Ch.
Question 1
Home Entertainment Center (HEC) operates a large store in San Francisco. The store
has both a video section and a music (compact disks and tapes) section. HEC reports
revenues for the video section separately from the music section.
Required
Classify each cost item (A–H) as follows:
a. Direct or indirect (D or I) costs with respect to the total number of videos sold.
b. Variable or fixed (V or F) costs with respect to how the total costs of the video
section change as the total number of videos sold changes. (If in doubt, select on the
basis of whether the total costs will change substantially if there is a large change in
the total number of videos sold.)
You will have two answers (D or I; V or F) for each of the following items:
Cost Item D or I V or F
A. Annual retainer paid to a video distributor
B. Electricity costs of the HEC store (single bill covers entire
store)
C. Costs of videos purchased for sale to customers
D. Subscription to Video Trends magazine
E. Leasing of computer software used for financial budgeting
at the HEC store
F. Cost of popcorn provided free to all customers of the HEC
store
G. Earthquake insurance policy for the HEC store
H. Freight-in costs of videos purchased by HEC
Question 2
The Fremont, California, plant of New United Motor Manufacturing, Inc. (NUMMI),
a joint venture of General Motors and Toyota, assembles two types of cars (Corollas
and Geo Prisms). Separate assembly lines are used for each type of car.
Required
Classify each cost item (A–H) as follows:
1
a. Direct or indirect (D or I) costs with respect to the total number of cars of each type
assembled (Corolla or Geo Prism).
b. Variable or fixed (V or F) costs with respect to how the total costs of the plant
change as the total number of cars of each type assembled changes. (If in doubt, select
on the basis of whether the total costs will change substantially if there is a large
change in the total number of cars of each type assembled.)
You will have two answers (D or I; V or F) for each of the following items:
Cost Item D or I V or F
A. Cost of tires used on Geo Prisms
B. Salary of public relations manager for NUMMI plant
C. Annual awards dinner for Corolla suppliers
D. Salary of engineer who monitors design changes on Geo
Prism
E. Freight costs of Corolla engines shipped from Toyota City,
Japan, to Fremont, California
F. Electricity costs for NUMMI plant (single bill covers entire
plant)
G. Wages paid to temporary assembly-line workers hired in
periods of high production (paid on hourly basis)
H. Annual fire-insurance policy cost for NUMMI plant
Question 3
Consider the following account balances (in thousands) for the Piedmont Corporation:
Piedmont Corporation Beginning of 2011 End of 2011
Direct materials inventory 65,000 34,000
Work-in-process inventory 83,000 72,000
Finished goods inventory 123,000 102,000
Purchases of direct materials 128,000
Direct manufacturing labor 106,000
Indirect manufacturing labor 48,000
Indirect materials 14,000
Plant insurance 2,000
Depreciation—plant, building, and equipment 21,000
Plant utilities 12,000
Repairs and maintenance—plant 8,000
2
Equipment leasing costs 32,000
Marketing, distribution, and customer-service costs 62,000
General and administrative costs 34,000
Required
1. Prepare a schedule for the cost of goods manufactured for 2011.
2. Revenues for 2011 were $600 million. Prepare the income statement for 2011.
Question 4
Consider the following account balances (in thousands) for the Canseco Company：
A B C
1 Canseco Company Beginning of End of
2 2011 2011
3 Direct materials inventory $22,000 $26,000
4 Work-in-process inventory 21,000 20,000
5 Finished goods inventory 18,000 23,000
6 Purchases of direct materials 75,000
7 Direct manufacturing labor 25,000
8 Indirect manufacturing labor 15,000
9 Plant insurance 9,000
10 Depreciation—plant, building, and equipment 11,000
11 Repairs and maintenance—plant 4,000
Required
1. Prepare a schedule for the cost of goods manufactured for 2011.
2. Revenues for 2011 were $300 million. Prepare the income statement for 2011.