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# ch02sol - CHAPTER 2 AN INTRODUCTION TO COST TERMS AND...

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CHAPTER 2 AN INTRODUCTION TO COST TERMS AND PURPOSES 2-20 (15–20 min.) Classification of costs, manufacturing sector. Cost object: Type of car assembled (Corolla or Geo Prism) Cost variability: With respect to changes in the number of cars assembled There may be some debate over classifications of individual items, especially with regard to cost variability. Cost Item D or I V or F A D V B I F C D F D D F E D V F I V G D V H I F 2-22 (15–20 min.) Variable costs and fixed costs. 1. Variable cost per ton of beach sand mined Subcontractor \$ 80 per ton Government tax 50 per ton Total \$130 per ton Fixed costs per month 0 to 100 tons of capacity per day = \$150,000 101 to 200 tons of capacity per day = \$300,000 201 to 300 tons of capacity per day = \$450,000 2. \$450,000 \$300,000 \$150,000 100 200 300 Tons of Cap acity p er Day \$975,000 \$650,000 \$325,000 2,500 5,000 7,500 Tons Mined

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The concept of relevant range is potentially relevant for both graphs. However, the question does not place restrictions on the unit variable costs. The relevant range for the total fixed costs is from 0 to 100 tons; 101 to 200 tons; 201 to 300 tons, and so on. Within these ranges, the total fixed costs do not change in total. 3. Tons Mined per Day Tons Mined per Month Fixed Unit Cost per Ton Variable Unit Cost per Ton Total Unit Cost per Ton (1) (2) = (1) × 25 (3) = FC ÷ (2) (4) (5) = (3) + (4) (a) 180 4,500 \$300,000 ÷ 4,500 = \$66.67 \$130 \$196.67 (b) 220 5,500 \$450,000 ÷ 5,500 = \$81.82 \$130 \$211.82 The unit cost for 220 tons mined per day is \$211.82, while for 180 tons it is only \$196.67. This difference is caused by the fixed cost increment from 101 to 200 tons being spread over an increment of 80 tons, while the fixed cost increment from 201 to 300 tons is spread over an increment of only 20 tons. 2-24 (10–15 min.) Cost drivers and functions. 1. Function Representative Cost Driver 1. Accounting Number of transactions processed 2. Personnel Number of new hires 3. Data Processing Hours of computer processing unit (CPU) 4. Research and Development Number of research scientists 5. Purchasing Number of purchase orders 6. Billing Number of invoices sent 2.
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