Chapter 2 Homework Activity Sawaya Co., Ltd., of Japan is a manufacturing company whose total factory overhead costs fluctuate considerably from year to year according to increases and decreases in...

Chapter 2 Homework Activity
Sawaya Co., Ltd., of Japan is a manufacturing company whose total factory overhead costs fluctuate considerably from year to yea
according to increases and decreases in the number of direct labor-hours worked in the factory. Total factory overhead costs at high and
low levels of activity for recent years are given below:
Level of Activity
Low High
Direct labor-hours 55,500 74,000
Total factory overhead costs $ 256,400 $ 289,700
The factory overhead costs above consist of indirect materials, rent, and maintenance. The company has analyzed these costs at the
55,500-hour level of activity as follows:
Indirect materials (variable) $ 83,250
Rent (fixed) 127,000
Maintenance (mixed) 46,150
Total factory overhead costs $ 256,400
To have data available for planning, the company wants to
eak down the maintenance cost into its variable and fixed cost elements.
Required:
1. Estimate how much of the $289,700 factory overhead cost at the high level of activity consists of maintenance cost. (Hint: To do this, it
may be helpful to first determine how much of the $289,700 consists of indirect materials and rent. Think about the behavior of variable
and fixed costs!) (Do not round intermediate calculations.)
$Maintenance cost at high level of activity 51,700
2. Using the high-low method, estimate a cost formula for maintenance. (Round the Variable cost per DLH to 2 decimal places.)
$
$
$
Direct Labor-
Hours
Maintenance
Cost
High level of activity 74,000 51,700
Low level of activity 55,500 46,150
Change
Variable cost element 0.30 per DLH
Fixed cost element 29,500
18,500 $ 5,550
$ $Y = 29, XXXXXXXXXXX
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3. What total factory overhead costs would you expect the company to incur at an operating level of 61,050 direct labor-hours? (Do not
ound intermediate calculations.)
Total factory overhead cost
Worksheet Learning Objective: 02-04
Understand cost
classifications used to predict
cost behavior: variable costs,
fixed costs, and mixed costs.
Difficulty: 3 Hard Learning Objective: 02-05
Analyze a mixed cost using a
scattergraph plot and the
high-low method.
Check my work
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Nova Company’s total overhead cost at various levels of activity are presented below:
Month
Machine-
Hours
Total
Overhead
Cost
April 54,000 $209,000
May 44,000 $183,500
June 64,000 $234,500
July 74,000 $260,000
Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The
eakdown of these costs at
the 44,000 machine-hour level of activity is:
Utilities (variable) $ 61,600
Supervisory salaries (fixed) 56,000
Maintenance (mixed) 65,900
Total overhead cost $ 183,500
Nova Company’s management wants to
eak down the maintenance cost into its variable and fixed cost elements.
Required:
1. Estimate how much of the $260,000 of overhead cost in July was maintenance cost. (Hint: To do this, it may be helpful to first determine
how much of the $260,000 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs!) (Do not
ound intermediate calculations.)
$Maintenance cost in July 100,400
2. Using the high-low method, estimate a cost formula for maintenance. (Do not round your intermediate calculations. Round the
"Variable cost per machine-hours" to 2 decimal places.)
$
$
Machine-
Hours
Maintenance
Cost
High activity level 74,000 260,000
Low activity level 44,000 183,500
Change
Variable cost element 2.60 per MH
Fixed cost element 71,300
30,000 $ 76,500
Y = + X
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3. Express the company’s total overhead cost in the linear equation form Y = a + bX. (Do not round your intermediate calculations.
Round the "Variable cost per machine-hours" to 2 decimal places.)
Variable Cost pe
Machine-Hour Fixed Cost
Utilities cost
Supervisory salaries cost
Maintenance cost
Total overhead cost $ 0.00 $ 0
Y = + X
4. What total overhead cost would you expect to be incu
ed at an activity level of 49,000 machine-hours? (Do not round intermediate
calculations.)
Total overhead cost
Worksheet Learning Objective: 02-04
Understand cost
classifications used to predict
cost behavior: variable costs,
fixed costs, and mixed costs.
Difficulty: 3 Hard Learning Objective: 02-05
Analyze a mixed cost using a
scattergraph plot and the
high-low method.
Check my work
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Milden Company has an exclusive franchise to purchase a product from the manufacturer and distribute it on the retail level. As an aid in
planning, the company has decided to start using a contribution format income statement. To have data to prepare such a statement, the
company has analyzed its expenses and has developed the following cost formulas:
Cost Cost Formula
Cost of good sold $30 per unit sold
Advertising expense $180,000 per quarte
Sales commissions 7% of sales
Shipping expense ?
Administrative salaries $90,000 per quarte
Insurance expense $10,000 per quarte
Depreciation expense $60,000 per quarte
Management has concluded that shipping expense is a mixed cost, containing both variable and fixed cost elements. Units sold and the
elated shipping expense over the last eight quarters follow:
Quarter Units Sold
Shipping
Expense
Year 1:
First 26,000 $170,000
Second 28,000 $185,000
Third 33,000 $227,000
Fourth 29,000 $190,000
Year 2:
First 27,000 $180,000
Second 30,000 $195,000
Third 40,400 $242,000
Fourth 37,400 $218,000
Milden Company’s president would like a cost formula derived for shipping expense so that a budgeted contribution format income
statement can be prepared for the next quarter.
Required:
1. Using the high-low method, estimate a cost formula for shipping expense based on the data for the last eight quarters above.
Shipping
Units Sold Expense
High activity level
Low activity level
Change
Variable cost per unit per unit
Fixed cost element
Y = + X
2. In the first quarter of Year 3, the company plans to sell 35,000 units at a selling price of $60 per unit. Prepare a contribution format
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income statement for the quarter. (Do not round your intermediate calculations.)
Milden Company
Budgeted Contribution Format Income Statement
For the First Quarter, Year 3
Variable expenses:
Total variable expenses
Fixed expenses:
Total fixed expenses
Financial statements Learning Objective: 02-05
Analyze a mixed cost using a
scattergraph plot and the
high-low method.
Difficulty: 2 Medium Learning Objective: 02-06
Prepare income statements
for a merchandising
company using the traditional
and contribution formats.
Check my work
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The Dorilane Company specializes in producing a set of wood patio furniture consisting of a table and four chairs. The set enjoys great popularity,
and the company has ample orders to keep production going at its full capacity of 4,100 sets per year. Annual cost data at full capacity follow:
Direct labor $ 92,000
Advertising $ 101,000
Factory supervision $ 69,000
Property taxes, factory building $ 25,000
Sales commissions $ 61,000
Insurance, factory $ 6,000
Depreciation, administrative office equipment $ 2,000
Lease cost, factory equipment $ 17,000
Indirect materials, factory $ 17,000
Depreciation, factory building $ 100,000
Administrative office supplies (billing) $ 5,000
Administrative office salaries $ 106,000
Direct materials used (wood, bolts, etc.) $ 426,000
Utilities, factory $ 45,000
Required:
1. Enter the dollar amount of each cost item under the appropriate headings. Note that each cost item is classified in two ways: first, as variable o
fixed with respect to the number of units produced and sold; and second, as a selling and administrative cost or a product cost. (If the item is a
product cost, it should also be classified as either direct or indirect.) (If your answer is zero, leave the cell blank.)
Cost Behavio
Period (Selling
or
Administrative)
Product Cost
Cost Item Variable Fixed Cost Direct Indirect
Direct labo
Advertising
Factory supervision
Property taxes, factory building
Sales commissions
Insurance, factory
Depreciation, administrative office equipment
Lease cost, factory equipment
Indirect materials, factory
Depreciation, factory building
Administrative office supplies (billing)
Administrative office salaries
Direct materials used (wood, bolts, etc.)
Utilities, factory
Total costs
2. Compute the average product cost of one patio set. (Round your answer to nearest whole dollar.)
Average product cost per set
3. Assume that production drops to only 1,000 sets annually. Would you expect the average product cost per set to increase, decrease, or remain
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unchanged?
Increase
Decrease
Remain unchanged
Worksheet Learning Objective: 02-01
Understand cost classifications
used for assigning costs to cost
objects: direct costs and
indirect costs.
Learning Objective: 02-03 Understand cost classifications used
to prepare financial statements: product costs and period
costs.
Difficulty: 2 Medium Learning Objective: 02-02
Identify and give examples of
each of the three basic
manufacturing cost categories.
Learning Objective: 02-04 Understand cost classifications used
to predict cost behavior: variable costs, fixed costs, and mixed
costs.
Check my work
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Homework #2
Logan Products computes its predetermined overhead rate annually on the basis of direct labor-hours. At the beginning of the year, it
estimated that 39,000 direct labor-hours would be required for the period's estimated level of production. The company also estimated
$537,000 of fixed manufacturing overhead expenses for the coming period and variable manufacturing overhead of $4.00 per direct labor-
hour. Logan's actual manufacturing overhead for the year was $769,035 and its actual total direct labor was 39,500 hours.
Required:
Compute the company's predetermined overhead rate for the year. (Round your answer to 2 decimal places.)
Predetermined overhead
ate
per DLH
Hint #1
Check my work
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Westan Corporation uses