Concept explainers
1.
Calculate the amount of total maintenance cost which is incurred by Company A.
1.
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.
Calculate the amount of total fixed maintenance cost which is incurred by Company A.
2.
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.
Calculate the amount of total variable maintenance cost which is incurred by Company A.
3.
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.
Calculate the value of maintenance cost per unit produced.
4.
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.
Calculate the value of fixed maintenance cost per unit produced.
5.
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.
Calculate the value of variable maintenance cost per unit produced.
6.
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.
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.
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.
Want to see more full solutions like this?
Chapter 3 Solutions
Bundle: Managerial Accounting: The Cornerstone of Business Decision-Making, Loose-Leaf Version, 7th + CengageNOWv2, 1 term (6 months) Printed Access Card
- Please solve for items circuled in RED. Thank you.arrow_forwardQuestion text A company sells a product with an associated warranty. (The customer must separately purchase the warranty at the time the related product is purchased). After the sale of a particular warranty, the company records the following journal entry: Cash 500 Warranty Liability 500 What error now exists in the company’s financial statements? Select one: a. Liabilities are understated. b. Liabilities are overstated. C. Net income is understated. d. No error exists, as the entry has been properly recorded.arrow_forwardIndicate whether each of the following statements is true or false. Bribery in the world of business typically happens when an organization or representative of an organization gives financial benefits to an official to gain favor or manipulate a business decision. The Foreign Corrupt Practices Act was implemented in the aftermath of disclosures that businesses were violating the IMA Code of Ethics. Managers are required to follow specific rules issued by the IMA for internal financial reporting. Ethics is more than obeying laws. The Sarbanes-Oxley Act addressed public company accounting reform.arrow_forward
- Suppose the following information was taken from the 2025 financial statements of pharmaceutical giant Merck & Co. (All dollar amounts are in millions.) Retained earnings, January 1, 2025 $46,600.0 Cost of goods sold 8,900.0 Selling and administrative expenses 8,100.0 Dividends 4,000.0 Sales revenue 35,800.0 Research and development expense 5,500.0 Income tax expense 2,300.0 After analyzing the data, prepare an income statement for the year ending December 31, 2025. (Enter amounts in millions rounded to 1 decimal place, e.g. 45.5 million.) MERCK AND CO. Income Statement (in millions) +A CA $arrow_forwardThe following items and amounts were taken from Sandhill Inc.'s 2025 income statement and balance sheet, the end of its first year of operations. Interest expense $2,100 Equipment, net $55,200 Interest payable 550 Depreciation expense 3,300 Notes payable 11,700 Supplies 4,300 Sales revenue 46,300 Common stock 24,800 Cash 2,400 Supplies expense 750 Salaries and wages expense 15,300 Prepare an income statement for Sandhill Inc. for December 31, 2025. Sandhill Inc. Income Statement S GA $ $arrow_forwardOrganization/Industry Rank Employer Survey Student Survey Career Service Director Survey Average Pay Deloitte & Touche/accounting 1 1 8 1 55 Ernst & Young/accounting 2 6 3 6 50 PricewaterhouseCoopers/accounting 3 22 5 2 50 KPMG/accounting 4 17 11 5 50 U.S. State Department/government 5 12 2 24 60 Goldman Sachs/investment banking 6 3 13 16 60 Teach for America/non-profit; government 7 24 6 7 35 Target/retail 8 19 18 3 45 JPMorgan/investment banking 9 13 12 17 60 IBM/technology 10 11 17 13 60 Accenture/consulting 11 5 38 15 60 General Mills/consumer products 12 3 33 28 60 Abbott Laboratories/health 13 2 44 36 55 Walt Disney/hospitality 14 60 1 8 40 Enterprise Rent-A-Car/transportation 15 28 51 4 35 General Electric/manufacturing 16 19 16 9 55 Phillip Morris/consumer products 17 8 50 19 55 Microsoft/technology 18 28 9 34 75 Prudential/insurance 19 9 55 37 50 Intel/technology 20 14 23 63 60 Aflac/insurance 21 9 55 62 50 Verizon…arrow_forward
- In 2012 XYZ Co. had sales of $74 billion and a net income of $23 billion, and its year-end total assets were $200 billion. The firm's total debt-to-total assets ratio was 45.3%. Based on the DuPont equation, what was XYZ Co.'s ROE in 2012? a) 22.97% b) 8.67% c) 25.62% d) 21.02% e) 14.01%arrow_forwardNonarrow_forwardI need help with this solution for accountingarrow_forward
Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Essentials of Business Analytics (MindTap Course ...StatisticsISBN:9781305627734Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. AndersonPublisher:Cengage Learning