QUESTION 1
Money-come Company is company that specialised in manufacturing of wallets for millennials.
Below are overhead costs applied for production over the last two months by the management accountant Bodoh Leow.
|
|
January
|
February
|
|
Insurance
|
$12,000
|
$12,000
|
|
Supplies
|
$16,000
|
$18,000
|
|
Utilities
|
$24,000
|
$27,000
|
|
Wages
|
$35,000
|
$35,000
|
|
Maintenance
|
$15,000
|
$16,500
|
|
Total
|
$102,000
|
$108,500
|
| Labour hours |
8,000 |
9,000 |
Bodoh Leow was asked to leave when he was caught for stealing, he left abruptly with no instructions as to where the numbers came from. The only known information was he used labour hours as a cost driver, which was provided above. (Hint: To compute the overhead cost, do consider to use the various variable overhead rates from above as applied overhead rates then apply through the basis of direct labour hours for your calculation).
Required
(a) From the cost information above, identify which of the overhead items are fixed costs. Explain how you were able to identify the cost.
(b) From the cost information above, identify which of the overhead items are variable costs. Explain how you were able to identify the cost. Calculate the variable rate for those costs.
(c) From the cost information above, identify which of the overhead items are mixed costs. Explain how you were to identify the cost.
Write out the cost formula for those costs.
(d) How much is the total applied overhead cost, when labour hours for March is 11.000 hours?
QUESTION 2
Using the information from Question 1.
In addition to the overhead costs listed in Question 1, production costs include direct materials of $4 per wallet. Each worker takes approximately thirty minutes to make one wallet and they are paid $15 per hour.
The variable selling and administrative costs average to about $5 per wallet, and the fixed administrative costs is $60,000.
The wallets are sold to the retailers at $45 each. Required:
(a) Calculate the breakeven point for:
(i) Number of wallets (round to the nearest whole number); and
(ii) Sales dollars
(b) If production is equal to sales, what is the estimated operating income for March?
QUESTION 3
List down four assumptions of cost-volume-profit analysis.
Explain how come Money-come Company will not be able to fully apply these assumptions in the real business world.