Question 1 – Exercise 8.3Why is it not possible in Example 8.1 o.docx

Question 1 – Exercise 8.3
Why is it not possible in Example 8.1 on page 256 to have 100%
confidence? Explain.
Answer
If you have 100% confidence in the value of the calculated
mean, then have the true population mean and the only way to
have the true population mean is to use the entire population,
which they did not do in Example 8.1.
The file Sedans contains the overall miles per gallon (MPG) of
2009 sedans priced under $20.000.
27
31
30
28
27
24
29
32
32
27
26
26
25
26
25
24
Source: Data extracted from “Vehicle Ratings,” Consumer
Reports, April 2009, p. 27
a) Construct a 95% confidence interval estimate for the
population mean MPG of 2009 sedans (4-cylinder) priced under
$20.000, assuming a normal distribution.
b) Interpret the interval constructed in (a).

c) Compare the results in (a) to those in Problem 8.20 (a)
Note: To answer Question 2 – Exercise 8.19 I did Question 2 –
Exercise 8.20(a) offline.
Question 2 – Exercise 8.19 is continued on the next page…
Question 2 – Exercise 8.19 (Continued…)
Answer: Part (a)
Answer: Part (b)
I can be 95% confident that the true population mean of MPG of
2009 sedans (4-cylinder) priced under $20,000 is between
26.0215 and 28.8535 assuming a normal distribution.
Answer: Part (c)
I can be 95% confident that the true population mean of MPG of
2009 small SUV’s is less than the true population mean of MPG
of 2009 sedans (4-cylinder) priced under $20,000 since the two
confidence intervals do not overlap.
One of the major measures of the quality of service provided by
any organization is the speed with which t responds to customer
complaints. A large family-held department store selling
furniture and flooring, including carpet, had undergone a major
expansion in the past several years. In particular, the flooring
department had expanded from 2 installation crews. The store
had the business objective of improving its response to
complaints. The variable of interest was defined as the number
of days between when the complaint was made and when it was
resolved. Data were collected from 50 complaints that were
made in the last year. The data were stored in Furniture and are

as follows:
54
5
35
137
31
27
152
2
123
81
11
19
126
110
110
29
61
35
94
31
12
4
165
32
29
28
29
26
25
1
13
10
5
27
4

52
30
22
36
26
33
68
74
27
26
5
14
13
20
23
population mean number of days between the receipt of a
complaint and the resolution of the complaint.
b) What assumption must you make about the population
distribution in order to construct the confidence interval
estimate in (a)?
c) Do you think that the assumption needed in order to construct
the confidence interval estimate in (a) is valid? Explain
d) What effect might your conclusion in (c) have on the validity
of the results in (a)?

Question 3 – Exercise 8.22 (Continued)
Answer: Part (a)
Answer: Part (b)
The population is distributed normally.
Answer: Part (c)
Based on some of the descriptive statistics reported in Part (a),
including the positive skewness number and the fact that the
median (28.5) is less than the mean (43.0), and both the Normal
Probability Plot and Boxplot above, the data seems to be
skewed to the right; therefore, I do not believe that the
assumption that the population is distributed normally is valid.
Answer: Part (d)
Despite the population not being normally distributed, since the
sample size is 50, according to the Central Limit Theorem, the t
distribution can be used.
In New York State, savings banks are permitted to sell a form of
life insurance called savings bank life insurance (SBLI). The
approval process consists of underwriting, which includes a

review of the application a medical information bureau check,
possible requests for additional medical information and
medical exams, and a policy compilation stage in which the
policy pages are generated and sent tot the bank for delivery.
The ability to deliver approved policies to customers in a timely
manner is critical to the profitability of this service to the bank.
During a period of one month, a random sample of 27 approved
policies was selected, and the total processing time, in days,
was a s shown below and stored in Insurance:
73
19
16
64
28
28
31
90
60
56
31
56
22
18
45
48
17
17
17
91
92
63
50
51
69
16
17

population mean processing time.
b) What assumption must you make about the population
distribution order to construct the confidence interval estimate
in (a)?
c) Do you think that the assumption needed in order to construct
the confidence interval estimate in (a) is valid? Explain.
Answer: Part (a)
Answer: Part (b)
The population is distributed normally.
Answer: Part (c)
Based on some of the descriptive statistics reported in Part (a),

including the positive skewness number and the fact that the
median (28.5) is less than the mean (43.0), and both the Normal
Probability Plot and Boxplot above, the data seems to be
skewed to the right; therefore, I do not believe that the
assumption that the population is distributed normally is valid.
Both the normal probability plot and the boxplot
show that the population distribution is not normally distributed
and is skewed to the right.
3124t13 Asliig nrnent Print View
Exercise ',tg-11 Absarption costing and aver-production L.e, C2
Rourke lnc. reports the following annual cost data for its single
prod.rct.
Nomal poduction and sales le€l 80,000 units
Sales grrice $ 58.00 per un t
Direct materials $ 11.00
Direct labor $ 8.S0 per un t
Variable owrhead $ 13.00 per unl.i
"-l*ix#:ffi#* ** **"*$1,119,99q;r tqt? __-
lf RouRre increases its production to 120,000 units, while sales
rernain at the cunent 80,000 unit lerel, by

how mur:h would the company's gross margin increase or
decrease under absorption costing? Assume the
compan'y has idle capacity to double cunent production. {Round
the intermediate calculations to 2
decimal places and your final ans$rer to the nearesf, dcllar
amount. Omit the "$" sign in your
responsie.)
Gross margin f(ctt G""re.r)fJl $
Worksheet
Exercistr 19-tI Absorption costng andoyer-
productrcn L.A. C2
€xercrSe 19-g Contribution margin format income sfaternenf
L.A. ,a3
Polarix ils a retailer of AWs (all tenain rehicles) and
accessories. ,rn income statement for its Consumer
AW Department for the cunent year follows. ATVs sell, on
a,emge, for $4,200. Variable selling expenses
are $270 each. The remaining selling expenses are fixed.
Adminislratie expenses areTOo/o ariable and
30o/o fixed. The company does not manufacture its own AWs; it
puri)hases them ftom a supptier for $1,820
each.
POLARIX
lncome Statement-Consumer ATV Department
For Year Ended December 21, 201 1
Sales $ 6:t0,000
Cost of goods sold ,_l_.,ggl
Gross margin 3:7,000
Operating expenses

Selling expenses $ 150,000
Administrati,e expenses ,y"gg_ ,l::gf:
Net income $ 1t:i6,600
Required:
1. Prepane an income statement for this cunent year using the
(:ontribution margin format. {lnpul all
amounts as positive values except net loss which s*rould br;
indicated with a minus sign. Omit
the "li" sign in your respcnse.)
POLARIX
lncome Statement-Consumer ATV Deg rartment
For Year Ended December 31 , ZAll
Sal,esl i -
Varii:tbrle EX ES
Sr*lling expenses f
Arintinistratile expen$es ?
Cost of goods sold T
#1r
1.
2.
$o
0

E;s
Fixed expenses
1t8ezto. nfrecl cxld. nrg rannr hri I l .con/hm.tpx
$o
3t24t13
3.
Eis
reii
Asr,iig nrnent Pri nt View
2. For each AW sold dudng this year, what is the contribution
tcwatd cor,rering fixed expenses and that
toward eaming income? {Round your dfl$rrer to the n€arest
dsllar arnounl omit the "$" $gn in
your response,)
Contribution margin per ATV $
ltew lirri#1
Workshreet r
€xercjse f 9-9 Conlriutron margin format income
statemenl L.O. P3
Exerctise 19-3 Conwrting absorption coslrng lncome to variable
cr>slrng rncome L.O. P2
Kenai Kayaking, a manufacturer of kayaks, began operations
this y:)ar. During this first year, the company

produced 1,025 kayaks and sold 775. At the cunent year-end,
the ,:lompany reported the follodng income
statement information using absorption costing-
Sales f i'5 * $1,025)
Cost of gs6ds sold (775 x $475)
Gross nl€rrgin
Selling iand administratir,e expenses
$ 794,375
368,1 25
426,250
22A,O0A
$ 206,250
Additional lnformation
a. Produtction cost perkayak totals $475, which consists of$375
in €riable production cost and $100 in
fixed production cost-the latteramount is based on $102,500 of
fixed production costs allocated to the
1,025 kayaks produced.
b. The $i220,tn0 in selling and administrati,e expense consists
of $95,000 that is vadable and 9125,000
that isi fixed.
Requirerd
I' Preparre an income statement for the current year under
6ri.rble costing. {lnput all amoun!* as
positive values except net loss which s*rould be indicated v,'ith
a mi[us sign. Omit the "$" sign

in your response.)
KENAI KAYAKING
Variable Costing lncome Statemr:rnt
Sal*; i-
Totial wriable expenses
Contribution margin i -
Total fixed expenses
Net incorne i -
Yiflhtfl
1I$orksheett
Sxsrciss f i)-3 #sniresi*g abs*qpSi*n sss$r?E ir:ec*i*
fc v*n*{:l!r* rr:sflng inc*.u*e t"*. pp
ezto. nfecl atd. rrcg raur hi I ll .corn/trm, tpx 2t8
3124113 Asirignnrent printViarv
4.
Fxercrse ',19-6 Conwrting uariable cosfli.rg rncorne fo
absorpfibn crcs{rng rhcome L,O. p2, p4
Lyon Fumaces prcpares the income statement under rariable
cotiting for its managerial reports, and it
prepares the income statement under absorption costing for
exl,:mal reporting. For its first month of
operations, 400 fumaces were produced and 240 were sold; this

lerl 160 fumaces in ending inr,entory. The
income statement information under rariable costing follows.
Sales (240 x $1,675) g 402,000
Variable production cost (240 x $625) 150,000
Variable selling and administratirre expenses (240 x 955)
-t::rj_a_.
Contribution margin 238,800
Fixed o,erhead cost 45,000
Fixed selling and administmti€ expense
- T:9"t_9 "
Net income $ 108,800
,:mr;
1. Prepare this company's income statement fior its first month
ol' operations under absorption costing.
(lflpul all amsunts as pasitive val$es except net loss whic'r
sftould he indicated rrith a rninus
sign. Round your intermediate calculatisns and final an$nrrlrs to
whole numbers. Omit the "$"
sign in your response,)
LYON FURNACES
Absorption Costing lncome Statement
l;0
Cor:;t of ooods sold i -
trE
El!
Net income i- :; 0
v-iew_.li!!t tl

lJlJ*rksfi,n*rt
ffx*r*is* 1#-6 {"}rsnv*rting v*riafule *rssting inc*rrt* l.*
a*s*ryfi:rn' r*sfi*g inco*:* t.S. F3. P4
5.
Sxercrbe !:9-f 0 Variabte costing and contribution matgin
statement L-O. PJ
Down Jackets has three types of costs: jacket cost, factory rent
(;ost, and utilities cost. This company
sells its jackets for $16.5 each. Management has prepared the
blloAing estimated cast inbrmation for next
month undertwo difierent sales le,els.
At 6,000 Jackets At 8,000 Jackets
Jacket cost $42,000 $56.000
Requiretl:
1. Compute what the company should expect for total rariable
cost if 7,000 jackets are sold next month.
(Hint Use the high-low method to separate jacket and utilitier;
costs into their rariable and fixed
components-) (Omit the "$"'sign in your response.)
Totai lariable costs $ 0
2. Prepare its contribution margin statement for a monthly sales
wlume of 8,000 iackets- {lnput all
amounts as positive valuas excepl net loss which sfiould b€
indicaled nrith a minus sign. Omit
the "$" sign in your response.)
Dovm Jackets

Contribution Margin Statement
Monthly Sales Volume of 8,000 Jackets
Is"r,- $ o
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L*arning #bj*ctive: 1S-F4 C*nvert ir:c*rne und*r
v#{tebl* c*$tiil# Lpi S t* th* abx*rpti*n {**t"*a*i*.
3/8
3124113
afi
1,.+
:::t:.,:aa:
*
1::, ! ':: ,-,'i..'i,1,.,;.
l
;
l-'+-'-*----
Worksheet
Exercise 19-10 Vanable cosling and contribufton
ltrsrgrn sfafemenf t.O. P3
I

1i
Prablem f 91fA Variable cosflng mcome sfaferrrenf and
conuersrb,
Tones CrlrpPany began operations this y€r, During this first
yffir,
and sdd p0,000 units. The absorption costing income statement
br
Sales (8q,000 units * $45 per unit)
Cost of goods sdd
Beginning inwntory
Cost of goods manulactured (100,000 units x $25 per unit)
Cost o{ good awilable for sale
Endin[ inrentory (20,000 x $25)
Cost of goods sold
Gross ryargin
Selling gryd administratir,e expenses
Net inceme
A d di ti o nal lnfo rm ati a n
Direct materials $ 5 Per unit
Direct labor $ 11 per unit
Variable or,erhead $ 2 per unit
fix#pfu*9*t9LS9,?t9JJaS,-a:99--w:tel--9*7:w:--u#*-
#;;ffia::2re"***---
Required:
1. Preparq an income staternent for the cornpany under rarfable

value$ except nst loss which Srould be indicated with a
response.)
TORRES COMPANY
Variable Costing lncorne
if l.con/hmtpx
nnpnt Print Mew
fo abso rption cosfihg lnfirrne
company produced 100,000
first year of operations fflows.
$ 3,600,000
0
2,500,880
2,500,000
500,000
2,000,000
1,600,000
590,000
$ 1,o1o,o0o
fixed expenses and $1 .75 per unit in
ting. $nput a{l amounts as positfve
nus sign. Smit the *$* sisn in your
: O:

i...,"".,..,.-.,..,..,,,.,,.,....,..,,..",-...,",,-",.,,j
i!j
L.O. P2, P4
units
i.-......',^.*...*.'*.".
"**....-*'..:
: 0;
i."....,-...,,..,.... ..... ...,-. .... .-... . . .'- . . .'-. .'".,'.':
Total wriable expenses
fixed expenses
eto,nheclqd.rncgravl*.
3124113
9-fA Van'a$le cosrthg rncsme sfatemenf
ion {o a&soryfibn cosfing rncsme L.O,
2A Variable costing incaff e statenwnt and coftve
information applies to the questions displayed below.l
360,000
299,000
rurefit Prirft Meryv
absorptioft casting inconte {t*+s cCIfisecutive year$ L.0. P2,
P4, Ai

,000
,000
y€rs under wriaHe costing. {lnput
be indicated with a minus sign.
I
produces a single prcduct. lts income statement u absorption
costing for its first tvto
Hlow.
201 0
$ 1,066,000 $
696,000
1
unit) ,0'0O
Cmt of sotrd $29 per unlt) 6,000
Gross m
Problem
[The
Pourell
years of
Sales
I
I

Prob/eri
and cari
l
PaP4
i
!-.-.'"...-.-t
I
i
I
I
I
I
I
i
i
I
I
Fixed
Total
all a
Omit

b.
Selling ad m i nistratiw expen$es
Net i $ 61,000 ,000
Addi
a. Sales production data for these firct two years ffilow.
Units
Units
2010 2$fi
34,000 34,000
24,000 44,000
Variablg per unit and total fixed costs are unchanged during 0
and 2011. The company's $29
per unit cost consists of the ficllowing-
aterials $5
I
6
"3
y:
Direct
Varia orcrhead
($3+0, 000/34, 000 units )
cost per unit
e. Selling administratiw expenses consist of the dloring.

V selling and administratire ($2,eS per unit)
201 1
$ 99,000
245,000Fixed ng and administnatiua
Total ng and administnatire $ 344,000
ble casting income statement
s*rptian casting incame {tu"v
o.Pa P4,At
Problem 1
{.
eto-w*wloud.rrrcgr
3124113
8.
Ass i: g nnrent Pri nt Vi eut
Tr:rtal variable costs
E;t
Fixeld expenses
E;a
E'I
Tcrtill fixed expenses

Net iincomei(loss)
i.. .,. . ..f.. .
Worksh**rt
ftr*hferr,t "1'#-2,& Part 'l
Problem 19-24 Part 2
2. What are the diftrence between the absorption costing
incomr) and the ariable costing income br
these two years. {Negative amounts drould be indicated by a
minus sign. Omit the "$" sign in
your respons.)
POWELL COMPANY
Reconciliation of Variable Costing lncome to Alrsorption
Costing lncome
zUA 2Ar
$0$
$0$
$36
i:
$ '35
::::.:...:::::j
L*arntng *?sie*tsv*'.19-?2 ?r*pare anrj analw an
i**rsm* *tater*ent *si*g absorgti** *asting and
us ing wriabl* *osting.

L* arning **i* *ti,s* : 1 * -? & * *rzv**. irt c*nt * a* **r
,reriabl* costing tc the *bscrpti*n c*st basis.
Variiable costing income
Fixed owrhead in ending inventory
Fixeld owrhead in beginning inrcntory
Absorption costing income 0
a. - . .. ., .. -.., "
.
"..-.-,
.. . -,.,,. .,-.. ,.. .,., -.
W*rksh*e:t
Fr** Jsrni 1 $-?A tra$ ?
9.
Problem 19-44 Variable cosf analysls for a serubes company
L.Ct. C2
Winter Giarden is a luxury hotel with 160 suites. hs regular
suite rate is $210 per night per suite. The hotel's
cost per night is $135 per suite and consists of the following.
Variable direct labor and materials cost
Fixed cos;t [($S,220,000/160 suites) * g0S days]
Total cost per night per suite
ffi:ffiY :S;:t

The hotei manager recei'ied an ofier to hold the local Bikers'
Club ,annual meeting at the hotel in March,
which is the hotel's low season with an occupancy rale of under
Slii%. The Bikers' Club would resenre 40
suites fon three nights if the hotel could offer a 55o/" discount,
or a ftrle of $94 per night. The hotel manager
is inclined to reject the oftr because the cost per suite per night
is $135. The manager beliercs that if 40
suites are oftred at the mte of $4,920 per night for three nights,
the hotel would lose $4,920, computed as
($94 - $X35) x 40 suites x 3 nights.
Requiredr
Prepare an analysis of this offer for the hotel manager. {tnput
all amounts as positive values except
Contribution margin which drould be indicated with a minr.ts
dgn. Omit the "$" sign in your
response.)
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3124113
10.
tr;s
tri!
ezto. nfrecl oud. npg raw hi I I .corn/hm.tpx
Ass ignment Print Visru
IR-*-;ls- $ o

tv*i"bigffi o
ffitjsffi;
Should ther offer from the Bikers' Club be accepted or rejected?
lr'cr'.*ttt; ."t"ffiJ
W*nksh,eert
F rrs*s I *rvt'l * -4 P, V *ri * b t e **st a* *ly si s fa r a s*rae
** s
c*mpartt ii*.*. *2
Problem 19-5A lncome reporting, absorption costing, and
managerial ethics L.A- Ct , P2
Safety Chemical produces and sells an ice+nelting granular used
orr roadways and sidewalks in winter- lt
annually produces and sells about 100tons of its granular. ln its
nir,3-year history, the company has nerier
reported a net loss. Howe,er, because of this yea/s unusually
mild rrdnter, projected demand for its product
is only 7) tons. Eased on ifs pedicted prcduction and sales of 70
t<'ns, the company projects the ficllowing
income statement (under absorption costing).
Sales (il0 tons at $21,000 per ton) $1,470,0:10
Cost of goods sold O0 tons at $16,000 per ton)
-t:::,?,r:"_.
Gross rnargin 350,0:)0
Sellins and administrati,e expenses
_ ?l_1:l_..Y
Net losli $ (21,7,:10)
hs poduct cost information {ollouts and consists main}y offxed

cos,[ because ofhs automated production
process requiring expensir,e equipment.
Variabh direct labor and material costs per ton $ 5,i'14
Fixed c,ost per ton ($720,000 + 70 tons) ,!i.Y
Total pnoduct cost perton $ 16,trC0
Selling and administratir,e expenses consist of rariable selling
and administratileexpenses of $310 perton
and fixed selling and administrati,e expenses of $350,000 per
year. '[he company's president is concemed
about the adr,erse reaction fom its creditors and shareholders if
tl'e projected net loss is reported. The
operations manager mentions that since the company has large
ritorage capacity, it can report a net
income by keeping its production at the usual 1oGton lewl een
though it expects to sell only 70 tons. The
president was puzzled by the suggestion that the company can
reF,)rt income by pmducing more without
increasing sales.
Required:
1.1 Can the company report a net income by increasing
production to 100 tons and storing the excess
production in inrcntory?
E---------i"-1
1.2 Prep,are an income statement (using absorption costing)
based rn prcduction of '100 tons and sales of
70 tons. {lnput all ainounts as positive valurs except net lolis
which drould be indicat€d with a
minus sign. Omit the "$" sign in your response.)

SAFEry CHEMICAL
lncome Statement
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3124113 As:iignment PrintViarv
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Question 1 – Exercise 8.3Why is it not possible in Example 8.1 o.docx