Question

Exercise 1: Arden Company reported the following costs and expenses for the most recent month Amount Per Unit $6.00 $3.50 $1.50 $400 $3.00 $2.00 $0.50 Direct materials Direct labor Variable manufacturing overhead Freed manufacturing overhead Freed selling expense. Pred administrative expense Sales commissions Variable administrative expense Required: 1. If the number of units produced and sold is 10,000 units • What is the total amount of product costs? • What is the total amount of period costs? 2 if 8,000 units are sold, what is the variable cost per unit sold? Exercise 2: Nova Company's total overhead cost at various levels of activity are presented below: Total Machine Overhead Month Hours Cost April 70,000 $190,000 May 60,000 $174.000 June 80,000 5222.000 90,000 5246,000 Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 60,000 machine-hour level of activity is: Utilities variable $ 48,000 Supervisory salaries found 21,000 Maintenance (med 105,000 Total overhead cost $174.000 Nova Company's management wants to break down the maintenance cost into its variable and fixed cost elements Required: 1. Estimate how much of the S246,000 of overhead cost in July was maintenance cost. (Hint: to do this it may be helpful to first determine how much of the S246.000 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs!) 2. Using the high-low method, estimate a cost formula for maintenance. 3. Express the company's total overhead cost in the linear equation form Y=a+bX 4. What total overhead cost would you expect to be incurred at an activity level of 75.000 machine hours?

Answer 1

Exercise 1 :

1. Total product costs : $ 150,000

Direct materials	$ 60,000
Direct labor	35,000
Variable MOH	15,000
Fixed MOH	40,000
Total product cost	$ 150,000

Total amount of period costs: $ 65,000

Fixed Selling Expenses	$ 30,000
Fixed Administrative Expenses	20,000
Sales Commission	10,000
Variable Administrative Expenses	5,000
Total amount of period costs	$ 65,000

2. Variable cost per unit sold : $ 12.50

Direct materials	$ 6.00
Direct labor	3.50
Variable MOH	1.50
Sales Commission	1.00
Variable administrative expense	0.50
Total variable cost per unit sold	$ 12.50

Exercise 2:

1. Maintenance cost for July : $ 153,000

Total overhead cost for July	$ 246,000
Less: Utilities ( 90,000 machine hours x $ 0.80)	(72,000)
Less: Supervisory salaries	(21,000)
Maintenance cost for July	$ 153,000

2. Using the high-low method

Variable maintenance cost per machine hour = $ ( 153,000 - 105,000 ) / ( 90,000 - 60,000 ) machine hours = $ 1.60 per machine hour

Fixed maintenance cost per month = $ 153,000 - 90,000 machine hours x $ 1.60 = $ 9,000

Cost formula for maintenance cost:

Y = 9,000 + 1.6 X

3. Y = 30,000 + 2.4 X