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ACC202 Week 1 E10-1 E10-3 E11-1 E11-6 E11-15 P10-20 P11-21 P11-25 P11-28

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Survey of Accounting 3rd by Thomas.

Exercise 10-1 Identifying financial versus managerial accounting characteristics


Required
Indicate whether each of the following is representative of managerial or of financial accounting.
a. Information is factual and is characterized by objectivity, reliability, consistency, and accuracy.
b. Information is reported continuously and has a current or future orientation.
c. Information is provided to outsiders including investors, creditors, government agencies, analysts,
and reporters.
d. Information is regulated by the SEC, FASB, and other sources of GAAP.
e. Information is based on estimates that are bounded by relevance and timeliness.
f. Information is historically based and usually reported annually.
g. Information is local and pertains to subunits of the organization.
h. Information includes economic and nonfinancial data as well as financial data.
i. Information is global and pertains to the company as a whole.
j. Information is provided to insiders including executives, managers, and operators.

Exercise 10-3 Classifying costs: product or G, S, & A/asset or expense

Required
Use the following format to classify each cost as a product cost or a general, selling, and administrative
(G, S, & A) cost. Also indicate whether the cost would be recorded as an asset or an
expense. The first item is shown as an example.

Cost Category
Research and development costs
Cost to set up manufacturing facility
Utilities used in factory
Cars for sales staff
Distributions to stockholders
General office supplies
Raw materials used in the manufacturing process
Costs to rent office equipment
Wages of production workers
Advertising costs
Promotion costs
Production supplies
Depreciation on administration building
Depreciation on manufacturing equipment

Exercise 11- 1 Identifying cost behavior

Deer Valley Kitchen, a fast-food restaurant company, operates a chain of restaurants across the
nation. Each restaurant employs eight people; one is a manager who is paid a salary plus a bonus
equal to 3 percent of sales. Other employees, two cooks, one dishwasher, and four waitresses, are
paid salaries. Each manager is budgeted $3,000 per month for advertising cost.

Required
Classify each of the following costs incurred by Deer Valley Kitchen as fixed, variable, or mixed.
a. Cooks’ salaries at a particular location relative to the number of customers.
b. Cost of supplies (cups, plates, spoons, etc.) relative to the number of customers.
c. Manager’s compensation relative to the number of customers.
d. Waitresses’ salaries relative to the number of restaurants.
e. Advertising costs relative to the number of customers for a particular restaurant.
f. Rental costs relative to the number of restaurants.

Exercise 11- 6 Fixed versus variable cost behavior
Lovvern Trophies makes and sells trophies it distributes to little league ballplayers. The company
normally produces and sells between 8,000 and 14,000 trophies per year. The following cost data
apply to various activity levels.

Number of Units8,000
Total costs incurred
Fixed 42,000
Variable 42,000
Total costs 84,000
Cost per unit
Fixed 5.25
Variable 5.25
Total cost per unit 10.50

Required
a. Complete the preceding table by filling in the missing amounts for the levels of activity
shown in the first row of the table. Round all cost per unit figures to the nearest whole penny.
b. Explain why the total cost per trophy decreases as the number of trophies increases.

Exercise 11- 15 Break- even point
Connor Corporation sells products for $25 each that have variable costs of $13 per unit. Connor’s
annual fixed cost is $264,000.

Required

Determine the break-even point in units and dollars.

Problem 10- 20 Effect of product versus period costs on financial statements

Hoen Manufacturing Company experienced the following accounting events during its first year of operation. With the exception of the adjusting entries for depreciation, all transactions are cash transactions.

1. Acquired $50,000 cash by issuing common stock.
2. Paid $8,000 for the materials used to make products, all of which were started and completed

during the year.
3. Paid salaries of $4,400 to selling and administrative employees.
4. Paid wages of $7,000 to production workers.
5. Paid $9,600 for furniture used in selling and administrative offices. The furniture was acquired
on January 1. It had a $1,600 estimated salvage value and a four-year useful life.
6. Paid $13,000 for manufacturing equipment. The equipment was acquired on January 1. It
had a $1,000 estimated salvage value and a three-year useful life.
7. Sold inventory to customers for $25,000 that had cost $14,000 to make.

Required
Explain how these events would affect the balance sheet, income statement, and statement of
cash flows by recording them in a horizontal financial statements model as indicated here. The
first event is recorded as an example. In the Cash Flow column, indicate whether the amounts
represent financing activities (FA), investing activities (IA), or operating activities (OA).

Problem 11- 21 Identifying cost behavior

Required

Identify the following costs as fixed or variable.

Costs related to plane trips between Seattle, Washington, and Orlando, Florida, follow. Pilots are
paid on a per trip basis.

a. Pilots’ salaries relative to the number of trips flown.
b. Depreciation relative to the number of planes in service.
c. Cost of refreshments relative to the number of passengers.
d. Pilots’ salaries relative to the number of passengers on a particular trip.
e. Cost of a maintenance check relative to the number of passengers on a particular trip.
f. Fuel costs relative to the number of trips.
First Federal Bank operates several branch offices in grocery stores. Each branch employs a supervisor
and two tellers.
g. Tellers’ salaries relative to the number of tellers in a particular district.
h. Supplies cost relative to the number of transactions processed in a particular branch.
i. Tellers’ salaries relative to the number of customers served at a particular branch.
j. Supervisors’ salaries relative to the number of branches operated.
k. Supervisors’ salaries relative to the number of customers served in a particular branch.
l. Facility rental costs relative to the size of customer deposits.
Costs related to operating a fast-food restaurant follow.
m. Depreciation of equipment relative to the number of restaurants.
n. Building rental cost relative to the number of customers served in a particular restaurant.
o. Manager’s salary of a particular restaurant relative to the number of employees.
p. Food cost relative to the number of customers.
q. Utility cost relative to the number of restaurants in operation.
r. Company president’s salary relative to the number of restaurants in operation.
s. Land costs relative to the number of hamburgers sold at a particular restaurant.
t. Depreciation of equipment relative to the number of customers served at a particular
restaurant.

Problem 11- 25 Effects of operating leverage on profitability

Webster Training Services (WTS) provides instruction on the use of computer software for the employees of its corporate clients. It offers courses in the clients’ offices on the clients’ equipment. The
only major expense WTS incurs is instructor salaries; it pays instructors $5,000 per course taught.
WTS recently agreed to offer a course of instruction to the employees of Chambers Incorporated at
a price of $400 per student. Chambers estimated that 20 students would attend the course.
Base your answer on the preceding information.

Required
a. Relative to the number of students in a single course, is the cost of instruction a fixed or a
variable cost?
b. Determine the profit, assuming that 20 students attend the course.
c. Determine the profit, assuming a 10 percent increase in enrollment (i.e., enrollment increases
to 22 students). What is the percentage change in profitability?
d. Determine the profit, assuming a 10 percent decrease in enrollment (i.e., enrollment decreases
to 18 students). What is the percentage change in profitability?
e. Explain why a 10 percent shift in enrollment produces more than a 10 percent shift in profitability.
Use the term that identifies this phenomenon

Problem 11- 28 Determining the break- even point and preparing a contribution margin income statement

Inman Manufacturing Company makes a product that it sells for $60 per unit. The company incurs
variable manufacturing costs of $24 per unit. Variable selling expenses are $12 per unit, annual fixed
manufacturing costs are $189,000, and fixed selling and administrative costs are $141,000 per year.

Required
Determine the break-even point in units and dollars using the following approaches.
a. Equation method.
b. Contribution margin per unit.
c. Contribution margin ratio.
d. Confirm your results by preparing a contribution margin income statement for the breakeven
sales volume.

Exercises: 10-1, 10-3, 10-6, 11-1, 11-6, 11-15. Week One Problems Complete the following problems from Chapter 10 & 11 and submit to the instructor by Day 7. These problems will be graded for accuracy. Problems: 10-20, 11-21, 11-25 (Part 1), 11-28

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