1. Prepare an answer to Management Application MA 13-31, which can be found on page 13-24 of your text (the question concerns ExxonMobil).
2. Oregon Manufacturing had the following data for the past three months.
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January
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February
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March
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Sales in units
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3,000
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3,750
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4,500
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Operating expenses
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$272,000
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$296,000
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$320,000
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a. Using the high-low method, estimate Oregon's total fixed costs, contribution margin ratio and break-even point in sales dollars for April. Oregon expects to sell 5,000 units for $50 per unit (this sales price is unchanged from month to month).
b. Project (forecast) net income for April, given the information above and your computations.
c. Discuss strengths and weaknesses of applying the high-low method. Feel free to use the information provided above in your discussion. How could your analysis of costs be improved?
3. The Spartan Manufacturing Company produces products A, B, and C. Although Spartan could sell up to 50 units of A, 60 units of B, and 50 units of C each week, a limitation of 400 machine-hours per week prevents Spartan from meeting these sales demands. The product information is as follows:
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A
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B
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C
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Unit selling price
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$240
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$140
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$160
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Variable manufacturing costs:
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$164
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$90
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$102
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Variable selling and admin. costs
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$10
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$10
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$10
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Machine-hours per unit
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3
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2
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4
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There are no fixed selling or administrative expenses. Fixed manufacturing costs are $3,000 per week.
a. In what order should Spartan allocate manufacturing hours to each product?
b. How many units of each product should be produced each week?
c. How much is Spartan's weekly profit or loss from implementing this schedule?
4. Slugger Products manufactures a single product with the following full unit costs at a volume of 2,000 units:
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Direct materials
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$ 900
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Direct labor
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360
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Manufacturing overhead *
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600
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Selling expenses (50% variable)
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300
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Administrative expenses **
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280
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Total per unit
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$2,440
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*Note that per unit manufacturing overhead costs include $840,000 fixed costs
**Note that per unit administrative expenses include $500,000 fixed costs.
A company recently approached Slugger's management about buying 200 units of product. Slugger currently sells its product to dealers for $2,600 per unit. Capacity is sufficient to produce the extra 200 units. No selling expenses would be incurred on the special order.
a. What is the minimum price Slugger should charge just to break even on the special order?
b. Discuss potential problems Slugger could face if it accepted the order.
5. Whittier Company produced 10,000 cases of cookies this year. It sold 9,500 cases for $20 each. There were no beginning inventories. Variable manufacturing costs were $60,000, and fixed manufacturing expenses were $100,000. Selling and administrative expenses were $20,000, all fixed.
a. Prepare income statements using the variable costing and absorption costing.
b. Explain the difference between incomes computed in part a.
6. Kelley Corporation has four categories of overhead. The expected overhead costs for each category for next year are as follows:
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Maintenance
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$280,000
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Materials handling
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120,000
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Setups
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100,000
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Inspection
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200,000
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The company has been asked to submit a bid for a proposed job. The plant manager believes that obtaining this job would result in new business in future years. Bids are usually based upon full manufacturing cost plus 30 percent. Estimates for the proposed job are as follows:
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Direct materials
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$10,000
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Direct labor (750 hours)
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$15,000
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Number of material moves
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8
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Number of inspections
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5
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Number of setups
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3
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Number of machine-hours
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300
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Expected activity for the four activity-based cost drivers that would be used are:
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Machine-hours
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20,000
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Material moves
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4,000
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Setups
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200
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Quality inspections
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8,000
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a. Determine the amount of overhead that would be allocated to the proposed job if 40,000 direct labor-hours are used as the volume-based cost driver. Determine the total costs of the proposed job. Determine the company's bid if the bid is based upon full manufacturing cost plus 30 percent.
b. Determine the amount of overhead that would be applied to the proposed project if activity-based costing is used. Determine the total costs of the proposed job if activity-based costing is used. Determine the company's bid if activity-based costing is used and the bid is based upon full manufacturing cost plus 30 percent.
c. If you were the manager responsible for preparing/approving the bid to be made, which method of costing (traditional or activity-based) is apt to result in the "best" bid? Why?