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Manufacturing Costs, Income Statements, Variable Costs

1. Classifying Manufacturing Costs

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.

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.

2. Fixed and variable cost behavior

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.

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

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.

3. Preparing a Contribution Format Income Statement.

Wheeler Corporation's most recent income statement follows.

Total Per Unit

Sales (8,000 units)

\$208,000

\$26.00

Variable expenses

\$244.000

\$18.00

Contribution margin

\$64.00

\$8.00

Fixed expenses

\$56.00

Net Operating income

\$8,000

Prepare a new Contribution format income statement under each of the following conditions (consider each case independently):

1. The sales volume increases by 50 units

2. The sales volume declines by 50 units.

3. The sales volume is 7,000 units.

4. Computing Job Costs

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 ............................................ \$120

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?
5. What is the basic difference between absorption costing and variable costing?
6. What is a segment of an organization? Give 3 examples of segments.
7. What are unit-level, batch-level, product-level, customer-level, and organizational-level sustaining activities?
8. Why are there two stages of allocation in activity-based costing?
9. What is meant by contribution martin ratio? How is this ratio useful in planning business operations?

Solution Preview

See attached. Each question is explained in separate sheet.

5. What is the basic difference between absorption costing and variable costing?

The basic difference between absorption costing and variable costing is in the accounting and treatment of fixed manufacturing costs. Under absorption costing, fixed manufacturing costs are included in the value of ending inventory whereas they are expensed-off in the period of incurrence under variable costing. Under absorption costing, fixed manufacturing costs are treated as inventoriable costs as against period costs under variable costing.

6. What is a segment of an organization? Give 3 examples of segments.
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Solution Summary

The expert examines manufacturing costs, income statements and variable costs.

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