Fourth Edition By Frank Schmalleger, Daniel E. Hall, And Joh

Fourth Edition By Frank Schmalleger Daniel E Hall With John J D

Define the following terms: 1. Direct Materials 2. Indirect Materials 3. Direct Labor 4. Indirect Labor 5. Manufacturing Overhead

QUESTION 2 1. What is meant by contribution mart ratio? How is this ratio useful in planning business operations?

QUESTION 3 1. Classifying Manufacturing Costs (LO – 2-1) Your Boat, Inc. assembles custom sailboats from components supplied by various manufacturers.

The company is very small and its assembly shop and retail sales store are housed in a Gig Harbor, Washington, boathouse. Below are listed some of the costs that are incurred at the company. Required: For each cost, indicate whether it would most likely be classified as direct labor, direct materials, manufacturing overhead, selling, or an administrative cost. 1. The wages of employees who build the sailboats. 2. The cost of advertising in the local newspapers. 3. The cost of an aluminum mast installed in a sailboat. 4. The wages of the assembly shop’s supervisor 5. Rent on the boathouse 6. The wages of the company’s bookkeeper. 7. Sales commissions paid to the company’s salespeople. 8. Depreciation on power towels.

QUESTION 4 1. Fixed and variable cost behavior (LO – 2-3) Koffee Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,100 and the variable cost per cup of coffee served is $.26. Required : 1. Fill in the following table with your estimates of total costs and average costs per cup of coffee at the indicated levels of activity for a coffee stand. Round off the cost of a cup of coffee to the nearest tenth of a cent. Does the average cost per cup served increase, decrease, or remain the same as the number of cups of coffee served in a week increases? Explain.

Cups of Coffee Served in a Week 1,800 1,900 2,000 Fixed Cost ? ? ? Variable costs ? ? ? Total cost ? ? ? Average cost per cup of coffee served ? ? ? 2. Does the average cost per cup served increase, decrease, or remain the same as the number of cups of coffee served in a week increases?

QUESTION 5 1. Preparing a Contribution Format Income Statement. (LO – 3-1) Wheeler Corporation’s most recent income statement follows. Total Per Unit Sales (8,000 units) $208,000 $26.00 Variable expenses 244..00 Contribution margin 64.00 $8.00 Fixed expenses 56.00 Net Operating income $8,. Required: 3. Prepare a new Contribution format income statement under each of the following conditions (consider each case independently): 4. 1. The sales volume increases by 50 units 5. 2. The sales volume declines by 50 units. 6. 3. The sales volume is 7,000 units.

QUESTION 6 1. Computing Job Costs (LO – 4-3) Weaver Company’s predetermined overhead rate is $18.00 per direct labor-hour and its direct labor wage rate is $12.00 per hour. The following information pertains to Job A-200. Direct Materials ………………………………. $200 Direct Labor …………………………………….. $. Required: 1. What is the total manufacturing cost assigned to Job a-200? 2. If Job A-200 consists of 50 units, what is the average cost assigned to each unit included in the job?

QUESTION 7 1. What is the basic difference between absorption costing and variable costing?

QUESTION 8 1. What is a segment of an organization? Give 3 examples of segments.

QUESTION 9 1. What are unit-level, batch-level, product-level, customer-level, and organizational-level sustaining activities?

QUESTION 10 1. Why are there two stages of allocation in activity-based costing?

Paper For Above instruction

The provided set of questions pertains to various aspects of managerial accounting, cost behavior, and organizational analysis. In this paper, each question will be addressed comprehensively to elucidate fundamental concepts functioning within managerial and financial accounting disciplines.

Definitions of Key Terms in Managerial Accounting

Understanding key terminology forms the foundation for grasping complex cost systems.

1. Direct Materials refer to raw materials that are directly traceable to the production of specific goods. They are integral components of the finished product and are easily identifiable in the manufacturing process.

2. Indirect Materials are materials used in the manufacturing process but unable to be directly traced to specific products. They are considered part of manufacturing overhead, such as lubricants or cleaning supplies.

3. Direct Labor encompasses wages paid to workers directly involved in the assembly or fabrication of products. These costs are directly attributable to tangible products.

4. Indirect Labor includes wages for workers who support the manufacturing process but do not directly work on products, such as maintenance or supervisory staff. These costs are part of manufacturing overhead.

5. Manufacturing Overhead involves all manufacturing costs other than direct materials and direct labor. It includes indirect materials, indirect labor, and other factory-related expenses like utilities and depreciation. These are allocated to products through cost drivers.

Contribution Margin Ratio and Business Planning

The contribution margin ratio is a measure of a company's contribution margin (sales minus variable costs) as a percentage of sales revenue. It is calculated as (Contribution Margin / Sales). This ratio is vital for planning as it indicates the portion of sales revenue available to cover fixed costs and generate profit. A higher contribution margin ratio implies more effective coverage of fixed expenses, thereby aiding in decision-making related to pricing strategies, product line assessments, and profitability analysis.

Classifying Manufacturing Costs

For Your Boat, Inc., costs must be classified based on their nature:

• The wages of employees who build the sailboats: Direct Labor
• The cost of advertising in local newspapers: Selling Expense
• The cost of an aluminum mast installed in a sailboat: Direct Materials
• The wages of the assembly shop’s supervisor: Manufacturing Overhead
• Rent on the boathouse: Manufacturing Overhead
• The wages of the company’s bookkeeper: Administrative Expense
• Sales commissions paid to salespeople: Selling Expense
• Depreciation on power tools: Manufacturing Overhead

Cost Behavior and Cost Estimation

Koffee Express’s fixed and variable costs influence its total and per-unit costs. The fixed weekly expense is $1,100; variable costs per cup are $0.26.

- For 1,800 cups, total fixed costs are $1,100, variable costs are 1,800 × 0.26 = $468, total costs are $1,100 + $468 = $1,568, and average cost per cup is $1,568 / 1,800 ≈ $0.87.

- For 1,900 cups, total fixed costs remain $1,100, variable costs are 1,900 × 0.26 = $494, total costs are $1,100 + $494 = $1,594, and average cost per cup is approximately $0.84.

- For 2,000 cups, total fixed costs are $1,100, variable costs are 2,000 × 0.26 = $520, total costs are $1,620, and average cost per cup is about $0.81.

The average cost per cup decreases as the volume increases due to the fixed costs being spread over more units, illustrating the economies of scale associated with variable cost behavior.

Contribution Margin Income Statement and sales volume impact

The original income statement shows total sales of $208,000 for 8,000 units at $26 per unit. Variable expenses total $144,000, contributing $64,000 to covering fixed expenses and profit.

Adjusting for increased sales volume by 50 units: total units become 8,050, total sales = 8,050 × $26 = $209,300; variable expenses = 8,050 × $18 = $144,900; contribution margin = $64,400. Fixed expenses remain $56,000, net operating income increases accordingly.

Similarly, for a decrease of 50 units: units = 7,950, sales = $206,700; variable expenses = $143,100; contribution margin decreases accordingly. When sales are at 7,000 units, calculations reflect these scaled sales and expenses, indicating how volume impacts profitability.

Job Cost Calculation and Cost per Unit

Given a predetermined overhead rate of $18 per direct labor hour and a wage rate of $12/hour, manufacturing costs are calculated. For Job A-200 with direct materials of $200 and direct labor, labor hours = direct labor cost / wage rate. If direct labor for the job is, say, $120, then labor hours = 10 hours. Overhead applied = 10 hours × $18 = $180. Total manufacturing cost = $200 + $120 + $180 = $500. The average cost per unit, with 50 units, is $500 / 50 = $10.

Absorption Costing vs. Variable Costing

Absorption costing allocates all manufacturing costs—both fixed and variable—to products, aligning with GAAP for external reporting. Variable costing, however, considers only variable manufacturing costs as product costs, treating fixed manufacturing overhead as a period expense. This fundamental difference affects income reporting and managerial decision-making by highlighting cost behavior.

Organizational Segments and Activities

A segment of an organization is a distinct part responsible for its operations, revenues, and costs, often defined by product line, geography, or customer base. Examples include a sales department, a manufacturing division, or a geographic region.

Activities are classified based on their cost behavior: unit-level activities (per unit), batch-level (per batch), product-level (for specific products), customer-level (for specific customers), and organizational-level activities (general support functions). Understanding these helps in costing and efficiency analysis.

Activity-Based Costing Allocation Stages

Activity-based costing (ABC) involves two stages of allocation: First, assigning costs to activities based on their consumption of resources; second, allocating these activity costs to products based on their use of each activity. This two-stage process enhances accuracy in costing by recognizing the true drivers and consumption patterns.

References

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