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Listed below are costs found in various organizations. For each cost item, indicate whether it would be variable or fixed with respect to the number of units produced and sold; and then whether it would be a selling cost, an administrative cost, or a manufacturing cost. If it is a manufacturing cost, indicate whether it would typically be treated as a direct cost or an indirect cost with respect to units of product. Manufacturing (Product) Cost Cost Item Variable or Fixed Selling Cost Administrative Cost Direct Indirect Ex. Direct labor Variable Yes Executive salaries Fixed Yes Factory rent Fixed Yes 1. Property taxes, factory. Fixed Yes 2. Boxes used for packaging detergent produced by the company. Variable Yes 3. Salespersons’ commissions. Variable Yes 4. Supervisor’s salary, factory. Fixed Yes 5. Depreciation, executive autos. Fixed Yes 6. Wages of workers assembling computers. Variable Yes 7. Insurance, finished goods warehouses. Fixed Yes 8. Lubricants for production equipment. Variable YES 9. Advertising costs. Fixed Yes 10. Microchips used in producing calculators. Variable Yes 11. Shipping costs on merchandise sold. Variable Yes 12. Magazine subscriptions, factory lunchroom. Fixed Yes Downloaded by deep der (dodep48081@andorem.com) lOMoARcPSD|25375560

Number of Scans Utilities Cost High level of activity 190 $7,200 Low level of activity 60 3,300 Change 130 $3,900 Variable cost element $30 per scan Fixed cost element $1,500 Y=$ 1,500+$30 X Marwick’s Pianos, Inc., purchases pianos from a large manufacturer and sells them at the retail level. The pianos cost, on the average, $1,485 each from the manufacturer. Marwick’s Pianos, Inc., sells the pianos to its customers at an average price of $2,400 each. The selling and administrative costs that the company incurs in a typical month are presented below: Costs Cost Formula Selling: Advertising $937 per month Sales salaries and commissions $4,777 per month, plus 4% of sales Delivery of pianos to customers $59 per piano sold Utilities $634 per month Depreciation of sales facilities $4,907 per month Administrative: Executive salaries $13,432 per month Insurance $702 per month Clerical $2,487 per month, plus $44 per piano sold Depreciation of office equipment $904 per month During August, Marwick’s Pianos, Inc., sold and delivered 58 pianos. Required: 1. Prepare an income statement for Marwick’s Pianos, Inc., for August. Use the traditional format, with costs organized by function. (A "Net operating loss" should be entered as a negative number.) Downloaded by deep der (dodep48081@andorem.com) lOMoARcPSD|25375560

Marwick's Pianos, Inc. Traditional Income Statement For the Month of August Sales $139,200 Cost of goods sold 86,130 Gross margin 53,070 Selling and administrative expenses: Selling expenses: Advertising $937 Sales salaries and commissions 10,345 Delivery of pianos 3,422 Utilities 634 Depreciation of sales facilities 4,907 Total selling expenses 20,245 Administrative expenses: Executive salaries 13,432 Insurance 702 Clerical 5,039 Depreciation of office equipment 904 Total administrative expenses 20,077 Total selling and administrative expenses 40,322 Net operating income 12,748 2. Prepare an income statement for Marwick’s Pianos, Inc., for August, this time using the contribution format, with costs organized by behavior. Show costs and revenues on both a total and a per unit basis down through contribution margin. (A "Net operating loss" should be entered as a negative number.) Downloaded by deep der (dodep48081@andorem.com) lOMoARcPSD|25375560