1. Cost Estimation Using the High-Low Method (20 points) The University Logo Products Company needs to predict the labor cost in producing specialty coffee mugs. The following production information is available:

1. Cost Estimation Using the High-Low Method (20 points)

The University Logo Products Company needs to predict the labor cost in producing specialty coffee mugs. The following production information is available:

Year

Production Volume

Labor Hours

Labor Dollars

2006

2,500

1,700

$ 8,500

2007

3,400

1,950

11,700

2008

2,400

1,600

12,800

2009

4,400

2,300

20,700

2010

3,200

1,900

17,100

2011

2,800

1,750

17,500

Wage rates have steadily increased since 2006; however, management expects no further increases in 2012.

a. Select the appropriate independent variable for estimating labor cost. Explain the reason for your selection.

b. Develop an equation to predict for 2012 the labor cost of producing specialty mugs. Use the high-low method.

2. Break-Even Calculation (20 points)

Bountiful Company had the following functional income statement for the month of May, 2011:

Bountiful Company

Functional Income Statement

For the Month Ending May 31, 2011

Sales (15,000 units)

$300,000

Cost of goods sold:

Direct materials

$60,000

Direct labor

45,000

Variable manufacturing overhead

37,500

Fixed factory overhead

50,000

192,500

Gross profit

$107,500

Selling and administrative expenses:

Variable

$ 7,500

Fixed

20,000

27,500

Net income

$ 80,000

Calculate Bountiful’s break-even sales in units.

3. Make or Buy Decision (20 points)

Maple Paper Corporation manufactures 20,000 rolls of paper each period. The paper is used as an input for producing several other products that Maple manufactures. The full manufacturing costs for a batch of 100 rolls of paper are as follows:

Direct materials

$ 270

Direct labor

200

Variable manufacturing overhead

200

Average fixed manufacturing overhead

350

Total

$1,020

The fixed manufacturing overhead is comprised of depreciation expenses related to prior investments in facilities and equipment that are used in the manufacturing of the paper. These assets have no other use than for the manufacturing of the paper. An outside supplier has offered to sell Maple the 20,000 rolls of paper necessary to meet production needs this period for a lump-sum of $150,000. What should Maple do if it wants to maximize its profit for the period?

4. Raw Materials Used Calculation (20 points)

Eleanor Corp. obtained the following information from the Raw Materials Inventory account and purchasing records for the first quarter of the current year:

Beginning Raw Materials

$10,000

Ending Raw Materials

$12,000

Jan. Purchases

$12,000

Feb. Purchases

$8,000

Mar. Purchases

$10,000

Calculate the amount of Raw Materials used for this quarter.

5. Activity-Based costing (25 points)

Angel Manufacturing Company has developed the following activity cost information for its manufacturing activities:

Assembly

$30 per hour

Drilling

$8 per hole

Inspection

$4 per unit

Machine setup

$400 per batch

Movement

$30 per batch plus $0.20 per lb.

Shaping

$50 per hour

Welding

$10 per inch

Filling a batch order for 45 units with a combined weight of 200 pounds required:

· Three sets of inspections

· Drilling four holes in each unit

· Completing 20 inches of welds on each unit

· 0.6 hour of shaping for each unit

· One hour of assembly per unit

Calculate the total cost to produce a batch of 45 units.

6. Direct Cost Allocation Method (20 points)

Airwalk Company has two service departments, Maintenance Department and Personnel Department, and two producing departments, X and Y. The Maintenance Department costs of $120,000 are allocated on the basis of standard service hours used. The Personnel Department costs of $18,000 are allocated on the basis of number of employees. The direct costs of Departments X and Y are $36,000 and $60,000, respectively. Data on standard service-hours and number of employees are as follows:

Maint. Dept.

Person. Dept.

Dept. X

Dept. Y

Standard service hours used

200

100

600

300

Number of employees

5

10

45

45

Using the direct method, calculate the cost of the Personnel Department allocated to Department X.

7. Cost-Based Pricing (25 Points)

Patty Corporation has predicted the following costs for this year for 100,000 units:

Manufacturing

Selling and Administrative

Variable

$1,600,000

$ 400,000

Fixed

2,400,000

1,200,000

Total

$4,000,000

$1,600,000

Required:

a. What is the markup on variable costs needed to achieve a target profit of $200,000?

b. What is the initial unit selling price needed to obtain a target profit of $200,000 using the variable cost markup method?

c. What is the manufacturing cost markup needed to obtain a target profit of $200,000?

d. What is the initial unit selling price needed to obtain a target profit of $200,000 using the manufacturing cost markup method?