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ACC 202 Week 2 P12-16 P12-17 P13-23

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P12-16 Kirby Airlines is a small airline that occasionally carries overload shipments for the overnight delivery company Never-Fail Inc. Never-Fail is a multimillion-dollar company started by Jack. Never immediately after he failed to finish his first accounting course. The company’s motto is
“We Never-Fail to Deliver Your Package on Time.” When Never-Fail has more freight than it
can deliver, it pays Kirby to carry the excess. Kirby contracts with independent pilots to fly its
planes on a per trip basis. Kirby recently purchased an airplane that cost the company $5,500,000.
The plane has an estimated useful life of 25,000,000 miles and a zero salvage value. During the
first week in January, Kirby flew two trips. The first trip was a round trip flight from Chicago to
San Francisco, for which Kirby paid $350 for the pilot and $300 for fuel. The second flight was a
round trip from Chicago to New York. For this trip, it paid $300 for the pilot and $150 for fuel.
The round trip between Chicago and San Francisco is approximately 4,400 miles and the round
trip between Chicago and New York is 1,600 miles.

Required
a. Identify the direct and indirect costs that Kirby incurs for each trip.
b. Determine the total cost of each trip.
c. In addition to depreciation, identify three other indirect costs that may need to be allocated
to determine the cost of each trip.

P12-17 Hunt Manufacturing Company makes tents that it sells directly to camping enthusiasts through a mail-order marketing program. The company pays a quality control expert $72,000 per year to inspect completed tents before they are shipped to customers. Assume that the company completed
1,600 tents in January and 1,200 tents in February. For the entire year, the company
expects to produce 15,000 tents.

Required
a. Explain how changes in the cost driver (number of tents inspected) affect the total amount of
fixed inspection cost.
b. Explain how changes in the cost driver (number of tents inspected) affect the amount of
fixed inspection cost per unit.
c. If the cost objective is to determine the cost per tent, is the expert’s salary a direct or an indirect
cost?
d. How much of the expert’s salary should be allocated to tents produced in January and February?.

P13-23 Ellis Quilting Company makes blankets that it markets through a variety of department stores. It makes the blankets in batches of 1,000 units. Ellis made 20,000 blankets during the prior accounting period. The cost of producing the blankets is summarized here

Materials cost ($25 per unit x 20,000)  500,000
Labor cost ($22 per unit x  20,000)  440,000
Manufacturing supplies ($2 x  20,000)  40,000
Batch-level costs (20 batches at $4,000 per batch)  80,000
Product-level costs  160,000
Facility-level costs  290,000
Total costs  1,510,000
Cost per unit = $1,510,000 / 20,000 = $75.50

Required
a. Kent Motels has offered to buy a batch of 500 blankets for $56 each. Ellis’s normal selling
price is $90 per unit. Based on the preceding quantitative data, should Ellis accept the special
order? Support your answer with appropriate computations.
b. Would your answer to Requirement a change if Kent offered to buy a batch of 1,000 blankets
for $56 per unit? Support your answer with appropriate computations.
c. Describe the qualitative factors that Ellis Quilting Company should consider before accepting
a special order to sell blankets to Kent Motels.

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