Kingsport Containers Company makes a single product that is subject to wide seasonal variations in demand. The company uses a job-order costing system and computes plantwide predetermined overhead rates on a quarterly basis using the number of units to be produced as the allocation base. Its estimated costs, by quarter, for the coming year are given below:
| Quarter | |||||||||||
| First | Second | Third | Fourth | ||||||||
| Direct materials | $ | 200,000 | $ | 100,000 | $ | 50,000 | $ | 150,000 | |||
| Direct labor | 160,000 | 80,000 | 40,000 | 120,000 | |||||||
| Manufacturing overhead | 220,000 | 196,000 | 184,000 | ? | |||||||
| Total manufacturing costs (a) | $ | 580,000 | $ | 376,000 | $ | 274,000 | $ | ? | |||
| Number of units to be produced (b) | 160,000 | 80,000 | 40,000 | 120,000 | |||||||
| Estimated unit product cost (a) ÷ (b) | $ | 3.63 | $ | 4.70 | $ | 6.85 | $ | ? | |||
Management finds the variation in quarterly unit product costs to be confusing and difficult to work with. It has been suggested that the problem lies with manufacturing overhead because it is the largest element of total manufacturing cost. Accordingly, you have been asked to find a more appropriate way of assigning manufacturing overhead cost to units of product.
Required:
1. Assuming the estimated variable manufacturing overhead cost per unit is $0.30, what must be the estimated total fixed manufacturing overhead cost per quarter?
2. Assuming the assumptions about cost behavior from the first three quarters hold constant, what is the estimated unit product cost for the fourth quarter?
3. What is causing the estimated unit product cost to fluctuate from one quarter to the next?
4. Assuming the company computes one predetermined overhead rate for the year rather than computing quarterly overhead rates, calculate the unit product cost for all units produced during the year.
In: Accounting
Kingsport Containers Company makes a single product that is subject to wide seasonal variations in demand. The company uses a job-order costing system and computes plantwide predetermined overhead rates on a quarterly basis using the number of units to be produced as the allocation base. Its estimated costs, by quarter, for the coming year are given below:
| Quarter | |||||||||||
| First | Second | Third | Fourth | ||||||||
| Direct materials | $ | 160,000 | $ | 80,000 | $ | 40,000 | $ | 120,000 | |||
| Direct labor | 120,000 | 60,000 | 30,000 | 90,000 | |||||||
| Manufacturing overhead | 230,000 | 206,000 | 194,000 | ? | |||||||
| Total manufacturing costs (a) | $ | 510,000 | $ | 346,000 | $ | 264,000 | $ | ? | |||
| Number of units to be produced (b) | 120,000 | 60,000 | 30,000 | 90,000 | |||||||
| Estimated unit product cost (a) ÷ (b) | $ | 4.25 | $ | 5.77 | $ | 8.80 | $ |
? |
|||
Management finds the variation in quarterly unit product costs to be confusing and difficult to work with. It has been suggested that the problem lies with manufacturing overhead because it is the largest element of total manufacturing cost. Accordingly, you have been asked to find a more appropriate way of assigning manufacturing overhead cost to units of product.
Required:
1. Assuming the estimated variable manufacturing overhead cost per unit is $0.40, what must be the estimated total fixed manufacturing overhead cost per quarter?
2. Assuming the assumptions about cost behavior from the first three quarters hold constant, what is the estimated unit product cost for the fourth quarter?
3. What is causing the estimated unit product cost to fluctuate from one quarter to the next?
4. Assuming the company computes one predetermined overhead rate for the year rather than computing quarterly overhead rates, calculate the unit product cost for all units produced during the year.
In: Accounting
1.By definition, price discrimination is when people are charged different prices based on their ethnicity, race or gender.
True
False
2.All theoretical monopolists are assumed to be able to price discriminate.
True
False
3.In a perfectly competitive market, as described in the Mankiw text, each firm has an incentive to watch the behavior of other competitive firms in the market, and to adjust to the behavior of other individual firms.
True
False
4.Standard Economic theory as presented in the text by Mankiw suggests that the firm should produce a positive amount of output so long as average sunk costs are below marginal revenue.
True
False
5.if Average Fixed Cost is falling, then Average Total Cost must also be falling as output increases.
True
False
6.If a profit maximizing theoretical competitive firm (as described in the Mankiw text) has total revenue larger than average variable costs, but smaller than average total cost; then it is earning negative profit, but will NOT shut down in the short run.
True
False
7.If average total cost is falling as output increases, then marginal cost must be falling as well.
True
False
8.Sunk costs are one component of the Marginal Cost
True
False
In: Economics
3. CENTENNIAL Bikes assembles bicycles by purchasing frames, wheels, and other parts from various suppliers.
Consider the following data:
• The company plans to sell 20,000 bicycles during each month of the year's first quarter.
• A review of the accounting records disclosed a finished-goods inventory of 1,250 bikes on January 1. The company has just adopted a policy to maintain an ending inventory equal to 7.25% of the following month’s budgeted sales
.• CENTENNIAL Bikes has 4,100 wheels in inventory on Jan. 1, a level that is expected to drop by 5% at month-end.
• Assembly time totals 15 minutes per bicycle, and workers are paid $12 per hour.
Required: A. How many bicycles does CENTENNIAL Bikes expect to produce (i.e., assemble) in January? B. How many wheels must be purchased in January to satisfy production needs? C. Compute CENTENNIAL Bikes’ estimated total direct labor cost for the month of January:
In: Accounting
Exercise 21-3 Preparing flexible budgets LO P1
Tempo Company's fixed budget (based on sales of 12,000 units)
for the first quarter reveals the following.
| Fixed Budget | ||||||||
| Sales (12,000 units × $213 per unit) | $ | 2,556,000 | ||||||
| Cost of goods sold | ||||||||
| Direct materials | $ | 300,000 | ||||||
| Direct labor | 528,000 | |||||||
| Production supplies | 324,000 | |||||||
| Plant manager salary | 100,000 | 1,252,000 | ||||||
| Gross profit | 1,304,000 | |||||||
| Selling expenses | ||||||||
| Sales commissions | 96,000 | |||||||
| Packaging | 192,000 | |||||||
| Advertising | 100,000 | 388,000 | ||||||
| Administrative expenses | ||||||||
| Administrative salaries | 150,000 | |||||||
| Depreciation—office equip. | 120,000 | |||||||
| Insurance | 90,000 | |||||||
| Office rent | 100,000 | 460,000 | ||||||
| Income from operations | $ | 456,000 | ||||||
(1) Compute the total variable cost per
unit.
(2) Compute the total fixed costs.
(3) Compute the income from operations for sales
volume of 10,000 units.
(4) Compute the income from operations for sales
volume of 14,000 units.
In: Accounting
Exercise 21-3 Preparing flexible budgets LO P1
Tempo Company's fixed budget (based on sales of 10,000 units)
for the first quarter reveals the following.
| Fixed Budget | ||||||||
| Sales (10,000 units × $211 per unit) | $ | 2,110,000 | ||||||
| Cost of goods sold | ||||||||
| Direct materials | $ | 230,000 | ||||||
| Direct labor | 440,000 | |||||||
| Production supplies | 270,000 | |||||||
| Plant manager salary | 30,000 | 970,000 | ||||||
| Gross profit | 1,140,000 | |||||||
| Selling expenses | ||||||||
| Sales commissions | 70,000 | |||||||
| Packaging | 160,000 | |||||||
| Advertising | 100,000 | 330,000 | ||||||
| Administrative expenses | ||||||||
| Administrative salaries | 80,000 | |||||||
| Depreciation—office equip. | 50,000 | |||||||
| Insurance | 20,000 | |||||||
| Office rent | 30,000 | 180,000 | ||||||
| Income from operations | $ | 630,000 | ||||||
(1) Compute the total variable cost per
unit.
(2) Compute the total fixed costs.
(3) Compute the income from operations for sales
volume of 8,000 units.
(4) Compute the income from operations for sales
volume of 12,000 units.
In: Accounting
Exercise 08-3 Preparing flexible budgets LO P1
Tempo Company's fixed budget (based on sales of 10,000 units)
for the first quarter reveals the following.
| Fixed Budget | ||||||||
| Sales (10,000 units × $213 per unit) | $ | 2,130,000 | ||||||
| Cost of goods sold | ||||||||
| Direct materials | $ | 250,000 | ||||||
| Direct labor | 420,000 | |||||||
| Production supplies | 280,000 | |||||||
| Plant manager salary | 50,000 | 1,000,000 | ||||||
| Gross profit | 1,130,000 | |||||||
| Selling expenses | ||||||||
| Sales commissions | 90,000 | |||||||
| Packaging | 150,000 | |||||||
| Advertising | 100,000 | 340,000 | ||||||
| Administrative expenses | ||||||||
| Administrative salaries | 100,000 | |||||||
| Depreciation—office equip. | 70,000 | |||||||
| Insurance | 40,000 | |||||||
| Office rent | 50,000 | 260,000 | ||||||
| Income from operations | $ | 530,000 | ||||||
(1) Compute the total variable cost per
unit.
(2) Compute the total fixed costs.
(3) Compute the income from operations for sales
volume of 8,000 units.
(4) Compute the income from operations for sales
volume of 12,000 units.
In: Accounting
Exercise 08-3 Preparing flexible budgets LO P1
Tempo Company's fixed budget (based on sales of 10,000 units)
for the first quarter reveals the following.
| Fixed Budget | ||||||||
| Sales (10,000 units × $219 per unit) | $ | 2,190,000 | ||||||
| Cost of goods sold | ||||||||
| Direct materials | $ | 240,000 | ||||||
| Direct labor | 440,000 | |||||||
| Production supplies | 270,000 | |||||||
| Plant manager salary | 40,000 | 990,000 | ||||||
| Gross profit | 1,200,000 | |||||||
| Selling expenses | ||||||||
| Sales commissions | 80,000 | |||||||
| Packaging | 160,000 | |||||||
| Advertising | 100,000 | 340,000 | ||||||
| Administrative expenses | ||||||||
| Administrative salaries | 90,000 | |||||||
| Depreciation—office equip. | 60,000 | |||||||
| Insurance | 30,000 | |||||||
| Office rent | 40,000 | 220,000 | ||||||
| Income from operations | $ | 640,000 | ||||||
(1) Compute the total variable cost per
unit.
(2) Compute the total fixed costs.
(3) Compute the income from operations for sales
volume of 8,000 units.
(4) Compute the income from operations for sales
volume of 12,000 units.
In: Accounting
Exercise 21-3 Preparing flexible budgets LO P1
Tempo Company's fixed budget (based on sales of 10,000 units)
for the first quarter reveals the following.
| Fixed Budget | ||||||||
| Sales (10,000 units × $203 per unit) | $ | 2,030,000 | ||||||
| Cost of goods sold | ||||||||
| Direct materials | $ | 240,000 | ||||||
| Direct labor | 420,000 | |||||||
| Production supplies | 260,000 | |||||||
| Plant manager salary | 40,000 | 960,000 | ||||||
| Gross profit | 1,070,000 | |||||||
| Selling expenses | ||||||||
| Sales commissions | 90,000 | |||||||
| Packaging | 150,000 | |||||||
| Advertising | 100,000 | 340,000 | ||||||
| Administrative expenses | ||||||||
| Administrative salaries | 90,000 | |||||||
| Depreciation—office equip. | 60,000 | |||||||
| Insurance | 30,000 | |||||||
| Office rent | 40,000 | 220,000 | ||||||
| Income from operations | $ | 510,000 | ||||||
(1) Compute the total variable cost per
unit.
(2) Compute the total fixed costs.
(3) Compute the income from operations for sales
volume of 8,000 units.
(4) Compute the income from operations for sales
volume of 12,000 units.
In: Accounting
1. Describe and briefly explain whether the following changes cause the short-run aggregate supply to
increase, decrease or neither:
a. The price level increases
b. Input prices decrease
c. Firms and workers expect the price level to fall.
d. The price level decreases
e. New policies increase the cost for businesses of meeting government regulations.
f. The number of workers in the labor force increases.
2. Describe and briefly explain whether the following changes cause the aggregate demand to increase,
decrease or neither:
a. The price level increases
b. Investment decreases
c. Imports increase and exports decrease
d. Consumer optimism improves
e. Government increases infrastructure spending
f. Stock market crashes.
3. Starting in early March of 2020, many factories, restaurants, offices and entertainment venues closed
their doors fearing the spread of Coronavirus. Using aggregate demand-aggregate supply model, predict
which curve this event mostly affects and what’s the impact on the US economy in the short-run?
4. From 2014 to 2018, dollar has been slowly falling against other major currencies.
a. Determine how the falling value of the dollar affects the US price level, real GDP and the
unemployment rate in both short-run and the long-run. You can assume that the economy was in the
long-run equilibrium before this change, and consider only the stated event. Place your answers in the
boxes below (using an up arrow, a down arrow, or a dash if the level is constant).
Short Run Long-Run
P Y u P Y u
b. Draw a diagram that supports your answers in part (a). Clearly label all the curves and equilibria as
well as show the direction of changes using arrows.
In: Economics