$150,000 Sales ($15 per unit × 10,000 units) *Cost of goods sold 80,000 ($12,000 + $90,000 $22,000) – 70,000 Gross margin Selling and administrative expenses: Selling expenses $40,000 (($2 per unit × 10,000 units) + $20,000) Administrative expenses 25,000 65,000 (($1 per unit × 10,000 units) + $15,000) $ 5,000 Net operating income * Beg inv + purchases End Inv = COGS – 2. Contribution format income statement Redhawk, Inc. Contribution Format Income Statement $150,000 Sales Variable expenses: Cost of sold $80,000 ($12,000 + $90,000 $22,000) – 20,000 Selling expenses ($2 per unit × 10,000 Administrative expenses 10,000 110,000 ($1 per unit × 10,000 40,000 Contribution margin Fixed expenses: 20,000 Selling expenses 15,000 35,000 Administrative expenses $ 5,000 Net operating income [LO6] EXERCISE 1–6 Identifying Direct and Indirect Costs The Empire Hotel is a four-star hotel located in downtown Seattle. Required: For each of the following costs incurred at the Empire Hotel, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object by placing an X in the appropriate column. (15 minutes) Exercise 1-6 Direct Indirect Cost Cost Object Cost Cost 1. X The salary of the head chef The hotel’s restaurant 2. X The salary of the head chef A particular restaurant customer 3. X Room cleaning supplies A particular guest 4. X Flowers for the reception desk A particular hotel guest
Sales ($15 per unit × 10,000 units) $150,000 *Cost of goods sold ($12,000 + $90,000 – $22,000) 80,000 Gross margin 70,000 Selling and administrative expenses: Selling expenses (($2 per unit × 10,000 units) + $20,000) $40,000 Administrative expenses (($1 per unit × 10,000 units) + $15,000) 25,000 65,000 Net operating income $ 5,000 * Beg inv + purchases – End Inv = COGS 2. Contribution format income statement Redhawk, Inc. Contribution Format Income Statement Sales $150,000 Variable expenses: Cost of sold ($12,000 + $90,000 – $22,000) $80,000 Selling expenses ($2 per unit × 10,000 20,000 Administrative expenses ($1 per unit × 10,000 10,000 110,000 Contribution margin 40,000 Fixed expenses: Selling expenses 20,000 Administrative expenses 15,000 35,000 Net operating income $ 5,000 EXERCISE 1–6 Identifying Direct and Indirect Costs [LO6] The Empire Hotel is a four-star hotel located in downtown Seattle. Required: For each of the following costs incurred at the Empire Hotel, indicate whether it would most likely be a direct cost or an indirect cost of the specified cost object by placing an X in the appropriate column. Exercise 1-6 (15 minutes) Direct Indirect Cost Cost Object Cost Cost 1. The salary of the head chef The hotel’s restaurant X 2. The salary of the head chef A particular restaurant customer X 3. Room cleaning supplies A particular guest X 4. Flowers for the reception desk A particular hotel guest X
Chap01-Rev.-FI5-Ex-Pr-2.docx