Molton Motors makes large turbo engines. The company manufactured a prototype engine for Apex Corporation. Cost data on that engine follow:
Direct Material                                                          \$22,000
Direct labor (2,000 hrs @ \$20 per hour)                   40,000
Variable Mfg Overhead (based on DL cost)             24,000
Total cost                                                      \$86,000
Based on experience, Molton uses an 80% learning curve (-0.3219) to calculate costs. Apex wants a quote on 15 additional motors (Molton will keep the prototype).
Calculate the variable cost of producing these fifteen motors.
Felton Company’s total overhead costs at various levels of activity are given below:
Month                       DL Hours                 Total Ohd Costs
March                          80,000                        \$412,500
April                            90,000                          410,000
May                            100,000                          585,000
June                            120,000                          582,500
Assume that overhead costs consist of rent, indirect materials, utilities, supervisory salaries, and maintenance. The proportion of these costs at the 80,000 direct labor-hour level of activity is:
Rent (F)                                 \$ 20,500
Indirect materials (V)             160,000
Supervisory salaries (F)            30,000
Utilities (V)                               80,000
Maintenance (M)                    122,000
Total                          \$412,500
(F) = Fixed; (V) = Variable; (M) = Mixed
The company wants to break down the maintenance cost into its variable and fixed cost components.
1. By means of the high-low method, determine the cost formula for maintenance.
2. Express the company’s total overhead cost in linear equation form.
3. What total overhead cost would you expect to incur at an operating activity of 75,000 direct labor hours? At 115,000 direct labor hours?
Blue Bell Industries manufactures a single product. This product sells for \$105 each. When Blue Bell produces 5,000 units, the following manufacturing costs are incurred:
Direct materials                     \$175,000
Direct labor                             150,000
Total mfg costs                    \$777,000
The selling and administrative costs are: Variable, \$7 per unit; Fixed, \$311,000.
Blue Bell’s tax rate is 40%.
1. What is the break-even point in units? In dollars?
2. How many units does Blue Bell have to sell to earn a target net income of \$48,300?
3. If sales of this product are 52,000 units, what is the net income?
Juicy Fruits produces four different kinds of fruit chewing gum: grape, strawberry, lime, and cherry. Last year’s sales and cost data follow:
Grape         Strawberry         Lime                    Cherry
Total sales (\$)                        \$40,000          \$24,000           \$90,000          \$45,000
Selling price (per box)              \$10               \$12                \$9                 \$15
Variable cost (per box)                 8                   9                    8                    10
Fixed cost       \$210,000
How many of each product must be sold to break even?
Winston Manufacturing uses direct labor cost to apply overhead to its production. The budgeted direct labor cost and budgeted manufacturing overhead were \$400,000 and \$480,000, respectively. The following cost data were experienced last year:
Material inventory, 1/1/04                 \$ 10,000
Material inventory, 12/31/04                 2,000
Work-in-process, 1/1/04                      12,000
Finished goods, 1/1/04                        33,000
Finished goods, 12/31/04                    23,000
Purchases of material                           61,000
Direct labor incurred                           45,000
Indirect material                                  13,000
Indirect labor                                       12,000