UNIVERSITY OF MARYLAND UNIVERSITY COLLEGE

COST ACCOUNTING
ACCT321
WEEK TWO HOMEWORK ASSIGNMENT
I. Questions
1. What is another word that some authors use as an equivalent to
differential cost?
2. A cost that is not relevant to making a decision is known as _____ cost.
3. Define and provide examples for committed fixed cost and
discretionary fixed cost.
4. If Wal-Mart decided to close one of its stores, which differential
revenues and costs would be affected by this decision?
5. What is an opportunity costs? Give examples.
II. Exercises
1. The following data is provided for Stanford Inc. for the year ended
12/31/15:
Costs:
Direct material
Direct labor
Manufacturing overhead:
Variable
Fixed
Sales commissions (variable)
Sales salaries (fixed)
Administrative expenses (fixed)
Selling price per unit
Units produced and sold

$125,000
187,500
42,500
87,000
32,500
27,500
42,550
$
22
62,500

Required:
a) Prepare a contribution margin income statement
b) Prepare a traditional income statement (multiple step income
statement)

ACCT321 Week One Homework Assignment Concluded: Page 2 of 2

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2. A company has annual fixed

different volumes of units
company estimates that its
demand amounts in units is
Choice
1
2
3
4

cost of $25,000 which is not affected by

sold. Variable cost per unit is $10. The
product demand under different level of
as follows at various unit selling prices:

Demand in units

Unit Selling Price

20,000
17,000
14,000
11,000

$11
$12
$13
$14

Required: What price should be set for the product?

3. Henson & Benson Manufacturing Inc. produces wagons for riding mowers.
H&B are currently operating at 80% capacity and producing about 35,000
wagons a year. Based on a review, they are considering producing their
own wheels for these wagons. Currently H&B purchases the wheels from a
vendor at a price of $45 for 4 wheels. If H&B were to manufacture their
own wheels for $10 direct material and $12 direct labor cost for 4
wheels. The variable factory overhead is $5 for 4 wheels. Also, it was
determined that accounting would allocate fixed manufacturing overhead
of $11 for 4 wheels. Note: There are 4 wheels for each wagon.
Required:
a) Should H&B make or buy the sails?
b) Suppose H&B could rent out the part of the factory that would
otherwise be used for manufacturing the wheels for $500,000. Would
H&B change their decision?
4. The Trans-Atlantic Company operates boat tours. Its predicted operation
for the year are as follows:
Sales (1,500 tours per year)
Cost:
Variable
Fixed

$600,000
$235 per tour
$ 90,000 per year

The company has received a request to offer 150 tours for $325 each.
Trans-Atlantic has plenty of capacity to do these tours in addition to
its regular business. Doing these tours would not affect the companys
regular sales or its fixed costs.
Required:
a) Should the company do the special tours for $325 per tour?
b) What is the effect of the decision on the companys operating
profit?

END OF WEEK TWO HOMEWORK ASSIGNMENT

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