$
25.00
Direct materials
$
4.85
Direct labor
4.20
Variable manufacturing overhead
1.55
Sales commissions
0.50
Variable administrative expense
0.45
Variable cost per unit sold
11.55
Contribution margin per unit
$
13.45
Difficulty: 1 Easy
Topic: Cost Classifications for Predicting Cost Behavior; Using Different Cost Classifications for Different Purposes
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable costs, fixed costs, and mixed costs.; 01-06 Prepare income statements for a merchandising company using the traditional and contribution formats.
Bloom's: Apply
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
248) Kogler Corporation's relevant range of activity is 7,000 units to 11,000 units. When it produces and sells 9,000 units, its average costs per unit are as follows:
Average
Cost per Unit
Direct materials
$
4.85
Direct labor
$
4.20
Variable manufacturing overhead
$
1.55
Fixed manufacturing overhead
$
9.00
Fixed selling expense
$
3.15
Fixed administrative expense
$
1.80
Sales commissions
$
0.50
Variable administrative expense
$
0.45
The incremental manufacturing cost that the company will incur if it increases production from 9,000 to 9,001 units is closest to:
A) $10.60
B) $22.75
C) $19.60
D) $25.50
Answer: A
Explanation:
Direct materials
$
4.85
Direct labor
4.20
Variable manufacturing overhead
1.55
Incremental manufacturing cost
$
10.60
Difficulty: 1 Easy
Topic: Cost Classifications for Decision Making
Learning Objective: 01-05 Understand cost classifications used in making decisions: differential costs, sunk costs, and opportunity costs.
Bloom's: Apply
AACSB: Analytical Thinking
AICPA: BB Critical Thinking; FN Measurement
249) The University Store, Inc. is the major bookseller for four nearby colleges. An income statement for the first quarter of the year is presented below:
University Store, Inc.
Income Statement
For the Quarter Ended March 31
Sales
$
800,000
Cost of goods sold
560,000
Gross margin
240,000
Selling and administrative expenses
Selling
$
100,000
Administrative
110,000
210,000
Net operating income
$
30,000
On average, a book sells for $40.00. Variable selling expenses are $3.00 per book; the remaining selling expenses are fixed. The variable administrative expenses are 5% of sales; the remainder of the administrative expenses are fixed.
The contribution margin for the University Store for the first quarter is:
A) $660,000.
B) $700,000.
C) $180,000.
D) $140,000.
Answer: D
Explanation: Unit sales = $800,000 ÷ $40 per book = 20,000 books
Sales
$
800,000
Variable expenses:
Cost of goods sold
$
560,000
Variable selling ($3 per book × 20,000 books)
60,000
Variable administrative (5% of $800,000)
40,000
660,000
Contribution margin
$
140,000
Difficulty: 2 Medium
Topic: Cost Classifications for Predicting Cost Behavior; Using Different Cost Classifications for Different Purposes
Learning Objective: 01-04 Understand cost classifications used to predict cost behavior: variable costs, fixed costs, and mixed costs.; 01-06 Prepare income statements for a merchandising company using the traditional and contribution formats.