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Business Accounting Managerial Accounting

Variable cost: Variable cost is the cost that changes when the volume of production changes, in the same direction and in the same proportion. Fixed cost: Fixed cost is a cost that remains constant irrespective of changes in the production volume. Product Cost: Product cost is the cost that is incurred in manufacturing or acquiring a product. It includes direct materials, direct labor and manufacturing overhead . Period Cost: Period cost are costs that are not directly related to manufacturing of any products. All costs that are not included in the product cost are called period cost. It generally includes selling expenses, marketing expenses and administrative expenses. Manufacturing cost : Manufacturing cost is the cost of manufacturing a product or goods. Selling cost: Selling cost is a cost that is incurred during marketing and selling the product or goods. Administrative cost: The costs which are not classified under the manufacturing or selling cost comes under administrative cost. 1. To Determine: An answer sheet for the given data with the required column headings Solution: The answer sheet is prepared as below: Cost Item Cost Behavior Period (Selling or Administrative cost) Product cost Variable Fixed Direct Indirect Direct labor $118,000 $118,000 Advertising $50,000 $50,000 Factory supervision $40,000 $40,000 Property taxes, factory building $3,500 $3,500 Sales commissions $80,000 $80,000 Insurance, factory $2,500 $2,500 Depreciation , administrative office equipment $4,000 $4,000 Lease cost, factory equipment $12,000 $12,000 Indirect materials, factory $6,000 $6,000 Depreciation, factory building $10,000 $10,000 Administrative office supplies (billing) $3,000 $3,000 Administrative office salaries $60,000 $60,000 Direct materials used (wood, bolts, etc.) $94,000 $94,000 Utilities, factory $20,000 $20,000 Total Cots $381,000 $122,000 $197,000 $212,000 $94,000 2. To Compute: The average cost of one patio set Solution: The average cost of one patio set is as below: Hence, the Average cost of one patio set is $153. 3. To Find: At the production level of 1000 sets, the average production per set will increase, decrease or remains unchanged Solution: At the production level of 1000 set, average product cost per set would be increased because of the fixed product cost would be spread over less number of sets resulting in the average cost per units increases. 4. a. To Discuss: The price disagreement between the two men and identify the prices they expect. Solution: a. Yes, there is price disagreement between the two men. The president may expect the least price of $153 patio set, which is the average cost to produce one set. The brother-in-law is possibly expecting the cost including only direct materials and direct labor. Direct materials and direct labor would be only $106 per set. ($212000/2000) b. To Discuss: The cost term based on the provided data Solution: The cost term will be called opportunity cost. Since, the company is operating at full capacity, the regular price of a patio set might be appropriate here, because the company will lose this profit if it sells the products at the cost as expected by the brother-in-law.

Variable cost: Variable cost is the cost that changes when the volume of production changes, in the same direction and in the same proportion. Fixed cost: Fixed cost is a cost that remains constant irrespective of changes in the production volume. Product Cost: Product cost is the cost that is incurred in manufacturing or acquiring a product. It includes direct materials, direct labor and manufacturing overhead . Period Cost: Period cost are costs that are not directly related to manufacturing of any products. All costs that are not included in the product cost are called period cost. It generally includes selling expenses, marketing expenses and administrative expenses. Manufacturing cost : Manufacturing cost is the cost of manufacturing a product or goods. Selling cost: Selling cost is a cost that is incurred during marketing and selling the product or goods. Administrative cost: The costs which are not classified under the manufacturing or selling cost comes under administrative cost. 1. To Determine: An answer sheet for the given data with the required column headings Solution: The answer sheet is prepared as below: Cost Item Cost Behavior Period (Selling or Administrative cost) Product cost Variable Fixed Direct Indirect Direct labor $118,000 $118,000 Advertising $50,000 $50,000 Factory supervision $40,000 $40,000 Property taxes, factory building $3,500 $3,500 Sales commissions $80,000 $80,000 Insurance, factory $2,500 $2,500 Depreciation , administrative office equipment $4,000 $4,000 Lease cost, factory equipment $12,000 $12,000 Indirect materials, factory $6,000 $6,000 Depreciation, factory building $10,000 $10,000 Administrative office supplies (billing) $3,000 $3,000 Administrative office salaries $60,000 $60,000 Direct materials used (wood, bolts, etc.) $94,000 $94,000 Utilities, factory $20,000 $20,000 Total Cots $381,000 $122,000 $197,000 $212,000 $94,000 2. To Compute: The average cost of one patio set Solution: The average cost of one patio set is as below: Hence, the Average cost of one patio set is $153. 3. To Find: At the production level of 1000 sets, the average production per set will increase, decrease or remains unchanged Solution: At the production level of 1000 set, average product cost per set would be increased because of the fixed product cost would be spread over less number of sets resulting in the average cost per units increases. 4. a. To Discuss: The price disagreement between the two men and identify the prices they expect. Solution: a. Yes, there is price disagreement between the two men. The president may expect the least price of $153 patio set, which is the average cost to produce one set. The brother-in-law is possibly expecting the cost including only direct materials and direct labor. Direct materials and direct labor would be only $106 per set. ($212000/2000) b. To Discuss: The cost term based on the provided data Solution: The cost term will be called opportunity cost. Since, the company is operating at full capacity, the regular price of a patio set might be appropriate here, because the company will lose this profit if it sells the products at the cost as expected by the brother-in-law.

Managerial Accounting

Managerial Accounting

15th Edition

ISBN: 9780078025631

Author: Ray H Garrison, Eric Noreen, Peter C. Brewer Professor

Publisher: McGraw-Hill Education

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In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyz…

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Managerial Accounting

Ch. 2.A - Prob. 1E Ch. 2.A - Prob. 2E Ch. 2.A - Prob. 3P Ch. 2.A - Prob. 4P Ch. 2.A - Prob. 5C Ch. 2.B - Prob. 1E Ch. 2.B - Prob. 2E Ch. 2.B - Prob. 3P Ch. 2.B - Prob. 4P Ch. 2 - Prob. 1Q

Ch. 2 - Define the following: (a) direct materials, (b)...Ch. 2 - Explain the difference between a product cost and...Ch. 2 - Distinguish between (a) a variable cost, (b) a...Ch. 2 - Prob. 5Q Ch. 2 - Define the following terms: (a) cost behavior and...Ch. 2 - What is meant by an activity base when dealing...Ch. 2 - Managers often assume a strictly linear...Ch. 2 - Distinguish between discretionary fixed costs and...Ch. 2 - Does the concept of the relevant range apply to...Ch. 2 - What is the major disadvantage of the high-low...Ch. 2 - Prob. 12Q Ch. 2 - Prob. 13Q Ch. 2 - What is the difference between a traditional...Ch. 2 - Prob. 15Q Ch. 2 - Prob. 16Q Ch. 2 - Prob. 17Q Ch. 2 - Prob. 1AE Ch. 2 - Prob. 2AE Ch. 2 - L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - Prob. 1F15 Ch. 2 - L012, L013, L014, L015, L016 Martinez Company’s...Ch. 2 - L01–1, L01–2, L01–3, L01–4, L01–5, L01–6 Martinez...Ch. 2 - L01–1, L01–2, L01–3, L01–4, L01–5, L01–6 Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-1, L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - L01-2, L01-3, L01-4, L01-5, L01-6 Martinez...Ch. 2 - EXERCISE 1—1 Identifying Direct and Indirect Costs...Ch. 2 - EXERCISE 1-2 Classifying Manufacturing Costs LO1-2...Ch. 2 - EXERCISE 1-3 Classifying Costs as Product or...Ch. 2 - EXERCISE 14 Fixed and Variable Cost Behavior LO14...Ch. 2 - Prob. 5E Ch. 2 - EXERCISE 1—6 Traditional and Contribution Format...Ch. 2 - Prob. 7E Ch. 2 - Prob. 8E Ch. 2 - Prob. 9E Ch. 2 - Prob. 10E Ch. 2 - Prob. 11E Ch. 2 - EXERCISE 1-12 Product and Period Cost Flows LO1–3...Ch. 2 - Prob. 13E Ch. 2 - EXERCISE 2-14 High-Low Method: Predicting Cost...Ch. 2 - Prob. 15E Ch. 2 - Prob. 16P Ch. 2 - Prob. 17P Ch. 2 - PROBLEM 1-18 Direct and Indirect Costs; variable...Ch. 2 - Prob. 19P Ch. 2 - PROBLEM 2-20 High-Low Method; Predicting Cost...Ch. 2 - PROBLEM 2-21 Cost Classification [L02-1, L02-3,...Ch. 2 - Prob. 22P Ch. 2 - Prob. 23P Ch. 2 - Prob. 24P Ch. 2 - Prob. 25P Ch. 2 - Prob. 26C Ch. 2 - Prob. 27C

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