Alpha Company believes the number of machine hours used directly affects their total
limra1. Alpha Company believes the number of machine hours used directly affects their total electricity costs. Machine hours and electricity costs for 2004 were as follows.
Month | Machine Hours | Electricity Costs |
January | 150 | $2,400 |
February | 120 | 1,700 |
March | 290 | 3,100 |
April | 430 | 3,900 |
May | 520 | 4,500 |
June | 470 | 4,400 |
July | 570 | 5,600 |
August | 450 | 4,900 |
September | 620 | 5,700 |
October | 370 | 3,100 |
November | 240 | 2,800 |
December | 190 | 2,600 |
1.Using the high low method based on machine hours, develop an estimate of variable electricity costs per machine hour.
2. Using the high low method based on machine hours, develop an estimate of fixed electricity costs per month.
3. Using your answers to 1. and 2. (above), write the cost formula for estimating monthly electricity costs for Alpha Company (in the format Y=a+bX).
4.Using your answer to 3. (above), estimate the electricity costs for a month in which 400 machine hours are used.
2. Charlie Company manufactures a high SPF sunscreen lotion using two producing departments: mixing and bottling. Three service departments support the production departments: maintenance, building and grounds, and cafeteria. Budget data for overhead for the five departments are shown below. Cost drivers are as follows: Maintenance/Machine hours; Building & Grounds/Square feet; Cafeteria/Number of employees.
Service Departments | Producing Departments | ||||
Maintenance | Building & Grounds | Cafeteria | Mixing | Bottling | |
Overhead Costs | $30,000 | $70,000 | $50,000 | $20,000 | $30,000 |
Number of employees | 10 | 2 | 3 | 15 | 25 |
Square feet | 1,000 | 3,000 | 3,000 | 9,000 | |
Machine hours | 4,000 | 1,000 | |||
1. Allocate the overhead costs to the producing departments using the direct method and then compute the total overhead cost for each producing department.
2. 3. Using the information developed in 1. (above), compute departmental overhead rates for the mixing and bottling departments based on machine hours used by the mixing and bottling departments.
Fox Company developed the following income statement using a contribution margin approach.
FOX COMPANY | ||
PROJECTED INCOME STATEMENT | ||
FOR THE YEAR ENDING DECEMEBER 31, 2004 | ||
Revenues | $400,000 | |
Variable Costs: | ||
Variable manufacturing costs | $100,000 | |
Variable selling costs | 60,000 | |
Total Variable Costs | 160,000 | |
Contribution Margin | $240,000 | |
Fixed Costs: | ||
Fixed manufacturing costs | $110,000 | |
Fixed selling and administrative costs | 70,000 | |
Total Fixed Costs | 180,000 | |
Income | $60,000 | |
The projected income statement was based upon sales of 20,000 units. Fox has the capacity to produce 25,000 units during the year.
1. Determine breakeven point in units.
2. The sales manager believes the company could increase sales by 3,000 units if advertising expenditures are increased by $30,000. Determine the effect on income if the company increases advertising expenditures.
4. Bravo Company uses a predetermined overhead rate to apply manufacturing overhead to production. The rate is based on direct labor hours. Beginning of the year estimates for the year just ended were as follows:
Estimated manufacturing overhead | $240,000 |
Estimated direct labor hours | 40,000 |
During the year, Bravo used a total of 37,000 direct labor hours. At the end of the year,
Bravos records revealed the following information:
Raw materials inventory | $ 35,000 |
Work in process inventory | 60,000 |
Finished goods inventory | 105,000 |
Cost of goods sold | 400,000 |
Manufacturing overhead costs incurred | 210,000 |
1. Compute the predetermined overhead rate for the year.
2. Determine the amount of overhead applied to production during the year.
3. the amount of under-applied or over-applied manufacturing overhead for the year
5. Budgeted sales for the first quarter of the year for the Delta Company are as follows:
Budgeted Sales | |
January | $400,000 |
February | 200,000 |
March | 600,000 |
The Company normally collects 60% in the month of sale and 30% in the month
following the sale. Ten percent of all sales are uncollectible and are written off in the following month.
The balance in accounts receivable at January 1 was $100,000, which represents 40% of December sales.
1. Prepare a schedule of cash collections for the first three months of the year.
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