Homework Topic 2

:Questions
EXERCISE 2–2 Classification of Costs as Period or Product Costs
Suppose that you have been given a summer job at Fairwings Avionics, a company that manufactures
sophisticated radar sets for commercial aircraft. The company, which is privately owned, has
approached a bank for a loan to help finance its tremendous growth. The bank requires financial
.statements before approving such a loan

Required: Classify each cost listed below as either a product cost or a period cost for purposes of
.preparing the financial statements for the bank

Costs Classify
.The cost of the memory chips used in a radar set .1 product cost
.Factory heating costs .2 product cost
.Factory equipment maintenance costs .3 product cost
.Training costs for new administrative employees .4 period cost
.The cost of the solder that is used in assembling the radar sets .5 product cost
.The travel costs of the company’s salespersons .6 period cost
.Wages and salaries of factory security personnel .7 product cost
.The cost of air-conditioning executive offices .8 period cost
.Wages and salaries in the department that handles billing customers .9 period cost
Depreciation on the equipment in the fitness room used by factory .10 period cost
.workers
.Telephone expenses incurred by factory management .11 product cost
.The costs of shipping completed radar sets to customers .12 period cost
.The wages of the workers who assemble the radar sets .13 product cost

EXERCISE 2–13 High-Low Method; Predicting Cost

 Homework Topic 2

The number of X-rays taken and X-ray costs over the last nine months in Beverly Hospital are

:given below

:Required

.Using the high-low method, estimate the cost formula for X-ray costs .1

Using the cost formula you derived above, what X-ray costs would you expect to be incurred .2
?during a month in which 4,600 X-rays are taken

Month X-Rays Taken X-Ray Costs

January 6,250 $28,000
February 7,000 $29,000
March 5,000 $23,000
April 4,250 $20,000
May 4,500 $22,000
June 3,000 $17,000
July 3,750 $18,000
August 5,500 $24,000
September 5,750 $26,000

1) A. X-ray taken : 7,000-3,000=4000

B. X-ray costs : 29,000-17,000=12,000
C. 12,000/4,000=3$/use
2) Total Fixed Cost = Total Cost – Total Variable Cost
Total Fixed Cost = 29,000 – (3*7,000) 29,000 – 21,000
Total Fixed Cost = 8,000
Y= 8,000 + (3*4,600) 8,000+13,800
Y= 21,800$

Khetam Abdullah Alsulihim

2201530

JA