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2/1/12 McGraw-Hill's Connect - Ebook 1/11 connect.mcgraw-hill.com/connect/hmEBook.do?setTab=sectionTabs Managerial Accounting, eBook 14/e Content Chapter2: Managerial Accounting and Cost Concepts Problems All applicable problems are available with McGraw-Hill's Connect Accounting . PROBLEM 2-14 Contribution Format versus Traditional Income Statement [LO5 ] House of Organs, Inc., purchases organs from a well-known manufacturer and sells them at the retail level. The organs sell, on the average, for $2,500 each. The average cost of an organ from the manufacturer is $1,500. The costs that the company incurs in a typical month are presented below: During November, the company sold and delivered 60 organs. Required: 1. Prepare a traditional income statement for November. 2. Prepare a contribution format income statement for November. Show costs and revenues on both a total and a per unit basis down through contribution margin. 3. Refer to the income statement you prepared in (2) above. Why might it be misleading to show the fixed costs on a per unit basis? 2/1/12 McGraw-Hill's Connect - Ebook 2/11 connect.mcgraw-hill.com/connect/hmEBook.do?setTab=sectionTabs PROBLEM 2-15 Identifying Cost Behavior Patterns [LO3 ] A number of graphs displaying cost behavior patterns are shown on the next page. The vertical axis on each graph represents total cost and the horizontal axis represents the level of activity (volume). Required: 1. For each of the following situations, identify the graph that illustrates the cost behavior pattern involved. Any graph may be used more than once. a. Electricity billa flat fixed charge, plus a variable cost after a certain number of kilowatt- hours are used. b. City water bill, which is computed as follows: c. Depreciation of equipment, where the amount is computed by the straight-line method. When the depreciation rate was established, it was anticipated that the obsolescence factor would be greater than the wear and tear factor. d. Rent on a factory building donated by the city, where the agreement calls for a fixed fee payment unless 200,000 labor-hours or more are worked, in which case no rent need be paid. e. Cost of raw materials, where the cost starts at $7.50 per unit and then decreases by 5 cents per unit for each of the first 100 units purchased, after which it remains constant at $2.50 per unit. f. Salaries of maintenance workers, where one maintenance worker is needed for every 1,000 hours of machine-hours or less (that is, 0 to 1,000 hours requires one maintenance worker, 1,001 to 2,000 hours requires two maintenance workers, etc.). g. Cost of raw material used. h. Rent on a factory building donated by the county, where the agreement calls for rent of $100,000 less $1 for each direct labor-hour worked in excess of 200,000 hours, but a minimum rental payment of $20,000 must be paid.... View Full Document

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