1.Northwest Hospital is a full-service hospital providing everything from major surgery and emergency room care to outpatient clinics.
Required:
For each of the following costs incurred at Northwest Hospital, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object.
2.The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs the company incurs.
Required:
For each cost, indicate whether it would most likely be classified as direct materials, direct labor, manufacturing overhead, selling, or an administrative cost.
3. Issac Aircams manufactures sophisticated spy cameras for remote-controlled military reconnaissance aircraft. It has approached a bank for a loan to finance its growth. The bank requires financial statements before approving the loan.
Required:
Classify each cost listed below as either a product cost or a period cost for the purpose of preparing financial statements.
4. Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,600 and the variable cost per cup of coffee served is $0.18.
Required:
Does the average cost per cup of coffee served increase, decrease, or remain the same as the number of cups of coffee served in a week increases?
Fill in the following table with your estimates of the company’s total cost and average cost per cup of coffee at the indicated levels of activity.
5. Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,200 and the variable cost per cup of coffee served is $0.22.
Required:
Does the average cost per cup of coffee served increase, decrease, or remain the same as the number of cups of coffee served in a week increases?
Fill in the following table with your estimates of the company’s total cost and average cost per cup of coffee at the indicated levels of activity.
6. Northeast Hospital’s Radiology Department is considering replacing an old inefficient X-ray machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and at a lower cost per X-ray. It also requires less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital’s management to buy a new DNA analyzer.
Required:
Classify each item as a differential cost, a sunk cost, or an opportunity cost in the decision to replace the old X-ray machine with a new machine. If none of the categories apply for a particular item, select “None”.
7. Cherokee Incorporated is a merchandiser that provided the following information:
| Amount | |
|---|---|
| Number of units sold | 13,000 |
| Selling price per unit | $ 17 |
| Variable selling expense per unit | $ 1 |
| Variable administrative expense per unit | $ 3 |
| Total fixed selling expense | $ 20,000 |
| Total fixed administrative expense | $ 15,000 |
| Beginning merchandise inventory | $ 12,000 |
| Ending merchandise inventory | $ 24,000 |
| Merchandise purchases | $ 88,000 |
Required:
Prepare a contribution format income statement.
Prepare a traditional income statement.
