Use the cost relationship determined in part a to estimate the total manufacturing overhead costs for July 2012, given that 7,250 machine-hours are scheduled.
Final Project
HIGH-LOW METHOD
The following information is available regarding the total manufacturing overhead costs of Paymore, Inc., for five months in 2012:
Machine-Hours Mfg Overhead Costs
February 6,900 $6,250
March 5,000 $5,375
April 6,300 $6,025
May 9,333 $7,975
June 6,833 $6,050
Using the high-low method, compute the following:
The variable element of overhead cost per machine-hour:
$____________________ per machine-hour
The fixed element of monthly overhead cost: $__________________
Use the cost relationship determined in part a to estimate the total manufacturing overhead costs for July 2012, given that 7,250 machine-hours are scheduled. $___________________
LIMITED RESOURCES
Portable Enterprises produces two lines of mobile homes: double-wide and single-wide. Unit cost and revenue data pertaining to each product are shown below:
Double-wide Single-wide
Selling price…………………………………………….. $70,000 $70,000
Total variable costs…………………………………… 45,000 20,000
Each double-wide home requires 350 different labor hours and 125 machine hours. Each single-wide home requires 175 direct labor hours and 150 machine hours. Demand for each line of homes far exceeds the company’s total production capacity.
If Portable’s production capacity is constrained by limited direct labor hours, which line of homes should it produce? ___________________
If Portable’s total production capacity is constrained by machine hours, which line of homes should it produce? ____________________
Computations:
USING A RESPONSIBILITY INCOME STATEMENT
Shown below is the current monthly income statement of Metro Video, by profit centers:
METRO VIDEO
Income Statement by Profit Centers
For the Month Ended April 30, 20__
Segments
Metro Video Equipment Sales Video Rentals
Dollars % Dollars % Dollars %
Sales $560,000 100 $280,000 100 $280,000 100
Variable Costs (268,800) ( 48) (198,800) ( 71) ( 70,000) ( 36)
Contribution margin $291,200 52 $81,200 29 $210,000 75
Fixed costs traceable to departments ( 67,200) (12) (25,200) (09) ( 42,000) (15)
Departments responsibility margins $224,000 40 $56,000 20 $168,000 60
Common fixed costs ( 61,600) (11)
Income from operations $162,400 29
On the basis of this information, compute the increase in monthly income from operations that may be expected to result from each of the following actions:
Spending $5,000 per month in advertising is expected to increase sales in the Equipment Sales Department by 35%. $________________
Closing the Equipment Sales Department and allowing the Video Rentals Department to expand is expected to increase the revenue of the Video Rentals Department by $105,000 per month. This action also is expected to increase fixed costs traceable to the Video Rentals Department by $40,000 per month. $_______________
STANDARD COST SYSTEM-OVERHEAD VARIANCES
Assume the following data for John Company’s August operations.
Standard overhead per direct labor hour based on normal monthly capacity of 30,000 hours:
Fixed ($270,000/30,000 hours)………………………………………… $9
Variable ($660,000/30,000 hours)…………………………………….. 22 $31
Direct labor hours actually worked in August………………………….. 28,000 hours
Actually overhead costs incurred (including $270,000 fixed costs)………………………………………………………………………………… $824,000
Compute the amount of overhead applied to Work-in-Process during August. $_______________
Compute the total manufacturing overhead budgeted based on hours worked during August. $_______________
Compute the overhead spending variance for August. Indicate whether favorable (F) or unfavorable (U). $_______________
Compute the overhead volume variance for August. Indicate whether favorable (F) or unfavorable (U). $_______________
CAPITAL BUDGETING
Mason Co. is evaluating two alternative investment proposals. Below are data for each proposal:
Proposal A Proposal B
Initial investment cost…………………………………………….. $84,000 $96,000
Estimated useful life………………………………………………. 5 years 6 years
Estimated salvage value………………………………………… $4,000 -0-
Estimated annual net income………………………………….. $8,200 $8,000
The following information was taken from present value tables:
Present Value
$1 due in 5 years, discounted at 12%………………………………………….. .567
$1 due in 6 years, discounted at 12%………………………………………….. .507
$1 received annually for 5 years, discounted at 12%……………………… 3.605
$1 received annually for 6 years, discounted at 12%……………………… 4.111
All revenue and expenses other than depreciation will be received and paid in cash. The company uses a discount rate of 12% in evaluating all capital investments.
Compute the following for each proposal (round payback period to the nearest tenth of a year and round return on average investment to the nearest tenth of a percent):
Proposal A Proposal B
a. Annual net cash flow: $ $
b. Payback period (in years):
c. Average investment: $ $
d. Return on average investment: % %
e. Net present value: $ $
f. Based on your analysis, which proposal appears to be the best investment?
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