Question -
Q1. Estimating costs based on behavior patterns. The following information provides the amount of cost incurred in May for the cost items indicated. During May 16,000 units of the firm's single product were manufactured.
Raw Materials: $83,200
Factory depreciation expense: $81,000
Direct labor: $198,400
Production supervisor's salary: $12,200
Computer rental expense $8,400
Maintenance supplies used $1,600
Required:
A. How much cost would you expect to be incurred for each of these items during June when 19,200 units of the product are planned for production?
B. Calculate the average total cost per unit for the 16,000 units manufactured in May. Explain why this figure would not be useful to a manager interested in predicting the cost of producing 19,200 units in June.
Q2. Cash receipts budget. Kiel Center's sales are all made on account. The firm's collection experience has been that 35% of a month's sales are collected in the month the sale is made, 55% are collected in the month following the sale, and 8% are collected in the second month following the sale. The sales forecast for the months of June through September is:
June $140,000
July $160,000
August $170,000
September $195,000
Required: Calculate the cash collections that would be included in the cash budgets for August and September.
Q3. Flexible budgeting. The cost formula for the maintenance department of Rainbow, Ltd., is $12,600 per month plus $4.50 per machine hour used by the production department.
Required:
A. Calculate the maintenance cost that would be budgeted for a month in which 15,200 machine hours are planned to be used.
B. Prepare an appropriate performance report for the maintenance department assuming that 16,120 machine hours were actually used in the month of June and the total maintenance cost incurred was $83,650.
Q4. Sell or process further? National Chemical Company manufactures a chemical compound that is sold for $58.00 per gallon. A new variant of the chemical has been discovered and if the basic compound were processed into the new variant, the selling price would be $72.00 per gallon. National expects the market for the new compound variant to be 57,000 gallons initially and determines that processing costs to refine the basic compound into the variant would be $72,800.
Required: Should National produce the new compound variant? Explain your answer.