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    CH 2 Part 3 2023 Final

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    Rabie Haroun
    The document provides examples of preparing income statements in traditional and contribution formats for merchandising companies. It includes multiple examples showing sales revenue, cost of goods sold, various expenses, and the calculations to prepare both types of income statements. Definitions are also provided for differential costs, opportunity costs, and sunk costs as they relate to decision making.

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    CH 2 Part 3 2023 Final

    Uploaded by

    Rabie Haroun
    106 views4 pages
    The document provides examples of preparing income statements in traditional and contribution formats for merchandising companies. It includes multiple examples showing sales revenue, cost of goods sold, various expenses, and the calculations to prepare both types of income statements. Definitions are also provided for differential costs, opportunity costs, and sunk costs as they relate to decision making.

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    ch 2 part 3 2023 final

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    The document provides examples of preparing income statements in traditional and contribution formats for merchandising companies. It includes multiple examples showing sales revenue, cost of goods sold, various expenses, and the calculations to prepare both types of income statements. Definitions are also provided for differential costs, opportunity costs, and sunk costs as they relate to decision making.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    106 views4 pages

    CH 2 Part 3 2023 Final

    Uploaded by

    Rabie Haroun
    The document provides examples of preparing income statements in traditional and contribution formats for merchandising companies. It includes multiple examples showing sales revenue, cost of goods sold, various expenses, and the calculations to prepare both types of income statements. Definitions are also provided for differential costs, opportunity costs, and sunk costs as they relate to decision making.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 4

    Prepare income statements for a merchandising company

    using the traditional and contribution formats .


    The Traditional and Contribution Formats

    165. In October, Patnode Inc., a merchandising company, had sales of $294,000,


    selling expenses of $27,000, and administrative expenses of $35,000. The cost of
    merchandise purchased during the month was $211,000. The beginning balance in
    the merchandise inventory account was $38,000 and the ending balance was
    $34,000.

    Required: Prepare a traditional format income statement for October.

    166. Whitman Corporation, a merchandising company, reported sales of 7,400


    units for May at a selling price of $677 per unit. The cost of goods sold (all variable)
    was $441 per unit and the variable selling expense was $54 per unit. The total fixed
    selling expense was $155,600. The variable administrative expense was $24 per
    unit and the total fixed administrative expense was $370,400.

    Required:

    a. Prepare a contribution format income statement for May.


    b. Prepare a traditional format income statement for May.

    a. Contribution Format Income Statement

    1
    b. Traditional Format Income Statement

    167. Donmoyer Sales Corporation, a merchandising company, reported total sales


    of $2,230,200 for May. The cost of goods sold (all variable) was $1,518,300, the
    total variable selling expense was $214,200, the total fixed selling expense was
    $86,700, the total variable administrative expense was $119,700, and the total
    fixed administrative expense was $138,400.
    Required:
    a. Prepare a contribution format income statement for May.
    b. Prepare a traditional format income statement for May.

    EXERCISE 2–5
    Redhawk, Inc., is a merchandiser that provided the following information:

    Number of units sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000


    Selling price per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15
    Variable selling expense per unit . . . . . . . . . . . . . . . . . . . $2
    Variable administrative expense per unit . . . . . . . . . . . . . . $1
    Total fi xed selling expense . . . . . . . . . . . . . . . . . . . . . . . . $20,000
    Total fi xed administrative expense . . . . . . . . . . . . . . . . . . . $15,000
    Merchandise inventory, beginning balance . . . . . . . . . . . . $12,000
    Merchandise inventory, ending balance . . . . . . . . . . . . . . $22,000
    Merchandise purchases . . . . . . . . . . . . . . . . . . . . . . . . . . $90,000
    Required

    1. Prepare a traditional income statement.


    2. Prepare a contribution format income statement.

    cost classifications used in making decisions:


    differential costs, opportunity costs, and sunk costs.

    Differential Cost and Revenue Costs and revenues that differ among alternatives.

    Opportunity Cost The potential benefit that is given up when one alternative is
    selected over another.

    These costs are not usually entered into the accounting records of an organization,
    but must be explicitly considered in all decisions.

    Sunk Costs

    Sunk costs have already been incurred and cannot be changed now or in the
    future. These costs should be ignored when making decisions.
    2
    Example: Suppose you had purchased gold for $1,100 an ounce, but now it is
    selling for $950 an ounce. Should you wait for the gold to reach $1,100 an ounce
    before selling it? You may say, “Yes” even though the $1,100 purchase is a sunk
    costs.

    88. Buckeye Company has provided the following data for maintenance cost:

    The best estimate of the cost formula for maintenance would be:
    A. $21,625 per year plus $0.625 per machine hour
    B. $7,000 per year plus $0.625 per machine hour
    C. $7,000 per year plus $1.60 per machine hour
    D. $27,000 per year plus $1.60 per machine hour

    89. Haar Inc. is a merchandising company. Last month the company's cost of goods
    sold was $61,000. The company's beginning merchandise inventory was $11,000
    and its ending merchandise inventory was $21,000. What was the total amount of
    the company's merchandise purchases for the month?
    A. $61,000 B. $51,000 C. $71,000 D. $93,000

    90. Gabruk Inc. is a merchandising company. Last month the company's


    merchandise purchases totaled $88,000. The company's beginning merchandise
    inventory was $15,000 and its ending merchandise inventory was $13,000. What
    was the company's cost of goods sold for the month?
    A. $88,000 B. $90,000 C. $86,000 D. $116,000

    Callander Corporation is a wholesaler that sells a single product. Management has


    provided the following cost data for two levels of monthly sales volume. The
    company sells the product for $151.60 per unit.

    101. The best estimate of the total monthly fixed cost is:
    A. $846,000 B. $886,050 C. $365,400 D. $926,100

    102. The best estimate of the total variable cost per unit is:
    A. $141.00 B. $80.10 C. $69.30 D. $132.30

    103. The best estimate of the total contribution margin when 6,300 units are sold
    is:
    A. $450,450 B. $518,490 C. $121,590 D. $66,780

    3
    Babuca Corporation has provided the following production and total cost data for
    two levels of monthly production volume. The company produces a single product.

    104. The best estimate of the total monthly fixed manufacturing cost is:
    A. $1,424,400 B. $1,506,400 C. $932,400 D. $1,465,400

    105. The best estimate of the total variable manufacturing cost per unit is:
    A. $82.00 B. $70.20 C. $56.70 D. $11.80

    106. The best estimate of the total cost to manufacture 6,300 units is closest to:
    A. $1,425,690 B. $1,355,760 C. $1,495,620 D. $1,449,000

    The following production and average cost data for two levels of monthly
    production volume have been supplied by a company that produces a single
    product:

    107. The best estimate of the total monthly fixed manufacturing cost is:
    A. $25,600 B. $114,400 C. $47,700 D. $69,800

    108. The best estimate of the total variable manufacturing cost per unit is:
    A. $22.10 B. $66.70 C. $88.80 D. $15.70

    109. The best estimate of the total cost to manufacture 1,200 units is closest to:
    A. $132,160 B. $121,920 C. $129,600 D. $137,280

    Erkkila Inc. reports that at an activity level of 7,900 machine-hours in a month, its
    total variable inspection cost is $210,061 and its total fixed inspection cost is
    $191,970.

    110. What would be the average fixed inspection cost per unit at an activity level of
    8,100 machine-hours in a month? Assume that this level of activity is within the
    relevant range.
    A. $50.89 B. $24.30 C. $23.70 D. $32.96

    111. What would be the total variable inspection cost at an activity level of 8,100
    machine-hours in a month? Assume that this level of activity is within the relevant
    range.
    A. $210,061 B. $196,830 C. $215,379 D. $402,031

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