Professional Documents
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CBEA-01-301P
CHAPTER 5
1. Given: Solution:
No. of Attendee = 500 people Total cost P 4,000
Total Cost = P 4,000 Divided by: No. of Attendee 500
Unit cost per person P 8
2. Given: Solution:
No. of Attendee = 2,000 people Total cost P 4,000
Total Cost = P 4,000 Divided by: No. of Attendee 2,000
Unit cost per person P 2
3. In the given situation, the number of attendees will affect the variable cost but not the fixed cost, therefore it will
be impossible to predict the total cost because it is not affected by the number of attendees. Because of that,
the unit costs in both requirements 1 and 2 are risky to use in predicting the total cost. Thus, the main lesson of
this problem is that the manager of the student association should be knowledgeable early on. about the decisions
in terms of identifying the total costs and unit costs,
Exercise 2
Solution:
2. The unit cost in requirement 1 no longer plays a role in the situation of Silver Holidays in predicting the
total air-flight costs to be paid next month for PAL, or they base their costs on each round-trip flight and
not per passenger. As a result, the Factor that will bring change or the cost driver in the problem will
be the number of round-trip flights being booked and not the number of passengers for the next month.
Exercise 3 (Classification of costs, merchandising sector)
You will have two answers (D or I; V or F) for each of the following items:
COST ITEM 1. D or I 2. V or F
a. Annual retainer paid to video distributer D F
b. Electricity costs of EEC store (single bill covers entire store) I V
c. Costs of video purchased for sale to customers D V
d. Subscription to Video Trends magazine D F
e. Leasing of computer software used for financial budgeting at EEC store I F
f. Cost of popcorn provided free to all customers of EEC I V
g. Earthquake insurance policy for EEC store I F
h. Freight-in costs of videos purchased by EEC D V
1. Compute (a) the prime costs and (b) the conversion costs of Tanaka Metal Products using the cost classifications described above.
2. Assume now that Tanaka changes the classification of two items both fringe benefits on direct manufacturing labor and production
setups will now be classified as direct costs. Compute (a) the prime costs and (b) the conversion costs of Tanaka after this change in
cost classifications, and comment on the results.
By changing the classification of items from manufacturing overhead into indirect to direct costs will increase the amount of
the prime costs, but conversion costs will not be affected by the change.
3. What information might Tanaka use to change two items in requirement 2 to be direct-cost items rather than manufacturing
overhead cost items?
A direct cost are those cost that are traceable and related to the particular cost object. Thus, the information that Tanaka may use to
change for it to be a direct cost items are the fringe benefits on direct manufacturing labor and production setup, which are typically
assigned as direct costs. Fringe benefits on direct manufacturing tabor are originally charged as direct cost base on per workers,
per salary, or per length of employment, on the other hand, production setups may also be charged jobs as direct costs based on the.
time of the production.