Exercise- Estimating Cost Behavior;High-Low Method
Jonathan Macintosh is a highly successful Pennsylvania orchardman who has formed his own company to produce and package applesauce. Apples can be stored for several months in cold storage, so applesauce production is relatively uniform throughout the year. The recently hired controller for the firm is about to apply the high-low method in estimating the company's energy cost behavior.
The following costs were incurred during the past 12 months:
| Month |
|
Pints of Applesauce Produced |
Energy Cost |
|
| January ................................................................ 35,000 ...................................400 |
| February ............................................................... 21,000 ..................................100 |
| March .................................................................. 22,000 ....................................22,000 |
| April ..................................................................... 24,000 ...................................22,450 |
| May ..................................................................... 30,000 ...................................22,900 |
| June .................................................................... 32,000 ...................................23,350 |
| July ...................................................................... 40,000 ..................................28,000 |
| August ................................................................. 30,000 ..................................22,800 |
| September ............................................................ 30,000 .................................23,000 |
| October ................................................................ 28,000 ..................................22,700 |
| November ............................................................. 41,000 ..................................24,100 |
| December ............................................................ 39,000 ...................................24,950 |
Required:
1. Use the high-low method to estimate the company's energy cost behavior and express it in equation form.
2. Predict the energy cost for a month in which 26,000 pints of applesauce are produced.
Reference :
Managerial Accounting: Creating Value in a Dynamic Business Environment
Problem - CVP Analysis; Impact of Operating Changes
Houston-based Advanced Electronics manufactures audio speakers for desktop computers. The following data relate to the period just ended when the company produced and sold 42,000 speaker sets:
Sales ......................................................................................................................................................... $3,360,000
Variable costs ............................................................................................................................................ 840,000
Fixed costs ................................................................................................................................................ 2,280,000
Management is considering relocating its manufacturing facilities to northern Mexico to reduce costs.
Variable costs are expected to average $18 per set; annual fixed costs are anticipated to be $1,984,000.
(In the following requirements, ignore income taxes.)
Required:
1. Calculate the company's current income and determine the level of dollar sales needed to double that figure, assuming that manufacturing operations remain in the United States.
2. Determine the break-even point in speaker sets if operations are shifted to Mexico.
3. Assume that management desires to achieve the Mexican break-even point; however, operations will remain in the United States.
a. If variable costs remain constant, what must management do to fixed costs? By how much must fixed costs change?
b. If fixed costs remain constant, what must management do to the variable cost per unit? By how much must unit variable cost change?
4. Determine the impact (increase, decrease, or no effect) of the following operating changes.
a. Effect of an increase in direct material costs on the break-even point.
b. Effect of an increase in fixed administrative costs on the unit contribution margin.
c. Effect of an increase in the unit contribution margin on net income.
d. Effect of a decrease in the number of units sold on the break-even point.
Problem - Preparation of Master Budget
1. Total sales revenue:$1,100,000
3. Cost of purchases (paperboard):$97,000
5. Total overhead: $148,500
7. Predetermined overhead rate: $40 per hour
FreshPak Corporation manufactures two types of cardboard boxes used in shipping canned food, fruit, and vegetables. The canned food box (type C) and the perishable food box (type P) have the following material and labor requirements.
The following data are the actual results for Marvelous Marshmallow Company for October.
Actual output ................................................................................................................................. 9,000 cases
Actual variable overhead ................................................................................................................ $405,000
Actual fixed overhead ..................................................................................................................... $122,000
Actual machine time ...................................................................................................................... 40,500 machine hours
Standard cost and budget information for Marvelous Marshmallow Company follows:
Standard variable-overhead rate .................................................................................... $9.00 per machine hour
Standard quantity of machine hours ............................................................................... 4 hours per case of marshmallows
Budgeted fixed overhead ............................................................................................... $120,000 per month
Budgeted output ........................................................................................................... 10,000 cases per month
Required: Prepare a master budget for FreshPak Corporation for the next year. Assume an income tax rate of 40 percent. Include the following schedules.
1. Sales budget.
2. Production budget.
3. Direct-material budget.
4. Direct-labor budget.
5. Manufacturing-overhead budget.
6. Selling and administrative expense budget.
7. Budgeted income statement. ( Hint: To determine cost of goods sold, first compute the manufacturing cost per unit for each type of box. Include applied manufacturing overhead in the cost.)
Exercise - Straightforward Computation of Overhead Variances
The following data are the actual results for Marvelous Marshmallow Company for October.
| Actual output ................................................................................................................................. 9,000 cases |
| Actual variable overhead ................................................................................................................ $405,000 |
| Actual fixed overhead ..................................................................................................................... $122,000 |
| Actual machine time ...................................................................................................................... 40,500 machine hours |
| Standard cost and budget information for Marvelous Marshmallow Company follows: |
| Standard variable-overhead rate .................................................................................... $9.00 per machine hour |
| Standard quantity of machine hours ............................................................................... 4 hours per case of marshmallows |
| Budgeted fixed overhead ............................................................................................... $120,000 per month |
| Budgeted output ........................................................................................................... 10,000 cases per month |
Required:
1. Use any of the methods explained in the chapter to compute the following variances. Indicate
whether each variance is favorable or unfavorable, where appropriate.
a. Variable-overhead spending variance.
b. Variable-overhead efficiency variance.
c. Fixed-overhead budget variance.
d. Fixed-overhead volume variance.
2. Build a spreadsheet: Construct an Excel spreadsheet to solve the preceding requirement. Show how the solution will change if the following information changes: actual output was 9,100 cases, and actual variable overhead was $395,000.