 (30 minutes) 1. The completed scattergral ph is presented below: 16,000 14,000 + 12,000 10,000 8,000 -+ Total Cost 6,000 4,000Exercise 5-6 (continued) 2, (Students’ answers will vary considerably due to the inherent imprecision and subjectivity of the quick-and- of estimating variable and fixed costs) Seateraraph method The approximate monthly fixed cost is $6,000—th straight line intersects the cost axis. oe = Poteet The variable cost per unit processed can be estimated as follows using the 8,000-unit level of activity, which falls on the straight line: Total cost al the 8,000-unit level of activity .. $14,000 Less fixed cosls...... 6,000 Variable costs at the 8,000-unit level of activity heedawre $_8,000 $8,000 + 8,000 units = $1 per unit. ‘ Observe from the scattergraph that if the company used the high-low method to determine the slope of the line, the line would be too steep. This would result in underestimating the fixed cost and overestimating the variable cost per unit.Exercise 5-7 (30 minutes) ancy: 1. Monthly operaling costs at 76% occup Si 2,000 rooms x 70% = 4, x 30 days «. $882,000 1/400 rooms x $24 per room Pet Sry ncy caven) _792,000 Monthly operating costs at 45% occupa § 90,000 Change in COSL..iensserecerereerrnreeeter en Difference in rooms occupied: 1,400 70% occupancy (2,000 rooms * 70%) «» ‘ 45% occupancy (2,000 rooms ae 900 Difference in 1ooms (change in activity) -. 500 Variable cost=..change in.cost__ $90,000 _¢189 per room. , Change in aclivily 500 rooms: $180 per room + 30 days = $6 per room per day. 2. Monthly operating costs at 70% occupancy (above).... $882,000 te variable costs: 1,400 rooms x $6 per room per oe x 30 days Fixed operating costs per month... a - 2,000 rooms x 60% = | $630,000 - 216,000 $846,000exercise 5-8 (20 minutes) . f Total Miles Annual «Driven Cost* 120,000 $13,920 80,000 _10,880 10,000 $ 3,040 * 120,000 miles x $0,116 per mile = $13,920 80,000 miles x $0.136 per mile = $10,880 Variable cost per mile: + Change in cost $3,040 f a =$0.076 per mile Change in activity 40,000 miles ‘ g Fixed cost per year: Total COSt At 120,000 MIlCS....-seeerererereeereersrrererrers Less variable cost element: 120,000 miles x $0.076 pel Fixed cost per year... : High level of activity Low level of activity 2, Y =-$4,800 + $0.076X 3. Fixed cost... Variable costExercise 5-9 (20 minutes) INC. HAAKI SHOP, tment : o satement_surToood pets Incomi the Quarter Ended May For $800,000 Less variable expenses: Cost of goods sold ($150 per surfboard x . $300,000 2,000 surfboards*) x. 2000 Selling oe ($50 per surfboard x 2, vcs 100,000 SUrfbDOArAS) ....sseecereeoneeet ee 0 440,000 Administrative expenses (25% x $160,000). 40,000 rr CONLTIDULION MAFGIN ...ssssseesssseeseeseentnneneneese , Less fixed expenses: Selling expenses. 150,000 Administrative expenses. . 120,000. 270,000 Net operating income .............ssceees a $90,000 *$800,000 sales + $400 per surfboard = 2,000 surfboards. 2. Since 2,000 surfboards were sold and the contribution margin totaled $360,000 for the quarter, the contribution of each surfboard toward fixed expenses and profits was $180 ($360,000 + 2,000 surfboards = $180 per surfboard). Another way to compute the $180 is: Selling price Per-surfboard...........,exercise 5-10 (30 minutes) i; Units Total ; (x) oe Cost 8 2 $270 2 200 310 4 190 6 240 9 290 2 Spree application such as Excel or a statistical software package Used to compute the slope and intercept of the least-squares regression line for the above data. The results are: Intercept (fixed cost) .. $107.50 Slope (variable cost per unit) $20.36" Reman a ea ; 0.98 Therefore, the cost formula is $107.50 per week plus $20.36 per unit. Note that the R? is 0.98, which means that 98% of the variation in glazing costs is explained by the number of units glazed. This is. a very high R? and indicates a very good fit. 2. Y = $107°50 + $20.36%, where X is the number of u nits glazed.Problem 5-11 (45 minutes) iable 1. Cost of goods sold Nene ixed Shipping expense. a Advertising expense My 4 Salaries and commissions . Mix Fixed Insurance expense... iy Depreciation expense. Fixed 2. Analysis of the mixed expenses: Shipping _ Salaries and units Expense Comin. Expense 4,500 £56,000 £143,000 3,000 _44,000 107,000 1,500 £12,000 £.36,000 High level of activity Low level of activity. Variable cost element: Change in cost Change in activity _ £12,000 1,500 units Variable cost per unit = Shipping expense: = £8 per unit Salaries and comm. es Fixed aces elemi a Sy problem 5-11 (cdntinued) The cost formulas are: Shipping expense: £2; + £20,000 : a ie ge Plus £8 per unit or alaries and Comm. expen: : £24 per unit 01 S - ensé: £35,000 per It Y= £35,001 G ibaa plus F unit Or 3. ; FRANKEL LTD. Income Statement For the Month Ended June 30 Sales revenues sce Less.variable expenses: Cost of goods sold (4,500 units x £56 per UNIt) sees £252,000 Shipping expense £630,000 (4,500 units x £8 per unit)... 36,000 Salaries and commissions expense 108,000 _396,000 (4,500 units x £24 per unit) . Contribution margin Less fixed expense: Shipping expense ae Advertising i ead Salaries ani , * ales 234,000Problem 5-12 (45 minutes) 1 ORGANS, INC. HOUSE OF are Income State 30 For the Month Ended November r organ) « 5 (60 oryans x 42,500 p Less cost of goods sold (60 organs x $1,500 per organ) ..- Gross margin Less operating expenses: Selling expenses: Advertising ... Pugeou Delivery of organs (60 organs x $60 per organ) 3,600 Sales salaries and commissions 2 [$4,800 + (4% x $150,000)] 10,800 Utilities 650 Administrative expenses: Executive salaries. Depreciation of office equipment. Clerical [$2,500 + (60 organs x 0 Per organ)]problem 5-12 (continued) 5; ? HOUSE OF ORGANS, INC. Income Statement For the Month Ended November 30 Sales (60 organs x $2,500 per organ) ... nn Less variable expenses: Cost of goods sold (60 organs x $1,500 per organ) 90,000 Delivery of organs (60 organs x $60 per organ) . i 3,600 Sales commissions (4% x $150,000). 6,000 Clerical (60 organs x $40 per organ)... eh 2,400 ‘Total variable expenses. * 102,000 Contribution margin ..... aie 48,000 Less fixed expenses: A Advertising ........ 950 Sales salaries ... 4,800 Utilities. 650 Depreciation of sales faci ities 5,000 Executive salaries .. end Depreciation of office equipment. Clerical. Per UnitProblem 5-13 (45 minutes) a. Number of Leagues Total Cost w ” is $13,000 2 7,000 4 10,500 B 14,000 3 ‘ 10,000 ier ackaee A spreadsheet application such as Excel or a eee rae es g can be used to compute the slope and intercept ia regression line for the above data. The results are: Intercept (fixed cost) ... sess $4,100 Slope (variable cost per unit)....... $1,700 Rear, eee ean 0.96 Therefore, the variable cost per league is $1,700 and the fixed cost is $4,100 per year. Note that the R? is 0.96, which means that 96% of the variation in cost is explained by the number of leagues. This is a very high R? and indicates a very good fi Y = $4,100 + $1,700X The expected total cost for 7 leagues would be: Fixed cost... = Variable cost (7 leagues x r Total cost in this particular ca: outside the relevar cost is approximate12,000 11,000 10,000 - 9,000 8,000 7,000 6,000. 5,000 4,000 3,000 2,000 1,000 Total Costproblem 5- nae ble Cord idea ove 2 feel: tos > hee 2 Leo. 2. Without a knowledge of underlying cost behavior patterns, it would be difficult if not impossible for a manager to properly analyze the firms cost structure, The reason is that all costs don’t behave in the same way. One cost might move in one direction as a result of a particular action, and another cost might move in an opposite direction. Unless the behavior pattern of each cost is clearly understood, the impact of 4 ims Sc on its costs will not be known until a/fer the activity hes urred,| problem 5-15 (45 minutes) maintenance cost at the 70,0 100 ei 1 isolated a5 follows: Machine-hour level Of activity can be ——_Level of Activity 40,000 MH 70,000 MH Total faclory overhead cost. $170,200 $241,600 Deduct: | Uuilties cost @ $1.30 per MH 52,000 91,000 Supervisory salaries... 60,000 _60,000 Maintenance cost. “$58,200 $90,600 *§52,000 = 40,000 MHs = $1.30 per MH ; Maintenance Machine- E * Cost Hours ae $90,600 70,000 Low activity level... 58,200 40,000 Change ....... $32,400 30,000 Variable cost per unit of activity: $32,400 | 2, High-low analysis of maintenance cost: ‘ =$1.08 per MH Therefore, the machine-hour oe hours.Probl 5-15 (continued) b ‘ a variable RIE TE” xed Cost : mee $15,000 Maintenance cost 1.30 ae 42.38 $75,000 Therefore, the cost formula would be $75,000 plus $2.38 per machine. hour, or Y = $75,000 + $2.38X. $ 75,000 ie LOZ 100) . $182,100 4. Fixed costs. . Variable costs: $2.38 per MH x 45,000 MHs. Total overhead costs Fproblem 5-16 (30 minutes) © Cost at the 80, as follows: 000 machine-hour level of activity can be ___Level of Activity "60,000 Mt 80,000 MH Lory Overhead cost ., 274,000 pesos 312,000 pesos Pesos per MH* 90,000 120,000 RON..00. 5 130,000 130,000 54,000 pesos 62,000 pesos * 90,000 pesos + 60,000 MHs = 1.50 pesos per MH 2 High-low analysis of maintenance cost: Maintenance Cost — Machine-Hours 62,000 pesos 80,000 24,000 60,000 8,000 pesos 20,000 Change in cost _ Change in activity High activity level Low activity level. Change observed Variable cost =Problem 5-16 (continued) 3 eS ee pt MHs x 97,500 pesos peli : 130,000 Rent. Maintenance: Variable cost element (65,000 MHs x 0.40 peso per MH). 26,000 pesos 6,000 Fixed cost ert 30,000 20,000 ‘Total factory overhead cost.i ON oblem 5-17 (45 minutes) July—Low — October—High Direct materials cost @ $15 per uni 9,000 Units 12,000 Units pirect labor cost @ $6 per unit. Pee $180,000 Manufacturing overhead cost ; fey ond 4 780M i Total manufacturing costs,, 296,000 ae Add: Work in process, beginning 14.0 / ; 310,000 405,000 Deduct: Work in process, ending....... 25,000 15,000 Cost of goods manufactured ...... $285,000, $390,000 *Compuled by working upwards through the statements. . Units Cost Produced Observed 12,000 $131,000 9,000 107,000 3,000 $24,000 October—High level of activity... July—Low level of activity . Change... i in cost Variable cost = -Change! Change in acl = $24,000 _ = $8 per unit ~ 3,000 units lyProblem 5-17 (continued) 3. The cost of goods manufactured if 9,500 units are produced: Direct materials cost (9,500 ynits x $15 per unit) .. $142,500 Direct labor cost (9,500 units x $6 per unit) Hv 57,000 Manufacturing overhead cost: ixed portion. 435,000 Variable portion (9,500 units x $8 per unit) 76,000 _111,000 Total manufacturiag costs 4 310,500 Add: Work in process, beginning .. ; 16,000 : 326,500 Deduct: Work in process, ending ...... if 19,000 Cost of goods manufactured ... $307,500problem 5-18 (45 minutes) 1. High-low method: Number of — Power | High activity level he ie Oe i Low activily level $6,000 hange ie 40 2,400 ; Bae gad $3,600 Variable cost per unit = —Change in cost fm ahaha Change in activity NS SIO00: cir. 90 ingots = $40 per ingot Fixed cost: Total power cost at high activity level... $6,000 Less variable element: 130 ingots x $40 per ingot. 5,200 "Fixed cost element... Ri $_800 Therefore, the cost formula is: Y = $800 + $40Xx. 2. Scattergraph: method (see.the scattergraph on the following page): : ’ answers will vaty. due to the inherent imprecision and ect aa dirty ergraph method ot eeuinatag fixed and variab 0 aeProblem 5-18 (continued) The completed scattergraph follow 7,000 + 5,500 6,000 Power Costproblem 5-19 (30 minutes) 1, The least squares regression Method; Number of — Power Ingots Cost 09 ” yey $5,500 90 4,500 a 4,400 100 5,000 130 6,000 7 120 516007, 7 70 4,000 j 60 3,200 50 3,400 © ; 40 2,400 q A spreadsheet application such as Excel or a statistical software package can be used to compute the slope and intercept of the least-squares regression line for the above data. The results are: Intercept (fixed cost) . 2 $1,185 s Slope (variable cost per unit)... $37.82 Rees 0.97Ajjeas uoNejas BulA|sapun 4) Jey) D4nsua. 0} jo\d YdesBsayeds e YIM UO!NDUN{UOD U! pasn .8q SAeme Pinoys 3! 4eAemoy ‘sisAjeue SOD Jo pouyaw ayeinoze sow 84} 3q 0} paiapisuod Ajjeauab Ss} poyjaw uoissasHa1 sasenbs ysea} ay “JEP du} YIM SWa|qoJd JayjO pue Sayj4eauljuoU JNOge sanjd ajqenjeru! apiAoid ued jo] ydesBssyeds a4} 4OAIMOH ‘AUl| BUY BEI 0} SASOOYD ySAle2Ue BY} B10YM UO PUadap |IIM $]|NsaJ ay] pue asidaJduu Ss} poyyalu ydesBrayeos Ayp-pue-yoinb oy. : *poyjaw uojssaiba1 sasenbs-3se9| ay} UeU] [NJaSN ss2} S} POUJaLU S|Ly ‘Aoe4no28ul jenuayod Jo aas6ap yBiy ayy 0} ang “Pull uo|ssai6a.1 399.109 ay) UO ||eJ 0) vaddey squiod mo} ay) pue YBlY ayy 2104 10 “yueysuod Ajn4j S| ]SOD a\qeleA ayy asym SUO!TeN}S BSOU} U! 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