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
           Variable mfg overhead             50,000
           Fixed mfg overhead                402,000
            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
           Other manufacturing overhead            20,000
           Unadjusted cost of goods sold            170,000
1. Close the over/under applied overhead to cost of goods sold (journal entry).
2. Prorate the over/under applied overhead to the proper accounts using the ending account balances for prorating (journal entry).
3. need a cost of goods manufactured statement.

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