Escolar Documentos
Profissional Documentos
Cultura Documentos
CHAPTER 8
I. Questions
1. The phrase different costs for different purposes refers to the fact that
the word cost can have different meanings depending on the context in
which it is used. Cost data that are classified and recorded in a
particular way for one purpose may be inappropriate for another use.
5. a. Uncontrollable cost
b. Controllable cost
c. Uncontrollable cost
6. Product costs are costs that are associated with manufactured goods until
the time period during which the products are sold, when the product
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Chapter 8 Cost Concepts and Classifications
costs become expenses. Period costs are expensed during the time
period in which they are incurred.
8. Product costs are also called inventoriable costs because they are
assigned to manufactured goods that are inventoried until a later period,
when the products are sold. The product costs remain in the finished
goods inventory account until the time period when the goods are sold.
9. A sunk cost is a cost that was incurred in the past and cannot be altered
by any current or future decision. A differential cost is the difference in
a cost item under two decision alternatives.
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Cost Concepts and Classifications Chapter 8
14. Direct materials include the materials in the product and a reasonable
allowance for scrap and defective units, while indirect materials are
materials used in manufacturing that are not physically part of the
finished product.
II. Exercises
Requirement 1
Direct material:
Raw-material inventory, January 1 ............. P 60,000
Add: Purchases of raw material ................. 250,000
Raw material available for use.................... P310,000
Deduct: Raw-material inventory,
December 31......................................... 70,000
Raw material used....................................... P240,000
Direct labor........................................................ 400,000
Manufacturing overhead:
Indirect material .......................................... P 10,000
Indirect labor............................................... 25,000
Depreciation on plant and equipment ......... 100,000
Utilities ....................................................... 25,000
Other ........................................................... 30,000
Total manufacturing overhead .................... 190,000
Total manufacturing costs ................................. P830,000
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Chapter 8 Cost Concepts and Classifications
Requirement 2
Requirement 3
Exercise 2
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Cost Concepts and Classifications Chapter 8
inventories V R
d. Salaries of top executives in the F P
company
e. Overtime premium for assembly workers V R
f. Sales commissions V P
g. Sales personnel office rental F P
h. Production supervisory salaries F R
i. Controllers office supplies F P
j. Executive office heat and air F P
conditioning
k. Executive office security personnel F P
l. Supplies used in assembly work V R
m. Factory heat and air conditioning F R
n. Power to operate factory equipment V R
o. Depreciation on furniture for sales staff F P
p. Varnish used for finishing product V R
q. Marketing personnel health insurance F P
r. Packaging materials for finished product V R
s. Salary of the quality control manager
who checks work on the assembly line F R
t. Assembly-line workers dental insurance F R
1. a, d, g, i
2. a, d, g, j
3. b, f
4. b, d, g, k
5. a, d, g, k
6. a, d, g, j
7. b, c, f
8. b, d, g, k
9. b, c and d*, e and f and g*, k*
* The building is used for several purposes.
10. b, c, f
11. b, c, h
12. b, c, f
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Chapter 8 Cost Concepts and Classifications
13. b, c, e
14. b, c and d, e and f and g, k
The building that the furnace heats is used for several purposes.
15. b, d, g, k
1. marginal cost
2. sunk cost
3. average cost
4. opportunity cost
5. differential cost
6. out-of-pocket cost
1. a, c, e, k
2. b, d, e, k
3. d, e, i
4. d, e, i
5. a, d, e, k
6. a, d, e, k
7. d, e, k
8. b, d, e, k
Unless the dishwasher has been used improperly.
9. h
10. a, d, e*, j
* The hotel general manager may have some control over the total space
allocated to the kitchen.
11. i
12. j
13. a, c, e
14. e, k
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Cost Concepts and Classifications Chapter 8
Exercise 6
III. Problems
Problem 1
The relevant costs for this decision are the differential costs. These are:
Room and board, clothing, car, and incidentals are not relevant because these
are presumed to be the same whether or not Francis goes to school. The
possibility of part-time work, summer jobs, or scholarship assistance could
be considered as reductions to the cost of school. If students are familiar
with the time value of money, then they should recognize that the analysis
calls for a comparison of the present value of the differential after-tax cash
inflows with the present value of differential costs of getting the education
(including the opportunity costs of lost income).
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Chapter 8 Cost Concepts and Classifications
Problem 2
Requirement (a)
Only the differential outlay costs need be considered. The travel and other
variable expenses of P22 per hour would be the relevant costs. Any amount
received in excess would be a differential, positive return to Pat.
Requirement (b)
Requirement (c)
In this situation Pat would have to consider the present value of the contract
and compare that to the present value of the existing consulting business.
The final rate may be more or less than the normal P100 rate depending on
the outcome of Pats analysis.
Problem 3
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Cost Concepts and Classifications Chapter 8
Problem 4
Problem 5
Requirement (a)
Sunk costs not shown could include lost book value on traded assets,
depreciation estimates for new investment, and interest costs on capital
needed during facilities construction.
Requirement (b)
The client might be used to differential cost as a decision tool, and believes
(correctly) that use of differential analyses has several advantages --- it is
quicker, requires less data, and tends to give a better focus to the decision.
The banker might suspect the client of hiding some material data in order to
make the proposal more acceptable to the financing agency.
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