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Assignment 01 - Solution

1) The document provides sample income statements in traditional and contribution format for Marwick's Pianos for the month of August. The traditional statement shows sales, cost of goods sold, gross margin, operating expenses, and net operating income. The contribution format separates expenses into variable and fixed categories. 2) The document classifies 19 different costs as either variable, fixed, direct manufacturing, indirect manufacturing, selling, or administrative. 3) An example demonstrates using the high-low method to calculate the variable and fixed cost components of utilities costs based on activity levels. The variable cost per scan is calculated as $20 and the fixed cost is $1,000.

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Suman Paul Chowdhury
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38 views

Assignment 01 - Solution

1) The document provides sample income statements in traditional and contribution format for Marwick's Pianos for the month of August. The traditional statement shows sales, cost of goods sold, gross margin, operating expenses, and net operating income. The contribution format separates expenses into variable and fixed categories. 2) The document classifies 19 different costs as either variable, fixed, direct manufacturing, indirect manufacturing, selling, or administrative. 3) An example demonstrates using the high-low method to calculate the variable and fixed cost components of utilities costs based on activity levels. The variable cost per scan is calculated as $20 and the fixed cost is $1,000.

Uploaded by

Suman Paul Chowdhury
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter Two

P2-19, P2-21, P2-22


P2-19
Required 1:
Marwick’s Pianos, Inc.
Income Statement (Traditional)
For the Month of August
Sales (40 pianos @ $3,125) $125000
Cost of goods sold (40 pianos @ $2,450) 98000
Gross margin 27000
Operating Expenses:
Advertising 700
Sales salaries and commissions[$950 + (8% of $125,000)] 10950
Delivery of pianos (40 pianos × $30) 1200
Utilities 350
Depreciation of sales facilities 800
Executive salaries 2500
Insurance 400
Clerical [$1,000 + (40 pianos × $20)] 1800
Depreciation on office equipment 300
Total operating expenses 19000
Net operating income $ 8000
Required 2: Marwick’s Pianos, Inc.
Contribution Format Income Statement
For the Month of August
Sales (40 pianos × $3,125) $125000
Variable expenses:
Cost of goods sold (40 pianos × $2,450) 98,000
Sales commissions (8% × $125,000) 1000
Delivery of pianos (40 pianos × $30) 1200
Clerical (40 pianos × $20) 800
Total variable expenses 110,000
Contribution margin 15000
Fixed expenses:
Advertising 700
Sales salaries 950
Utilities 350
Depreciation of sales facilities 800
Executive salaries 2500
Insurance 400
Clerical 1000
Depreciation of office equipment 300
Total fixed expenses 7000
Net operating income $ 8,000
Required 3: Total fixed costs are always fixed; it varies inversely for per unit activity. As the
number of activities increases per unit fixed cost reduces, and vice versa. This is why showing
fixed cost per unit will be misleading for the users.
P2-21
V= Variable Costs, S= Selling Costs, A= Administrative Costs,
DM= Direct Manufacturing, IM= Indirect Manufacturing
1. Property taxes, factory - F, IM
2. Boxes used for packaging detergent produced by the company.- V, DM
3. Salespersons’ commissions.-V, S
4. Supervisor’s salary, factory.-F, IM
5. Depreciation, executive autos.-F, A
6. Wages of workers assembling computers.-V, DM
7. Insurance, finished goods warehouses.-F, S
8. Lubricants for production equipment.-V, IM
9. Advertising costs.-F, S
10. Microchips used in producing calculators.-V, DM
11. Shipping costs on merchandise sold. -V, S
12. Magazine subscriptions, factory lunchroom. -F, IM
13. Thread in a garment factory. -V, IM
14. Billing costs. -V, S
15. Executive life insurance. -F, A
16. Ink used in textbook production. -V, IM
17. Fringe benefits, assembly-line workers. -V,IM
18. Yarn used in sweater production. -V, DM, A
19. Wages of receptionist, executive offices. -F, A

P2-22
1. High-low method:
Number of Utilities
Scans Cost
High level of activity 150 $4000
Low level of activity 60 2200
90 $1,800
Change in cost $1,800
Change in activity 90 scans
Variable cost per scans= $20

Total cost for 150 scans $4000


Variable costs for 150 scans (150× $20) 3000
Fixed cost = $(4000-1000) = $1000

Cost formula is: Y = $1,000 + $20X.

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