Section A (2 x 3 marks = 6 marks)

Q1. Briefly explain the following terms:

a. Mixed cost
b. Opportunity cost.
Q2. Explain the difference between a product cost and a period cost.
Section B (2 x 4 marks =8 marks)
Q3. If a merchandising company has a beginning finished goods inventory of $400,000 and a finished
goods ending inventory of $200,000, and the company purchased $1,600,000 of inventory during
the month, what is the companys cost of goods sold?
Q4. The Walden Manufacturing Corp. has management salary expense of $4,000, factory supplies of
$1,000, indirect labor of $6,000, direct materials of $16,000, advertising expense of $2,500, office
expense of $14,000, and direct labor of $20,000. What is the total period cost?
Section C (16 marks)
Q5. House of Pipes, Inc., purchases Pipes from a well-known manufacturer and sells them at the retail
level. The Pipes sell, on the average, for $2,750 each. The average cost of a Pipe from the
manufacturer is $1,575. The costs that the company incurs in a typical month are presented below:
Selling:
Advertising $895 per month
Delivery of pipes $55 per pipe sold
Depreciation of sales facilities $4,975 per month
Sales salaries and commissions $3,980 per month, plus 6% of sales
Utilities $575 per month
Administrative:
Clerical $3,520 per month, plus $35 per pipe sold
Depreciation of office equipment $850 per month
Executive salaries $14,750 per month
Insurance $870 per month
During December, the company sold and delivered 90 Pipes.
Required:
a. Prepare a traditional income statement for December.
b. Prepare a contribution format income statement for December. Show costs and revenues on
both a total and a per unit basis down through contribution margin.
c. Refer to the income statement you prepared in (b) above. Why might it be misleading to show
the fixed costs on a per unit basis?

Page 1 of 1