1. Explain briefly what the following mean:
   1. Cost benefit analysis
   2. Economic impact analysis
   3. Cost effectiveness analysis
   4. Hedonic pricing
   5. Shadow pricing

Given the following data       Output        Total cost

output total cost

0 6

1 14

2 20

3 24

4 32

5 45

6 60

1. What is the value of total fixed cost? _______
2. What is the value of total variable cost when output= 4? _______
3. What is the value of average total cost when output equals 6?______
4. What is the marginal cost of the fifth unit?_______
5. AT what level of output is marginal cost at its minimum value? _____

Mastery Problem: Manufacturing Cost Variance (Actual Costs Compared to Standard Costs)

Manufacturing cost variances may come from material costs that are higher or lower than expected, material usage that is not what was expected, higher or lower labor costs than expected, or more or less time spent to produce an item than expected. Overhead cost and volume variances are another cause for costs to be higher or lower than what was expected. The total manufacturing variance can be broken down by cost type (materials, labor, overhead) and further by cost variances within cost types and usage or efficiency variances within cost types:

Manufacturing cost variances are determined using a standard costing system. Standard costs are predetermined  costs that should be incurred under efficient operating conditions. Standard costing is most suited to manufacturing  organizations, where activities consist of common or repetitive operations and the direct costs required to produce each item are defined.

In a standard costing system, it is important to understand that costs are compared to budget based on a flexible budget rather than a fixed budget. Flexible budgets use standard  costs and actual  production volume. This means that the actual costs in the period are compared to the number of units produced in the period at the standard cost.

Feedback

Standards are set up as part of the budgeting process and are used when per unit costs can be estimated under efficient operating conditions. Remember that flexible budgets account for changes in volume.

If actual costs are greater than standard costs, the variance is unfavorable , alternatively, if actual costs are less than standard costs, the variance is favorable .

Direct Materials Cost Variance

Calculating Direct Materials Cost Variance, you can see that the actual costs are higher  than standard and the actual quantity purchased and used is less  than standard. The two variances are combined for a total favorable  direct material cost variance of $.

Direct Labor Cost Variance

Calculating Direct Labor Cost Variance, you can see that the actual costs are higher  than standard and the actual hours are higher  than standard. The two variances are combined for a total favorable  direct labor cost variance of $.

Feedback

The illustrations provide the information to complete the problem.

The standard cost sheet for a product is shown.

The company produced 3,000 units that required:

• 17,300 pounds of material purchased at $4.55 per pound

• 6,810 hours of labor at an hourly rate of $12.68 per hour

• Actual overhead in the period was $15,580

Fill in the Budget Performance Report for the period. Some amounts are provided. Round your answers to the nearest dollar. However, do not round your intermediate calculations.

Split the direct materials cost variance into the materials price varaince and the Direct materials quantity variance. Remember that you want to isolate the price variance from the quantity variance so be sure to use factors that do not overlap. Also remember that the two variances should equal the total direct material cost variance.

Split the direct labor cost variance into the direct labor rate variance and the direct labor time variance. Remember that you want to isolate the price variance from the efficiency variance so be sure to use factors that do not overlap. Also remember that the two variances should equal the total direct labor cost variance.

Manufacturing variances are period costs that are rolled into cost of sales  and reported on the income statement  . A favorable variance is recorded as a credit  and an unfavorable variance is recorded as a debit .

#7

Factory Overhead Cost Variance Report

Tannin Products Inc. prepared the following factory overhead cost budget for the Trim Department for July of the current year, during which it expected to use 16,000 hours for production:

Tannin has available 20,000 hours of monthly productive capacity in the Trim Department under normal business conditions. During July, the Trim Department actually used 15,000 hours for production. The actual fixed costs were as budgeted. The actual variable overhead for July was as follows:

Construct a factory overhead cost variance report for the Trim Department for July. Enter all amounts as positive numbers. If an amount box does not require an entry, leave it blank. Round your interim computations to the nearest cent, if required.

Jake’s Roof Repair has provided the following data concerning its costs:

For example, wages and salaries should be $21,300 plus $15.00 per repair-hour. The company expected to work 2,500 repair-hours in May, but actually worked 2,400 repair-hours. The company expects its sales to be $50.00 per repair-hour.

Required:

Compute the company’s activity variances for May. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Red Bear Ltd. purchased several intangible assets, as follows:

The following information is also available:

a) Calculate the annual amortization expense, if any, that should be recorded for each of these intangible assets, assuming the straight-line method is appropriate. (Do not leave any answer field blank. Enter 0 for amounts.)

b) Show how the intangible assets section of the statement of financial position would be presented four years after acquisition of these assets, assuming that there has been no evidence that their values have been impaired. Assume that a full year of amortization was taken in the year of acquisition.

1.Sparacino Corporation has provided the following information:

If 5,000 units are produced, the total amount of manufacturing overhead cost is closest to:

2. Glew Corporation has provided the following information:

If 3,000 units are produced, the total amount of indirect manufacturing cost incurred is closest to:

3.Fasheh Corporation's relevant range of activity is 7,000 units to 11,000 units. When it produces and sells 9,000 units, its average costs per unit are as follows:

If 10,000 units are produced, the total amount of manufacturing overhead cost is closest to:

Jake’s Roof Repair has provided the following data concerning its costs:

For example, wages and salaries should be $21,100 plus $15.00 per repair-hour. The company expected to work 2,600 repair-hours in May, but actually worked 2,500 repair-hours. The company expects its sales to be $53.00 per repair-hour.

Required:

Compute the company’s activity variances for May

(Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive

values.)

Jake’s Roof Repair has provided the following data concerning its costs: Fixed Cost per Month Cost per Repair-Hour Wages and salaries $ 20,900 $ 15.00 Parts and supplies $ 7.50 Equipment depreciation $ 2,760 $ 0.45 Truck operating expenses $ 5,790 $ 1.70 Rent $ 4,690 Administrative expenses $ 3,820 $ 0.40 For example, wages and salaries should be $20,900 plus $15.00 per repair-hour. The company expected to work 2,900 repair-hours in May, but actually worked 2,800 repair-hours. The company expects its sales to be $49.00 per repair-hour. Required: Compute the company’s activity variances for May. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)