Assignment: HW Set #2 – E3.10, E3.19, E16.16, E16.20
1.
Exercise 3.10
Cost Behavior
SmokeCity, Inc., manufactures barbeque smokers. Based on past experience, SmokeCity has found that its total annual overhead costs can be represented by the following formula: Overhead cost = $543,000 + $1.34X, where X equals number of smokers. Last year, SmokeCity produced 20,000 smokers. Actual overhead costs for the year were as expected.
Required:
1. What is the driver for the overhead activity?
_________________
For questions 24, Enter the final answers rounded to the nearest dollar.
2. What is the total overhead cost incurred by SmokeCity last year?
$ _________________
3. What is the total fixed overhead cost incurred by SmokeCity last year?
$ _________________
4. What is the total variable overhead cost incurred by SmokeCity last year?
$ _________________
For questions 58, round your answers to the nearest cent. Use those rounded figures in subsequent computations, if necessary.
5. What is the overhead cost per unit produced?
$ _________________ per unit
6. What is the fixed overhead cost per unit?
$ _________________ per unit
7. What is the variable overhead cost per unit?
$ _________________ per unit
8. Recalculate Requirements 5, 6, and 7 for the following levels of production: (a) 19,500 units and (b) 21,600 units.
19,500 Units 21,600 Units
Unit cost
$
_________________
$
_________________
Unit Fixed cost
_________________
_________________
Unit variable cost
_________________
_________________
The reason the unit costs changed in the way they did is because:
_________________
2.
Exercise 3.19
HighLow Method, Cost Formulas
The controller of the South Charleston plant of Ravinia, Inc., monitored activities associated with materials handling costs. The high and low levels of resource usage occurred in September and March for three different resources associated with materials handling. The number of moves is the driver.
The total costs of the three resources and the activity output, as measured by moves for the two different levels, are presented as follows:
Forklift depreciation: 


Number of Moves 
Total Cost 
Low 
6,500 
$1,800 
High 
20,000 
$1,800 
Indirect labor 


Number of Moves 
Total Cost 
Low 
6,500 
$74,250 
High 
20,000 
$1,35,000 
Fuel and oil for forklift: 


Number of Moves 
Total Cost 
Low 
6,500 
$4,940 
High 
20,000 
$15,200 
Required:
If required, round your answers to two decimal places. Enter a “0” if required.
1. Determine the cost behaviour formula of each resource. Use the highlow method to assess the fixed and variable components.
Forklift depreciation:
V $ _________________
F $ _________________
Y $ _________________
Indirect labor:
V $ _________________
F $ _________________
Y $ _________________ + $ _________________ X
Fuel and oil for forklift:
V $ _________________
F $ _________________
Y $ _________________ X
2. Using your knowledge of cost behavior, predict the cost of each item for an activity output level of 9,000 moves. For interim computations, carry amounts out to two decimal places. Round your final answer to the nearest dollar.
Forklift depreciation $ _________________
Indirect labor $ _________________
Fuel and oil for forklift
$ _________________
3. Construct a cost formula that can be used to predict the total cost of the three resources combined. If required, round your answers to two decimal places.
Materials handling cost = $ _________________ + $ _________________ X
Using this formula, predict the total materials handling cost if activity output is 9,000 moves.
Y = $ _________________
3.
Exercise 16.16
CVP: Before and AfterTax Targeted Income
HeadGear Company produces helmets for bicycle racing. Currently, HeadGear charges a price of $230 per helmet. Variable costs are $80.50 per helmet, and fixed costs are $1,255,800. The tax rate is 25 percent. Last year, 14,000 helmets were sold.
Required:
1. What is HeadGear’s net income for last year?
$ _________________
2. What is HeadGear’s breakeven revenue? In your computations, round the contribution margin ratio to two decimal places.
$ _________________
3. Suppose HeadGear wants to earn beforetax operating income of $900,000. How many units must be sold? Round to the nearest whole unit.
_________________ units
4. Suppose HeadGear wants to earn aftertax net income of $650,000. How many units must be sold? Round to the nearest whole unit.
_________________ units
5. Suppose the income tax rate rises to 35 percent. How many units must be sold for HeadGear to earn aftertax income of $650,000? Round to the nearest whole unit.
_________________ units
4.
Exercise 16.20
Contribution Margin, CVP, Net Income, Margin of Safety
Nail Glow, Inc., produces novelty nail polishes. Each bottle sells for $5.90. Variable unit costs are as follows:
Fixed overhead costs are $34,475 per year. Fixed selling and administrative costs are $6,720 per year. Nail Glow sold 35,000 bottles last year.
Required:
1. What is the contribution margin per unit for a bottle of nail polish?
$ _________________ per unit
What is the contribution margin ratio? Round your answer to four decimal places.
_________________
2. How many bottles must be sold to break even?
_________________ bottles
What is the breakeven sales revenue? Round your answer to the nearest dollar, if rounding is required.
$ _________________
3. What was Nail Glow’s operating income last year?
$ _________________
4. What was the margin of safety in revenue?
$ _________________
5. Suppose that Nail Glow, Inc., raises the price to $6.50 per bottle, but anticipated sales will drop to 28,750 bottles. What will the new breakeven point in units be? Round your answer up to the nearest whole number of units.
_________________
Should Nail Glow raise the price?
_________________
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