Finance Questions

1. Mud Bugs Inc. sales volume averages 5,000 units per year.
The current selling price is $72.
Recently, its main competitor reduced the price of its product to $43.
The company expects sales to drop dramatically unless it matches the competitor's price.
In addition, the current profit per unit must be maintained.
Information about the product (for production of 5,000) is as follows.
	Standard Quantity	Actual Quantity	Actual Cost
Materials (pounds)	7,100	8,000	$     72,000
Labor (hours)	2,400	3,000	$     18,000
Setups (hours)	-	876	$       4,500
Material handling (moves)	-	225	$       8,800
Warranties (number repaired)	-	500	$     16,200
Required
a. Calculate the target cost for maintaining current market share and profitability.  ==================================================================

2. Exercise 4.15  Multiple versus Single Overhead Rates, Activity Drivers

Deoro Company has identified the following overhead activities, costs, and activity drivers for the coming year:

Activity                             Expected Cost         Activity Driver             Activity Capacity

Setting up equipment      $480,000                  Number of setups      600

Ordering costs                   360,000                  Number of orders      18,000

Machine costs                    840,000                  Machine hours          42,000

Receiving                           400,000                  Receiving hours        10,000

Deoro produces two models of dishwashers with the following expected prime costs and activity demands:

                                        Model A            Model B  

Direct materials               $600,000          $800,000

Direct labor                     $480,000           $480,000

Units completed              16,000               8,000

Direct labor hours            6,000                2,000

Number of setups            400                   200

Number of orders            6,000                12,000

Machine hours                24,000               18,000

Receiving hours              3,000                 7,000

The company’s normal activity is 8,000 direct labor hours.

Required:

1. Determine the unit cost for each model using direct labor hours to apply overhead.

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3. 

Exercise 12.14 Cost Report, Value-Added and Non-Value-Added Costs

Sanford, Inc., has developed value-added standards for four activities: purchasing parts, receiving parts, moving parts, and setting up equipment. The activities, the activity drivers, the standard and actual quantities, and the price standards for 2013 are as follows:

Activities                      Activity Driver           SQ          AQ        SP

Receiving parts           Receiving orders      5,200      7,800      195

Moving parts               Number of moves      0            2,600      390

Setting up equipment  Setup hours               0          10,400      117

The actual prices paid per unit of each activity driver were equal to the standard prices.

Required:

1. Prepare a cost report that lists the value-added, non-value-added, and actual costs for each activity.