Concept explainers
(a)
Direct cost:
A cost indicates the payment of cash or the obligation to pay the cash in the future period for the generation of revenue or the service performed. A direct cost is the cost which is directly involved in the process of production. For example: The cost of plastic is the direct material for manufacturing a bottle.
Indirect cost:
An indirect cost is the cost which is indirectly involved in the process of production. For example: The salary of supervisor of a manufacturing business cannot be traced even though the supervisor contributes for the production.
Cost object:
A cost object is something to which costs are assigned, it is often a product lines or customers department for which costs are accumulated or measured by the management.
To explain: The most logical definition for the final cost object.
(b)
To classify: Each cost as either direct cost or indirect cost.
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MANAGERIAL ACCOUNTING-ACCESS
- Regression, activity-based costing, choosing cost drivers. Sleep Late, a large hotel chain, has been using activity-based costing to determine the cost of a night’s stay at their hotels. One of the activities, “Inspection,” occurs after a customer has checked out of a hotel room. Sleep Late inspects every 10th room and has been using “number of rooms inspected” as the cost driver for inspection costs. A signicant component of inspection costs is the cost of the supplies used in each inspection.arrow_forwardSeveral costs incurred by Bayview Hotel and Restaurant are given in the following list. For each cost, indicate which of the following classifications best describe the cost. More than one classification may apply to the same cost item.Cost Classificationsa. Direct cost of the food and beverage departmentb. Indirect cost of the food and beverage departmentc. Controllable by the kitchen managerd. Uncontrollable by the kitchen managere. Controllable by the hotel general managerf. Uncontrollable by the hotel general managerg. Differential costh. Marginal costi. Opportunity costj. Sunk costk. Out-of-pocket costCost Items1. The cost of general advertising by the hotel, which is allocated to the food and beverage department.2. The cost of food used in the kitchen.3. The difference in the total cost incurred by the hotel when one additional guest is registered.4. The cost of space (depreciation) occupied by the kitchen.5. The cost of space (depreciation) occupied by a sauna next to the pool.…arrow_forwardIndicate whether each of the following costs is a direct cost or an indirect cost of the restaurant in a hotel.a. Cost of food served.b. Chef’s salary and fringe benefits.c. Part of the cost of maintaining the grounds around the hotel, which is allocated to the restaurant.d. The portion of the cost of advertising the hotel that has been allocated to the restaurant.arrow_forward
- Several costs incurred by Cape Cod Hotel and Restaurant are given in the following list. For each cost,indicate which of the following classifications best describe the cost. More than one classification mayapply to the same cost item.Cost Classificationsa. Direct cost of the food and beverage departmentb. Indirect cost of the food and beverage departmentc. Controllable by the kitchen managerd. Uncontrollable by the kitchen managere. Controllable by the hotel general managerf. Uncontrollable by the hotel general managerg. Differential costh. Marginal costi. Opportunity costj. Sunk costk. Out-of-pocket costCost Items1. The wages earned by table-service personnel.2. The salary of the kitchen manager.3. The cost of the refrigerator purchased 14 months ago. The unit was covered by a warranty for12 months, during which time it worked perfectly. It conked out after 14 months, despite an original estimate that it would last five years.4. The hotel has two options for obtaining fresh pies,…arrow_forwardSeveral costs incurred by Cape Cod Hotel and Restaurant are given in the following list. For each cost,indicate which of the following classifications best describe the cost. More than one classification mayapply to the same cost item.Cost Classificationsa. Direct cost of the food and beverage departmentb. Indirect cost of the food and beverage departmentc. Controllable by the kitchen managerd. Uncontrollable by the kitchen managere. Controllable by the hotel general managerf. Uncontrollable by the hotel general managerg. Differential costh. Marginal costi. Opportunity costj. Sunk costk. Out-of-pocket costCost Items1. The wages earned by table-service personnel.2. The salary of the kitchen manager.3. The cost of the refrigerator purchased 14 months ago. The unit was covered by a warranty for12 months, during which time it worked perfectly. It conked out after 14 months, despite an original estimate that it would last five years.4. The hotel has two options for obtaining fresh pies,…arrow_forwardThe Grand Hotel uses activity-based costing to determine the cost of servicing customers. There are three activity pools: guest check-in, room cleaning, and meal service. The activity rates associated with each activity pool are $9 per guest check-in, $15 per room cleaning, and $5 per served meal (not including food). Nikita Johnson visited the hotel for a three-night stay. Nikita had three meals in the hotel during her visit. Determine the total activity-based cost for Nikita’s visit.arrow_forward
- Uses of managerial accounting in a service company Priceline.com allows customers to bid on hotel rooms by "naming their price." This "name your price" process allows customers to obtain a better rate on a hotel room than they might be able to obtain by reserving their room directly from the hotel. The hotel can also benefit from this transaction by filling empty hotel rooms during periods of low occupancy LO 1,4 Natalie Mooney bids $85 for a night's stay at the Hotel Monaco in Seattle on Saturday August 10. The Hotel Monaco is not fully booked that evening and would likely accept any reasonable bids. How might the Hotel Monaco use managerial accounting information to decide whether or not to accept Natalie's bid?arrow_forwardPacific Hotels operates a centralized call center for the reservation needs of its hotels. Costs associated with use of the center are charged to the hotel group (luxury, resort, standard, and budget) based on the length of time of calls made (time usage). Idle time of the reservation agents, time spent on calls in which no reservation is made, and the fixed cost of the equipment are allocated based on the number of reservations made in each group. Due to recent increased competition in the hotel industry, the company has decided that it is necessary to better allocate its costs in order to price its services competitively and profitably. During the most recent period for which data are available, the use of the call center for each hotel group was as follows. Division Time Usage (thousands of minutes) Number of Reservations (thousands) Luxury 220 136 Resort 110 204 Standard 440 425 Budget 330 935 During this period, the cost of the…arrow_forwardSleep Late, a large hotel chain, has been using activity-based costing to determine the cost of a night’s stay at their hotels. One of the activities, “Inspection,” occurs after a customer has checked out of a hotel room. Sleep Late inspects every 10th room and has been using “number of rooms inspected” as the cost driver for inspection costs. A significant component of inspection costs is the cost of the supplies used in each inspection Mary Adams, the chief inspector, is wondering whether inspection labor-hours might be a better cost driver for inspection costs. Mary gathers information for weekly inspection costs, rooms inspected, and inspection labor-hours as follows: Q.Explain why rooms inspected and inspection labor-hours are plausible cost drivers of inspection costs.arrow_forward
- Sleep Late, a large hotel chain, has been using activity-based costing to determine the cost of a night’s stay at their hotels. One of the activities, “Inspection,” occurs after a customer has checked out of a hotel room. Sleep Late inspects every 10th room and has been using “number of rooms inspected” as the cost driver for inspection costs. A significant component of inspection costs is the cost of the supplies used in each inspection Mary Adams, the chief inspector, is wondering whether inspection labor-hours might be a better cost driver for inspection costs. Mary gathers information for weekly inspection costs, rooms inspected, and inspection labor-hours as follows: Q.Mary expects inspectors to inspect 300 rooms and work for 105 hours next week. Using the cost driver , what amount of inspection costs should Mary budget?arrow_forwardClassify each cost listed below as either product costs or period costs for the purpose of preparing the financial statements for the bank. Cost Product Cost/Period Cost 1. Depreciation on chairs and tables in the factory lunchroom 2. The wages of the receptionist in the administrative offices 3. Cost of leasing the corporate jet used by the company's executives 4. The cost of renting rooms at a Florida resort for the annual sales conference 5. The cost of packaging the company's productarrow_forwardSterling Hotel uses activity-based costing to determine the cost of servicing customers. There are three activity pools: guest check-in, room cleaning, and meal service. The activity rates associated with each activity pool are $8.10 per guest check-in, $24.00 per room cleaning, and $4.00 per served meal (not including food). Tara Stone visited the hotel for a 4-night stay. Tara had 5 meals in the hotel during the visit. Determine the total activity-based cost for Stone's visit during the month. Round your answer to the nearest cent.$fill in the blank 1arrow_forward
- Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College