Managerial Accounting
7th Edition
ISBN: 9781337116008
Author: Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher: South Western Educational Publishing
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Question
Chapter 3, Problem 38E
1.
To determine
Calculate the amount of total maintenance cost which is incurred by Company A.
1.
Expert Solution
Answer to Problem 38E
The value of total maintenance cost is $4,875,000.
Explanation of Solution
Cost:
Cost can be defined as the cash and cash equivalent which is incurred against the products or its related services which will benefit the organization in the future. There are two types of costs that are fixed and variable costs.
Use the following formula to calculate the value of total maintenance cost which is incurred by Company AL:
Substitute $1,750,000 for fixed cost, $125 for variable rate and 25,000 for number of heart stents in the above formula.
Therefore, the value of total maintenance cost is $4,875,000.
2.
To determine
Calculate the amount of total fixed maintenance cost which is incurred by Company A.
2.
Expert Solution
Answer to Problem 38E
The value of total fixed maintenance cost is $1,750,000.
Explanation of Solution
Fixed cost is the cost which is not affected by the change in level of output. It remains unchanged in the short run, for example, property taxes, rent and salaries. The value of total fixed maintenance cost is given in the problem that is $1,750,000.
3.
To determine
Calculate the amount of total variable maintenance cost which is incurred by Company A.
3.
Expert Solution
Answer to Problem 38E
The value of total variable maintenance cost is $3,125,000.
Explanation of Solution
Use the following formula to calculate the value of total variable maintenance cost which is incurred by Company AL:
Substitute $125 for variable rate and 25,000 for number of heart stents in the above formula.
Therefore, the value of total variable maintenance cost is $3,125,000.
4.
To determine
Calculate the value of maintenance cost per unit produced.
4.
Expert Solution
Answer to Problem 38E
The value of maintenance cost per unit produced is $195.
Explanation of Solution
Use the following formula to calculate the value of maintenance cost per unit produced:
Substitute $1,750,000 for fixed cost, $125 for variable rate and 25,000 for number of heart stents in the above formula.
Therefore, the value of maintenance cost per unit produced is $195.
5.
To determine
Calculate the value of fixed maintenance cost per unit produced.
5.
Expert Solution
Answer to Problem 38E
The value of fixed maintenance cost per unit produced is $70.
Explanation of Solution
Use the following formula to calculate the value of maintenance cost per unit produced:
Substitute $1,750,000 for fixed cost and 25,000 for number of heart stents in the above formula.
Therefore, the value of fixed maintenance cost per unit produced is $70.
6.
To determine
Calculate the value of variable maintenance cost per unit produced.
6.
Expert Solution
Answer to Problem 38E
The value of variable maintenance cost per unit produced is $125.
Explanation of Solution
Variable cost is the cost which changes with the change in the level of output. In other words, variable cost increases with the increase in units produced and decreases with the decrease in units produced. The value of variable maintenance cost per unit produced is given in the problem that is $125.
7.
To determine
Discuss the factors due to which maintenance cost per unit is higher in this problem as compared to exercise 3-37. Also, identify whether the Company A should use the maintenance cost per unit to make decisions.
7.
Expert Solution
Explanation of Solution
The maintenance cost in this problem and in exercise 3-37 is $195 and $160 respectively. The maintenance cost is higher in this problem because Company A incurs fixed cost in order to manufacture the number of heart stents. The fixed cost of Company A does not change with the change in the number of heart stents that is 25,000 stents to 50,000 stents. On the contrary, as the volume of output decreases, the maintenance cost per unit increases and vice-versa.
Yes, Company A should use the maintenance cost per unit in making certain decisions. Company should also consider that unit cost computed at one output level cannot determine the total cost at different output levels.
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Students have asked these similar questions
Alisha Incorporated manufactures medical stents for use in heart bypass surgery. Based on past experience, Alisha has found that its total maintenance costs can be represented by the following formula: Maintenance Cost = $325,000 + $17.10X where X = Number of Heart Stents. Last year, Alisha produced 80,000 stents. Actual maintenance costs for the year were as expected.
Required:
1. What is the total maintenance cost incurred by Alisha last year? Round your answer to the nearest dollar.$?
2. What is the total fixed maintenance cost incurred by Alisha last year? Round your answer to the nearest dollar.$?
3. What is the total variable maintenance cost incurred by Alisha last year? Round your answer to the nearest dollar.$?
4. What is the maintenance cost per unit produced? Round your answer two decimal places.$per unit?
5. What is the fixed maintenance cost per unit? Round your answer two decimal places.$per unit?
6. What is the variable maintenance cost per unit? Round your answer…
Cost Behavior
Alisha Incorporated manufactures medical stents for use in heart bypass surgery. Based on past experience, Alisha has found that its total maintenance costs can be represented by the following formula: Maintenance Cost = $1,750,000 + $125X, where X = Number of Heart Stents. Last year, Alisha produced 25,000 stents. Actual maintenance costs for the year were as expected.
Required:
1. What is the total maintenance cost incurred by Alisha last year? Round your answer to nearest dollar.$
2. What is the total fixed maintenance cost incurred by Alisha last year? Round your answer to nearest dollar.$
3. What is the total variable maintenance cost incurred by Alisha last year? Round your answer to nearest dollar.$
4. What is the maintenance cost per unit produced? Round your answer two decimal places.$per unit
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6. What is the variable maintenance cost per unit? Round your answer…
Sabor Inc. is a medical testing laboratory that performs several tests and analyses for hospitals in the area. Four of the tests that they perform require the use of a specialized machine that can supply 14,000 hours per year. Information on the four lab tests follows:
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Test B
Test C
Test D
Charging rate
$65
$51
$48
$32
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$25
$18
$13
$8
Machine hours
3
2
1
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b.$16.25
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Chapter 3 Solutions
Managerial Accounting
Ch. 3 - Prob. 1DQCh. 3 - What is a driver? Give an example of a cost and...Ch. 3 - Suppose a company finds that shipping cost is...Ch. 3 - Some firms assign mixed costs to either the fixed...Ch. 3 - Explain the difference between committed and...Ch. 3 - Explain why the concept of relevant range is...Ch. 3 - Why do mixed costs pose a problem when it comes to...Ch. 3 - Describe the cost formula for a strictly fixed...Ch. 3 - Describe the cost formula for a strictly variable...Ch. 3 - What is the scattergraph method, and why is it...
Ch. 3 - Describe how the scattergraph method breaks out...Ch. 3 - What are the advantages of the scattergraph method...Ch. 3 - Prob. 13DQCh. 3 - What is meant by the best-fitting line?Ch. 3 - What is the difference between the unit cost of a...Ch. 3 - Prob. 16DQCh. 3 - (Appendix 3A) Explain the meaning of the...Ch. 3 - A factor that causes or leads to a change in a...Ch. 3 - Which of the following would probably be a...Ch. 3 - Prob. 3MCQCh. 3 - In the cost formula, the term 128,000,000 a. is...Ch. 3 - In the cost formula, the term 12,000 a. is the...Ch. 3 - Prob. 6MCQCh. 3 - Prob. 7MCQCh. 3 - The following cost formula for total purchasing...Ch. 3 - An advantage of the high-low method is that it a....Ch. 3 - Prob. 10MCQCh. 3 - Prob. 11MCQCh. 3 - Prob. 12MCQCh. 3 - The total cost for monthly supervisory cost in a...Ch. 3 - Yates Company shows the following unit costs for...Ch. 3 - (Appendix 3A) In the method of least squares, the...Ch. 3 - Creating and Using a Cost Formula Big Thumbs...Ch. 3 - Using High-Low to Calculate Fixed Cost, Calculate...Ch. 3 - Using High-Low to Calculate Predicted Total...Ch. 3 - Using High-Low to Calculate Predicted Total...Ch. 3 - Using Regression to Calculate Fixed Cost,...Ch. 3 - Inventory Valuation under Absorption Costing Refer...Ch. 3 - Inventory Valuation under Variable Costing Refer...Ch. 3 - Absorption-Costing Income Statement Refer to the...Ch. 3 - Variable-Costing Income Statement Refer to the...Ch. 3 - Creating and Using a Cost Formula Kleenaire Motors...Ch. 3 - Using High-Low to Calculate Fixed Cost, Calculate...Ch. 3 - Using High-Low to Calculate Predicted Total...Ch. 3 - Brief Exercise 3-28 Using High-Low to Calculate...Ch. 3 - Using Regression to Calculate Fixed Cost,...Ch. 3 - Inventory Valuation under Absorption Costing Refer...Ch. 3 - Inventory Valuation under Variable Costing Refer...Ch. 3 - Brief Exercise 3-32 Absorption-Costing Income...Ch. 3 - Brief Exercise 3-33 Variable-Costing Income...Ch. 3 - Variable and Fixed Costs What follows are a number...Ch. 3 - Cost Behavior, Classification Smith Concrete...Ch. 3 - Prob. 36ECh. 3 - Prob. 37ECh. 3 - Prob. 38ECh. 3 - Step Costs, Relevant Range Bellati Inc. produces...Ch. 3 - Matching Cost Behavior Descriptions to Cost...Ch. 3 - Examine the graphs in Exercise 3-40. Required: As...Ch. 3 - Prob. 42ECh. 3 - Prob. 43ECh. 3 - High-Low Method Refer to the information for Luisa...Ch. 3 - Scattergraph Method Refer to the information for...Ch. 3 - Method of Least Squares Refer to the information...Ch. 3 - Use the following information for Exercises 3-47...Ch. 3 - Use the following information for Exercises 3-47...Ch. 3 - Method of Least Squares, Developing and Using the...Ch. 3 - The method of least squares was used to develop a...Ch. 3 - Identifying the Parts of the Cost Formula;...Ch. 3 - Inventory Valuation under Absorption Costing...Ch. 3 - Inventory Valuation under Variable Costing Lane...Ch. 3 - Income Statements under Absorption and Variable...Ch. 3 - (Appendix 3A) Method of Least Squares Using...Ch. 3 - (Appendix 3A) Method of Least Squares Using...Ch. 3 - Identifying Fixed, Variable, Mixed, and Step Costs...Ch. 3 - Identifying Use of the High-Low, Scattergraph, and...Ch. 3 - Identifying Variable Costs, Committed Fixed Costs,...Ch. 3 - Scattergraph, High-Low Method, and Predicting Cost...Ch. 3 - Method of Least Squares, Predicting Cost for...Ch. 3 - Cost Behavior, High-Low Method, Pricing Decision...Ch. 3 - Prob. 63PCh. 3 - Variable and Fixed Costs, Cost Formula, High-Low...Ch. 3 - Cost Separation About 8 years ago, Kicker faced...Ch. 3 - Variable-Costing and Absorption-Costing Income...Ch. 3 - Refer to the information for Farnsworth Company...Ch. 3 - (Appendix 3A) Scattergraph, High-Low Method,...Ch. 3 - (Appendix 3A) Separating Fixed and Variable Costs,...Ch. 3 - (Appendix 3A) Cost Formulas, Single and Multiple...Ch. 3 - Suspicious Acquisition of Data, Ethical Issues...
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