selfstudy_c2

selfstudy_c2 - 1 Exercise 2-3(15 minutes Cost Behaviour...

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Unformatted text preview: 1 Exercise 2-3 (15 minutes) Cost Behaviour Cost Variable Fixed 1. Small glass plates used for lab tests in a hospital................................................... X 2. Straight-line depreciation of a building......... X 3. Top management salaries........................... X 4. Electrical costs of running machines ............ X 5. Advertising of products and services* .......... X 6. Batteries used in manufacturing trucks ........ X 7. Commissions to salespersons ...................... X 8. Insurance on a dentist’s office..................... X 9. Leather used in manufacturing footballs....... X 10. Rent on a medical centre............................ X * This particular item may cause some debate. Hopefully, advertising results in more demand for products and services by customers. So advertising costs are correlated with the amount of products and services provided. However, note the direction of causality. Advertising causes an increase in the amount of goods and services provided, but an increase in the amount of goods and services demanded by customers does not necessarily result in a proportional increase in advertising costs. Hence, advertising costs are fixed in the classical sense that the total amount spent on advertising is not proportional to what the unit sales turn out to be. 2 Problem 2-14 (60 minutes) 1. Yedder Enterprises Quality Cost Report (in thousands of dollars) This Year Last Year Amount Percent Amount Percent Prevention costs: Systems development............... $ 680 0.68 % $ 120 0.13 % Statistical process control.......... 270 0.27 % — 0.00 % Quality engineering .................. 1,650 1.65 % 1,080 1.14 % Total.......................................... 2,600 2.60 % 1,200 1.26 % Appraisal costs: Inspection ............................... 2,770 2.77 % 1,700 1.79 % Supplies used in testing............ 40 0.04 % 30 0.03 % Cost of testing equipment......... 390 0.39 % 270 0.28 % Total.......................................... 3,200 3.20 % 2,000 2.10 % Internal failure costs: Net cost of scrap...................... 1,300 1.30 % 800 0.84 % Rework labour .........................Rework labour ....
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selfstudy_c2 - 1 Exercise 2-3(15 minutes Cost Behaviour...

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