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ACC202 Week 1 Exercises

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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.

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