Exercise 1:

a. False
b. False
c. True
d. True
e. True
f. False

Exercise 2:
a. Highest cost 35,940
Less: Lowest Cost 29,500
Difference 6,440

Highest Units 14,300

Less: Lowest Units 11,500
Difference 2,800

Cost difference 6,440

Divide: Unit difference 2,800
Variable cost per unit 2.30

Highest Cost 35,940

Less: Variable cost 32,890
Fixed cost 3,050

b. Variable cost 29,900

Add: Fixed cost 3,050
Total production cost 32,950

Exercise 3:

After-Tax
Before-Tax Revenue Tax Rate
Revenue
90,000 30% 63,000
78,000 25% 58,500
125,000 20% 100,000

Before-Tax Cost Tax Rate After-Tax Cost

60,000 15% 51,000
80,000 25% 60,000
96,000 35% 62,400

Exercise 4:
Absorption Variable
Item
Costing Costing
Direct materials Product cost Product cost
Variable manufacturing
Product cost Product cost
overhead
Fixed S&A costs Period cost Period cost
Direct labor Product cost Product cost
Fixed manufacturing
Product cost Period cost
overhead
Variable S&A costs Period cost Period cost

Exercise 5:

Absorption Variable
Item
Costing Costing
Direct materials 7 7
Direct labor 4 4
Variable MOH 2 2
Fixed MOH 3 -
Product cost per unit 16 13

Exercise 6:
Absorption
Item
Costing
Sales 231,000
Less: Cost of Sales 168,000
Gross Profit 63,000
Less: Selling and admin 60,500
Net operating income 2,500

Variable
Item
Costing
Sales 231,000
Less: Variable cost 147,000
Contribution margin 84,000
Less: Fixed cost 86,000
Net operating income - 2,000

Exercise 7:
a. FC
b. VC
c. FC
d. VC
e. FC
f. FC
g. VC
h. VC

Exercise 8:
Fixed cost 12,800
Variable cost 21,250
Total monthly cost 34,050
Exercise 9:

a. Erin has higher fixed cost compared to Teresa. With regards to

variable costs, Teresa charges a higher per-unit cost compared to Erin.
They have different costing and has high charge on different cost types
(fixed and variable).
b.
Item Erin Teresa
Variable cost 5,400 8,100
Fixed cost 4,000 250
Total cost 9,400 8,350

Exercise 10:
Total cost 10,000
Less: Variable cost 5,500
Fixed cost 4,500

Exercise 11:
a. Step cost
b. Fixed cost

Exercise 12:
a. Total cost = 6,300 + 5.50x
b. Variable cost 66,000
Fixed cost 6,300
Total cost 72,300

Exercise 13:

Exercise 14:
a. Highest cost 45,500
Less: Lowest Cost 40,000
Difference 5,500

Highest Units 12,500

Less: Lowest Units 10,500
Difference 2,000

Cost difference 5,500

Divide: Unit difference 2,000
Variable cost per unit 2.75

Highest Cost 45,500

Less: Variable cost 34,375
Fixed cost 11,125
b. Variable cost 33,000
Add: Fixed cost 11,125
Total production cost 44,125

Exercise 15:
Highest Cost 7,600
Less: Variable cost 3,600
Fixed cost 4,000

Lowest cost 7,300

Less: Fixed cost 4,000
Variable cost 3,300
Variable cost per unit 3
Low level of activity 1,100 machine hours

Exercise 16:
a. Highest cost 19,800
Less: Lowest Cost 13,400
Difference 6,400

Highest Units 3,650

Less: Lowest Units 2,050
Difference 1,600

Cost difference 6,400

Divide: Unit difference 1,600
Variable cost per unit 4.00

Exercise 17:
Sales 9,000
Less: Lease expense 4,000
Operating income 5,000
Less: Tax expense 1,500
Net income after tax 3,500

Exercise 18:
After-Tax
Before-Tax Revenue Tax Rate
Revenue
100,000 40% 60,000
200,000 20% 160,000
135,000 35% 87,750

Before-Tax Cost Tax Rate After-Tax Cost

25,000 40% 14,950
50,000 20% 40,000
35,000 35% 22,750
Exercise 19:
a. Net operating income 1,200,000
Less: Tax expense 420,000
Net income after tax 780,000

b. Net operating income 1,200,000

Less: Lease expense 175,000
Net income before tax 1,025,000
Less: Tax expense 358,750
Net income after tax 666,250