Your Boat, Inc., assembles custom sailboats from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a Gig Harbor, Washington, boathouse. Listed below are some of the costs incurred by the company.
Required:
Classify each cost as direct labor, direct materials, manufacturing overhead, selling, or an administrative cost.
The wages of employees who build the sailboats.
The cost of advertising in the local newspapers.
The cost of an aluminum mast installed in a sailboat.
The wages of the assembly shop’s supervisor.
Rent on the boathouse.
The wages of the company’s bookkeeper.
Sales commissions paid to the company’s salespeople.
Depreciation on power tools.
BRIEF EXERCISE 1-2Classfication of Costs as Period or Product Costs(LO2)
Fairwings Avionics, a company that manufactures sophisticated radar sets for commercial aircraft has approached a bank for a loan to help finance its tremendous growth. The bank requires financial statements before approving such a loan. You have been asked to help prepare the financial statements and were given the following list of costs:
The cost of the memory chips used in a radar set.
Factory heating costs.
Factory equipment maintenance costs.
Training costs for new administrative employees.
The cost of the solder that is used in assembling the radar sets.
The travel costs of the company’s salespersons.
Wages and salaries of factory security personnel.
The cost of air-conditioning executive offices.
Wages and salaries in the department that handles billing customers.
Depreciation on the equipment in the fitness room used by factory workers.
Telephone expenses incurred by factory management.
The costs of shipping completed radar sets to customers.
The wages of the workers who assemble the radar sets.
The president’s salary.
Health insurance premiums for factory personnel.
Required:
Classify the above costs as either product (inventoriable) costs or period (noninventoriable) costs for purposes of preparing the financial statements for the bank.
BRIEF EXERCISE 1-3Constructing an Income Statement(LO3)
Last month Mountain High, a mountain sporting goods retailer, had total sales of $3,200,000, selling expenses of $110,000, and administrative expenses of $470,000. The company had beginning merchandise inventory of $140,000, purchased additional merchandise inventory for $2,550,000, and had ending merchandise inventory of $180,000.
Required:
Prepare an income statement for the company for the month.
BRIEF EXERCISE 1-4Prepare a Schedule of Cost of Goods Manufactured(LO4)
Mannerman Fabrication manufactures a variety of products in its factory. Data for the most recent month’s operations appear below:
Prepare a schedule of cost of goods manufactured for the company for the month.
BRIEF EXERCISE 1-5Classification Costs as Fixed or Variable(LO5)
Below are a number of costs that are incurred in a variety of organizations. Indicate whether the cost involved would be variable or fixed with respect to the goods and services produced by the organization by placing an X in the appropriate column.
The Empire Hotel is a four-star hotel located in downtown Seattle.
Required:
For each of the following costs incurred at the hotel, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object by placing an X in the appropriate column.
The Tirano Hotel is a four-star hotel located in downtown Seattle. The hotel’s operations vice president would like to replace the hotel’s antiquated computer terminals at the registration desk with attractive state-of-the-art flat-panel displays. The new displays would take less space, would consume less power than the old computer terminals, and would provide additional security since they can only be viewed from a restrictive angle. The new computer displays would not require any new wiring. The hotel’s chef believes the funds would be better spent on a new bulk freezer for the kitchen.
For each of the items below, indicate by placing an X in the appropriate column whether it should be considered a differential cost, an opportunity cost, or a sunk cost in the decision to replace the old computer terminals with new flat-panel displays. If none of the categories apply for a particular item, leave all columns blank.
