E20.1 EXERCISE 20.1
Listed below are nine technical accounting terms introduced in this chapter:
Semi variable costs
Economies of scale
Unit contribution margin
Each of the following statements may (or may not) describe one of these technical terms. For each
statement, indicate the accounting term described, or answer “None” if the statement does not correctly
describe any of the terms.
- The level of sales at which revenue exactly equals costs and expenses.
- Costs that remain unchanged despite changes in sales volume.
- The span over which output is likely to vary and assumptions about cost behavior generally
- Sales revenue less variable costs and expenses.
- Unit sales price minus variable cost per unit.
- The reduction in unit cost achieved from a higher level of output.
- Costs that respond to changes in sales volume by less than a proportionate amount.
- Operating income less variable costs.
E21.2 EXERCISE 21.2
Home Depot ’s Financial
Statements: Incremental, Sunk, and Opportunity Costs
- Read the footnote in Appendix A referring to Home Depot ’s decision to close all of its remaining
big box stores in China. Write a short paragraph identifying the incremental, sunk, and opportunity
costs associated with this decision. Assume that any cost savings will be invested elsewhere in
more productive stores.
E21.6 EXERCISE 21.6
Incremental Analysis: Make or Buy Decision
- The cost to Swank Company of manufacturing 15,000 units of a particular part is $135,000, of
which $60,000 is fixed and $75,000 is variable. The company can buy the part from an outside
supplier for $6 per unit. Fixed costs will remain the same regardless of Swank’s decision. Should
the company buy the part or continue to manufacture it? Prepare a comparative schedule in the
format illustrated in Exhibit 21–6 .
BE22.9 BRIEF EXERCISE 22.9
- The president of Cold Moo Ice Cream Company, a chain of ice cream stores in the Midwest, was
unhappy with the actual six-month profit figures for the company recently prepared by the CFO.
The president asked the CFO for a profit breakdown, by store, of the actual six-month results.
When the president received the report, he was extremely upset and called the CFO into his office.
The president stated, “These reports show that each store in the chain is profitable, but our company
results are unprofitable! How can this be?” The CFO pointed out that each store was allowed
to set prices for ice cream based on its cost structure. However, the stores’ cost structures did not
include headquarters costs or the costs of advertising and delivery of products.
What are the three characteristics for operating a successful responsibility accounting system?
Consider whether the accounting system at Cold Moo Ice Cream Company includes the three characteristics of a successful responsibility accounting system. How could the responsibility accounting system at Cold Moo be improved?
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