Cost accounting
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| The following information is available for GFI’s maintenance cost over the last seven months. Use the high low method to estimate the fixed and variable components of its maintenance cost. Would this be an effective way to estimate these costs? Justify your answer by explaining why this is an effective way or why it is not. |
| Month | Operating Hours | Maintenance cost |
| February | 27 | 11,000 |
| March | 54 | 13,800 |
| April | 36 | 10,200 |
| May | 45 | 12,000 |
| June | 63 | 13,800 |
| July | 72 | 18,000 |
| August | 19 | 7,400 |
| PART 2: In 2001, Ms. Kelle, the head of aerobic equipment sales, started a fitness magazine called the Dancing Elephant. The magazine sells 50,000 copies a month. The total variable costs at that volume are $40,000 and fixed costs are $20,000. An additional storage cost of $2,000 will be incurred if production exceeds 55,000 units. |
| You have been asked to forecast the following costs for two possible production runs of (a) 52,000 units and (b) 57,000 units: | |||||||||||
| Total variable costs | |||||||||||
| Variable cost per unit | |||||||||||
| Total fixed cost | |||||||||||
| Fixed cost per unit | |||||||||||
| Budget | Forecast A | Forecast B | |
| Production | 50,000 | 52,000 | 57,000 |
| Total variable costs | |||
| Variable cost per unit | |||
| Total fixed cost | |||
| Fixed cost per unit |
| PART 3: GFI manufacturers ping pong tables and has a JIT policy that ending inventory must equal 10 percent of the next month’s sales. It is estimated that April’s actual ending inventory will consist of 40,000 ping pong tables. May and June sales are estimated to be 400,000 and 350,000 tables respectively. Compute the number of tables to be produced that would appear on GFI’s production budget for the month of May. |
| Good management includes good budgeting. Explain why the bottom-up approach to budgeting is considered a more successful management technique then a top down approach. Provide an example of implementation of the bottom-up approach to budgeting. |
| PART 4: Computer A has a book value of $1,500 and a current resale value of $800. The computer is needed to fulfill a client order, but if it's used on this project then its resale value will be zero. The project contract is valued at $5,000. $2,000 has already been spent on specialized software, which will be used on the project and which has no value for any other use. A printer costing $400 is needed for a separate project. |
| Comment on and determine the costs which are relevant to the decision regarding whether or not to commit to complete the project. Based upon the information at hand, determine whether this project is profitable. Show your calculations. |
11 years ago
Cost accounting
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cost_accounting-production_acc_202.xlsx
