EXERCISE 2-1 Identifying Direct and indirect Costs [LO2—1] Northwest Hospital is @ full-service hospital that provides everything from ‘major surgary and emergency room care to outpatient clinics. Requit For each cost incurred at Northwest Hospital, indicate whether it would most lkely be a direct cost or an indirect cost of the specified cost object by placing an Xin the appropnate column. x. Catered food served to patents 1. The wages of pedatic nurses 2. Presrigton drugs 2. Heating tha hoeptal 44. The salary ofthe head of pediatrics ‘5. The salary ofthe head of pediatrics 6. Hospital chaplan's salary 7, Lab tees by outside contractor 8 Lab tects by outside contractor Cost Object Apatiouar patient ‘The pects department Aparticdar patient “The pecs department “The padatne department ‘particular pecatic patient Apaticar patient Apaticar patient Apaticlar department xEXERCISE 2-2 Classifying Manufacturing Costs [LO2-2] The PC Works assembles custom computers from components supplied by various manufacturers. The company is very small and its assembly shop and retail sales store are housed in a single facility in a Redmond, Washington, industrial park. Listed below are some of the costs that are incurred at the company. Required: For each cost, indicate whether it would most likely be classified as direct labor, direct materials, manufacturing overhead, selling, or an administrative cost. 1. The cost of a hard drive installed in a computer. The cost of advertising in the Puget Sound Computer Usor newspaper. The wages of employees who assemble computers from components. Sales commissions paid to the company’s salespeople. The wages of the assembly shop’s supervisor. The wages of the company's accountant. Neon wn Depreciation on equipment used to test assembled computers before release to customers. 8. Rent on the facility in the industrial park.EXERCISE 2-3 Classification of Costs as Product or Period Cost [LO2~3] ‘Suppose that you have been given a summer job as an intem at Issac Aircams, a company that manufactures sophisticated spy cameras for Temote-controlled military reconnaissance aircraft. The company, which is privately owned, has approached a bank for a loan to help it finance its growth. The bank requires financial statements before approving such a loan. You have been asked to help prepare the financial statoments and were given the following list of costs Depreciation on salespersons’ cars. Rent on equipment used in the factory. Lubricants used for machine maintenance Salaries of personnel who work in the finished goods warehouse Soap and paper towels used by factory workers at the end of a shift Factory supervisors’ salaries. Heat, water, and power consumed in the factory. PNOnoR YN = Materials used for boxing products for shipment overseas. (Units are not normally boxed.) 9. Advertising costs. 40. Workers’ compensation insurance for factory employees. 11. Depreciation on chairs and tables in the factory lunchroom 12. The wages of the receptionist in the administrative offices. 13. Cost of leasing the corporate jet used by the company’s executives. 14. The cost of renting rooms at a Florida resort for the annual sales conference. 15. The cost of packaging the company’s product. Required: Classify the above costs as either product costs or period costs for the purpose of preparing the financial statements for the bank.EXERCISE 2-4 Fixed and Variable Cost Behavior [LO2—4] HM Guided Example 2-4 Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,200 and the variable cost per cup of coffee served is $0.22 Required: 1. Fillin the following table with your estimates of total costs and cost per cup of coffee at the indicated levels of activity tor a coffee stand. Round off the cost of a cup of coffee to the nearest tenth of a cent Cups of Coffee Served in a Week 2,000 2,100 2200 Fixed cost ...... 2 ‘ 2 Variable cost fe ? 2 Total cost... eee 2 2 2 Average cost per cup of coffee served ? ? 2 cu 2. Does the average cost per cup of coffee served increase, decrease, or remain the same as the number of cups of coffee served in a week incteases? ExplainEXERCISE 2-6 Traditional and Contribution Format Income Statements | HM Guided Example 2.6 ‘Cherokee Inc. is a merchandiser that provided the following information ‘Amount Number of urits sold . 20,000 Selling price per unit . $30 Variable selling expense per unit $4 Variable administrative expense per unit Total fixed selling expense . Total fixed administrative expense Beginning merchandise inventory . Ending merchandise inventory . Merchandise purchaseS .... 2... .00ss00ee eee Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement.EXERCISE 2-7 Differential, Opportunity, and Sunk Costs [02-7] Northwest Hospital is a full-service hospital that provides everything from major surgery and emergency room care to outpatient clinics. The hospital's Radiology Department is considering replacing an old inefficient X-tay machine with a state-of-the-art digital X-ray machine. The new machine would provide higher quality X-rays in less time and al a lower cost per X-ray. It would also require less power and would use a color laser printer to produce easily readable X-ray images. Instead of investing the funds in the new X-ray machine, the Laboratory Department is lobbying the hospital's management to buy a new DNA analyzer Required: For each of the items below, indicate by placing an X in the appropriate column whether it should be considered a differential cost, an opportunity cost, or a sunk cost in the decision to replace the old X-ray machine with a new machine. If none of the categories apply for a particular item, leave all columns blank Differential Opportunity Sunk Item Cost Cost Cost Ex. Cost of X-ray film used in the oki machine x 1. Coat of the old X-ray machine : 2, The salary of the head of the Radiology Department . 3. The saa ofthe head of te Peiatics Department. 4. Cost of the new colorlaser printer... 5. Rent on the epace occupied by Radiology 6. The cost of maintaining the old machine 7. Benefits frem anew DNA analyzer . 8, Cost of electricity to run the X-ray machines .