Problem 1 - Lion Company has identified the following overhead costs and cost drivers for next year:
|
Overhead Item
|
Expected Costs
|
Cost Driver
|
Maximum Quantity
|
|
Setup costs
|
$1,166,400
|
Number of setups
|
4,800
|
|
Ordering costs
|
540,000
|
Number of orders
|
40,000
|
|
Maintenance
|
1,856,000
|
Machine-hours
|
64,000
|
|
Power
|
180,000
|
Kilowatt-hours
|
400,000
|
The following are two of the jobs completed during the year:
|
Job 201
|
Job 202
|
|
Direct materials
|
$18,000
|
$20,000
|
|
Direct labor
|
$24,000
|
15,000
|
|
Units completed
|
750
|
600
|
|
Direct labor-hours
|
180
|
220
|
|
Number of setups
|
12
|
15
|
|
Number of orders
|
16
|
30
|
|
Machine-hours
|
360
|
300
|
|
Kilowatt-hours
|
180
|
240
|
Required - Determine the unit cost for each job using the four cost drivers.
Problem 2 - Regal produces a single product. The company's March 2014 income statement is as follows:
|
Sales (1,200 x $120)
|
$144,000
|
|
Cost of goods sold
|
- 108,000
|
|
Gross profit
|
$ 36,000
|
|
Selling and administrative
|
10,000
|
|
Net income
|
$ 26,000
|
There were no beginning or ending inventories of work-in-process or finished goods. Regal's full manufacturing costs were as follows:
|
Direct materials (1,200 units x $20)
|
$ 24,000
|
|
Direct labor (1,200 units x $32)
|
38,400
|
|
Variable manufacturing overhead (1,200 units x $18)
|
21,600
|
|
Fixed manufacturing overhead
|
24,000
|
|
Total
|
$108,000
|
|
Average cost per unit
|
$90
|
Selling and administrative expenses are all fixed. Regal just received a special order from a firm in Mexico to purchase 900 units at $110 each. The order will not affect the selling price to regular customers.
Required:
a. Prepare a differential analysis of the relevant costs and revenues associated with the decision to accept or reject the special order, assuming Regal has excess capacity.
b. Determine the net advantage or disadvantage (profit increase or decrease) of accepting the order, assuming Regal does not have excess capacity.
Problem 3 - Viking Ski Shop specializes in selling ski boots and maintains sales that are extremely seasonal. For the year 2014, Viking is trying to decide whether to establish a sales budget based on average sales or on sales estimated by quarter. The unit sales for 2014 are expected to be 16 percent lower than 2013 sales. Unit sales by quarter for 2013 are as follows:
|
(In Units)
|
Spring Quarter
|
Summer Quarter
|
Fall Quarter
|
Winter Quarter
|
Year Total
|
|
Men's Boots
|
400
|
350
|
600
|
950
|
2,300
|
|
Women's Boots
|
250
|
200
|
400
|
650
|
1,500
|
|
Children's Boots
|
162
|
100
|
200
|
300
|
762
|
|
Total
|
812
|
650
|
1,200
|
1,900
|
4,562
|
Men's ski boots sell for $350, women's sell for $340, and children's sell for $230.
Required: Assuming a 16 percent decrease in sales, prepare a sales budget for each quarter of 2014 using:
a. Average quarterly sales
b. Actual quarterly sales
c. Identify the advantage of using each method