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Chapter 3 Cost Analysis homework solutions...

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Chapter 3 [CE3.4] 1.





NOT this one  as the “low” point! (Be careful!)

  Month Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.

Y(Cost)  Purchasing Cost $ 18,860 18,065 19,250 18,050 19,345 19,500 19,670 20,940 19,430 20,020 18,800 19,340

X(Activity) # of Purchase Orders 370 330 Low point 370 410 400 450 460 560 High point 440 500 470 480

2~4. Total purchasing cost ($)

ΔY 20,940 – 18,065 b (VC per unit) = ΔX = 560 – 330 2,875 = 230 = $12.5 per purchase order

20,940

18,065

b

Total VC Total FC

a 330 (L)

Total a (total FC per month) Cost = TC – Total VC at either high or low point = 20,940 – ($12.5 x 560) = $13,940 (at High) = 18,065 – ($12.5 x 330) = $13,940 (at Low)

560 (H) # Orders Cost formula: Y = $13,940 + $12.5X

5.Estimatedtotalpurchasingcostforthe“month”whenX=430: Y = $13,940 + $12.5 (430) = $19,315 6.Estimatedtotalpurchasingcostforthe“year”whenX=5,340: Y = $167,280 (= $13,940 x 12 mon.) + $12.5 (5,340) = $167,280 + $66,750 = $234,030 The fixed cost for the year is 12 times the fixed cost for the month. Thus, instead of $13,940, the yearly fixed cost is $167,280. -1-

[E3.10] 1.Driverforoverheadactivity:Numberofsmokersproduced 2.Totaloverheadcost=$543,000+$1.34(20,000)=$569,800 3.Totalfixedoverheadcost=$543,000 4.Totalvariableoverheadcost=$1.34(20,000)=$26,800 5.Overheadcostperunit=$569,800/20,000=$28.49perunit 6.Fixedoverheadcostperunit=$543,000/20,000=$27.15perunit 7.Variableoverheadcostperunit=$1.34perunit 8. 19,500Units a Unitoverheadcost  $29.19 b Unitfixedoverheadcost  27.85 c Unitvariableoverheadcost  1.34   

21,600Units $26.48 25.14 1.34

a

[$543,000+$1.34(19,500)]/19,500;[$543,000+$1.34(21,600)]/21,600 $543,000/19,500;$543,000/21,600 c ($29.19–$27.85);($26.48–$25.14)

b

Theunitcostincreasesinthefirstcaseanddecreasesinthesecondcase.Thisis becausethegivenfixedcostsarespreadoutoverfewerunitsinthefirstcaseand overmoreunitsinthesecondcase.Theunitvariablecostremainsconstant.    [E3.11]  1. a. Graphofequipmentdepreciation: Equipment Depreciation $20,000

Cost

$15,000 $10,000 $5,000 $0 0

5,000

10,000

15,000

20,000

25,000

Number of Units

  -2-



b. Graphofsupervisors’wages: Supervisors' Wages $160,000 $140,000 $120,000

Cost

$100,000 $80,000 $60,000 $40,000 $20,000 $0 0

5,000

10,000

15,000

20,000

25,000

Number of Units

 

c. Graphofdirectmaterialsandpower: Direct Materials and Power $100,000

Cost

$80,000 $60,000 $40,000 $20,000 $0 0

5,000

10,000

15,000

20,000

25,000

Number of Units

  2. a. Equipmentdepreciation:Fixed 

b. Supervisors’wages:Fixed(Althoughthiscostmaybeclassifiedasa“step cost”ifthecompany’ssales(orproduction)rangeiswideenoughfrom0 to20,000units,thenormaloperatingrangeofthecompanyfallsinto the laststep(15,000–20,000units)only,whichmakesthecostentirely fixed.)

   

c. Directmaterialsandpower:Variable

-3-

[E3.14]  1. a. Graphofdirectlaborcost:

 

b. Graphofcostofsupervision:

  2. Directlaborcostmaybeconsidereda“step‐variable”costbecauseofthe smallwidthofthestep.Thestepsaresmallenoughthatthecompanymight bewillingtoviewtheresourceasoneacquiredasneededand,thus,treated simplyasavariablecost.Supervisioncost,ontheotherhand,maybe considereda“step‐fixed”costbecauseofthelargerwidthofthestep. -4-

3. Currently,directlaborcostis$125,000(inthe2,001to2,500range).If productionincreasesby400unitsnextyear,thecompanywillneedtohireone moredirectlaborer‐amachinist(theproductionrangewillbebetween2,501 and3,000),increasingdirectlaborcostby$25,000.Supervisioncostswill remainthesameastheincreaseinunitsdoesnotrequireanewsupervisor.  [E3.17] 1. Scattergraph: Scattergraph of Radiology Tests

$250,000

Cost

$200,000 $150,000 $100,000 $50,000 $0 0

1,000

2,000

3,000

4,000

5,000

Number of Tests

 Yes,thereappearstobealinearrelationship. 2. Costformulabythehigh‐lowmethod Total cost ($)

ΔY 195,510 – 135,060 b (VC per unit) = ΔX = 4,100 – 2,600 60,450 = 1,500 = $40.3 per test

195,510 135,060

b

Total VC Total FC

a 2,600 (L)

Total a (total FC per month) Cost = TC – Total VC at either high or low point = 195,510 – ($40.3 x 4,100) = $30,280 (at High) = 135,060 – ($40.3 x 2,600) = $30,280 (at Low)

4,100 (H) # Tests Cost formula: Y = $30,280 + $40.3X

3.PredictedcostofradiologyservicesforOctoberwhenX=3,500: Y = $30,280 + $40.3 (3,500) = $171,330 -5-

[E3.19]  1. •Forkliftdepreciation:  b(VCperunit)=$0 a(TotalFC)=$1,800  

   

  2.





Costformula:Y=1,800 



PureFixedCost

•Indirectlabor: b(VCperunit)=∆Y/∆X=($135,000–$74,250)/(20,000–6,500) =$60,750/13,500=$4.5perMove a(TotalFC)=$135,000–($4.5×20,000)=$45,000 or=$74,250–($4.5×6,500)=$45,000 Costformula:Y=45,000+4.5X

MixedCost

•Fuelandoilforforklift: b(VCperunit)=∆Y/∆X=($15,200–$4,940)/(20,000–6,500) =$10,260/13,500=$0.76perMove a(TotalFC)=$15,200–($0.76×20,000)=$0 or=$4,940–($0.76×6,500)=$0 Costformula:Y=0.76X 

PureVariableCost



•Forkliftdepreciation:

Y=$1,800

•Indirectlabor:

Y=45,000+4.5(9,000)=$85,500

 



 •Fuelandoilforforklift: Y=0.76(9,000)=$6,840  3. •Combinedcostformula: Y=1,800+45,000+(4.5+0.76)X=46,800+5.26X  •TotalmaterialshandlingcostwhenX=9,000moves: Y=46,800+5.26(9,000)=$94,140 •Costformulascanbecombinedwhentheysharethecommonactivitymeasure (e.g.,#ofmovesinthiscase). -6-

[E3.25]  1. f, kilowatt‐hours 2. a, salesrevenues 3. k, numberofparts 4. b, numberofpairs 5. g, numberofcredithours 6. c, numberofcredithours 7. e, numberofnails 8. d, numberoforders 9. h, numberofpatients   [E3.26]  d. IfStarling’ssalesvolume(#ofunitssold)inthelastyearisX,thenStarling’s salesrevenuewouldbe$18Xandtotalexpenses(totalcosts)wouldbe $38,400+$12X. Thus,Starling’slastyearincomewouldbe$18X–($38,400+$12X)=$28,800. IftheaboveequationissolvedforX,then $18X–$12X–$38,400=$28,800 $6X=$28,800+$38,400 X=$67,200/$6 X=11,200units   [E3.29]  a.   [E3.30]  d. IfNatur‐Gro’sproductionlevel(#ofunitsproduced)is30,000,thenits expected(oractual)totaloverheadcostsforthelastyearwouldbe$264,000+ $1.42(30,000units)=$306,600.Thus,totaloverheadcostperunitwouldbe $306,600÷30,000units=$10.22. -7-...