Chapter 2 2, Does the average cost per cup of coffe served increase, derease, or remain the same a the ‘numberof eups of coffee served ina week increases? Explain. EXERCISE 2-4 High-Low Method [LO] The Edelweiss Hote! in Vail, Colorado, has accumulated records ofthe total electrical costs ofthe hotel and the number of oceupancy-days over the last year, An oceupancy-day represents a room rented out for one day, The hotel's business is highly seasonal, with peaks occurring during the ski season and inthe summer. Occupancy Electrical Month Days Costs January, 2.604 $6257 February 2.358 $6,550 Mares 3.534 $7,986 April 1440 4.002 May 540 $2289 sine 1116 $3,581 sy 3,182 $7,268 ‘August 3.608 sean Soptombor 4260 $3707 October «ss. 188 stiri November 4080 s3sat December 2086 $5196 Require: 1 Using the high-low method, estimate the fixed cost of eleticity per month and the variable cost ofeletricty per occupancy’day. Round off the fixed cost to the neazest whole dolar and the variable cost othe nearest whole cent 2, What other factors other than oscupaney-days ate likely to affect the variation in eletrical costs from month to month? EXERCISE 2-5 Traditional and Contribution Format Income Statements [LOS] Redhawk, In, is a merchandiser that provided the following information: Number of units sold 10,000 Sling price por unit $15 Variable sefng expense per unit $2 ‘Variable administrative expense per unit st “Total xed soling expense $20,000 “otal fxed administrative expense + $15,000 Morchandise inventor, beginning balance $12,000 Morchandise inventory, ending balance: $22,000 Morchandise purchases $80,000 Require 1. Prepare a tational income statement 2. Prepare a contribution format income statement. EXERCISE 2-6 Identifying Direct and indirect Costs [LO6) ‘The Empire Hotel i a four-star hotel located in downtown Seale, Roguted: For each ofthe following costs incurred atthe Empire Hotel, indicate whether it would most likely be a direct cost or an indirect cost of the spevfied cost object by placing an X inthe appropriate column,Managerial Accounting and Cost Concepts 55 Direct Incirect Cost Cost Object Cost Cost Ex, loom service beverages A particular hotel quest x 1. The salary ofthe nead chet ‘The hota restaurant 2, The salary of the head chet ‘A particular restaurant customer 3, Room cleaning supplies ‘particular hotel quest 4, Flowers forthe reception desk A paricularhotel guest 5. Tho wagos of tho doorman ‘A particular hotel quest 6, Room cleaning supotes ‘The housecleaning department 7. Fire insurance on the hotel building The hoters gym 8. Towois used inthe gym The hotes gym Ee Diferenial Opportunity Sunk tem Cost Cost Cost Cost of elect to run the terminals x Cost ofthe new flat-panel displays (Cost ofthe old computer terminals Fenton the space occupied by he regisration desk Wages of registration desk personnel Berets trom a new troozer Costs of maintaining the old computer terminals. Cost of removing the oid computor torminals, Cost of existing registration desk wring puospen-P EXERCISE 2-8 Cost Behavior; Contribution Format Income Statement [L.03, LOS) Parker Company manufactures and sells a single prodict A patilly completed schedule of the ‘company’s total and per unit costs over a relevant range of 60,000 to 100,000 units produced and sold each year is given below Total cost por unit Units Produced and Sold 0,000 0,000 100,000 “otal costs: Variable costs $150,000 2 2 Fred costs "360,000 2 2 “otal costs $510,000, 2 z Cost per uni Variable cost 2 2 2 Fixed cost 2 2 2Chapter 2 Regu: 1. Complete the schedule ofthe companys total and unit costs 2. Assume thatthe company produces and sells 90,000 units during the year atthe selling price (f $7.50 per unit. Prepare a contribution format income statement forthe year. EXERCISE 2-9 Cost Classification (LOI, LO2, L03, LO7} Several years ago Medex Company purchased a small building adjacent to its manufacturing plant in order to have room for expansion when needed, Since the company had no immediate need for the extra space, the building was rented ut to another company for rental revenue of $40,000 per year The rente's lease will expire next month, and rather than renewing the lease, Medex Com- ‘pany has decided to use the building itself to manufacture a new product Direct materials cost for the new product will otal $40 per unit, I ill be necessary to hire 8 supervisor to oversee production, Her salary will be $2,500 per month. Workers will be hired to manufaetute the new produc, with direct labor cost amounting fo $18 per unit. Manufacturing ‘operations will ccupy al ofthe building space, so it willbe necessary torent space in a warehouse nearby in onder to stot finished units of product, The rental cost willbe $1,000 per month. In adi- tion, the company will need torent equipment for se in producing the new produc; the renal cost will be $3,000 per month. The company will continue to depreciate the building ona staight-line basis, 2s in pst years. Depreciation onthe building is $10,000 per year. ‘Advertising cost for the new product wil otal $50,000 per year. Costs of shipping the new producto customers willbe $10 per uni, Electrical costs of operating machines will be $2 per unit. ‘To have funds to purchase materials, meet payrolls, and sofort, the company will have to ligu- date some temporary investments, These investments ate presently yielding a retum of $6,000 per year. equi: Prepare an answer sheet withthe following column headings List the different costs associated with the new product decision down the extreme left col- umn (under Name ofthe Cost. Then place an X under each heading tht helps to describe the type of cost involved. Taste may be X's under several column headings fora single cost. (For example, ‘acost may be a fixed cos, a period cost, and a sunk cost; you would place an X under each ofthese column headings opposite the cost) EXERCISE 2-10 High-Low Method; Scatereraph Analysis [LO4] Zesbel Company, « wholesaler of larg, custom-built air conditioning units fr commercial buildings, has naiced considerable uctuation in its shipping expense from month to month, as shown below: $2,200 $3,100 $2,600 $1,500 $2200 $3,000 $3,600 Reguire: 1. Prepare a scattergraph using the data given above. Plot cost on the vertical exis and activity fon the horizontal axis. Is there an approximately linear relationship between shipping expense and the numberof units shipped?